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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on July 1, 2013

Registration No. 333-          

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Control4 Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  3670
(Primary Standard Industrial
Classification Code Number)
  42-1583209
(I.R.S. Employer
Identification Number)

11734 S. Election Road
Salt Lake City, Utah 84020
(801) 523-3100

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Martin Plaehn
President and Chief Executive Officer
11734 S. Election Road
Salt Lake City, Utah 84020
(801) 523-3100
(Name, address, including zip code, and telephone number, including
area code, of agent for service)



Copies to:

William J. Schnoor
Richard A. Kline
Michael J. Minahan
Goodwin Procter LLP
135 Commonwealth Drive
Menlo Park, California 94025
(650) 752-3100

 

Greg Bishop
General Counsel and
Chief Compliance Officer
11734 S. Election Road
Salt Lake City, Utah 84020
(801) 523-3100

 

Eric C. Jensen
Andrew S. Williamson
Cooley LLP
3175 Hanover Street
Palo Alto, California 94304
(650) 843-5000



Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.



                  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:     o

                  If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

                  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.     o

                  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.     o

                  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer  o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a small reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration Fee(2)

 

Common Stock, par value $0.0001 per share

  $60,000,000   $8,184

 

(1)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. Includes offering price of additional shares that the underwriters have the option to purchase.

(2)
Calculated pursuant to Rule 457(o) under the Securities Act based on an estimate of the proposed maximum offering price.



                   The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion
Preliminary Prospectus dated July 1, 2013

PROSPECTUS

                  Shares

LOGO

Common Stock



              This is Control4 Corporation's initial public offering. We are selling                        shares of our common stock.

              We expect the public offering price to be between $            and $            per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on The NASDAQ Global Market under the symbol "CTRL".

              We are an "emerging growth company" as defined in the Jumpstart our Business Startups Act of 2012 and, therefore, may comply with certain reduced public company reporting requirements.

               Investing in the common stock involves risks that are described in the "Risk Factors" section beginning on page 13 of this prospectus.



 
  Per Share   Total  

Public offering price

  $     $    

Underwriting discount (1)

  $     $    

Proceeds, before expenses, to us

  $     $    

(1)
See "Underwriting" for a description of the compensation payable to the underwriters.

              The underwriters may also exercise their option to purchase up to an additional                        shares from us at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

              Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

              The shares will be ready for delivery on or about                        , 2013.



BofA Merrill Lynch   Raymond James

Canaccord Genuity   Cowen and Company   Needham & Company



   

The date of this prospectus is                        , 2013.


GRAPHIC


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TABLE OF CONTENTS

 
  Page  

Prospectus Summary

    1  

Risk Factors

    13  

Special Note Regarding Forward-Looking Statements and Industry Data

    37  

Use of Proceeds

    38  

Dividend Policy

    38  

Capitalization

    39  

Dilution

    41  

Selected Consolidated Financial Data

    43  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    47  

Business

    78  

Management

    95  

Executive Compensation

    103  

Certain Relationships and Related Party Transactions

    112  

Principal Stockholders

    115  

Description of Capital Stock

    119  

Shares Eligible for Future Sale

    124  

Material U.S. Federal Income and Estate Tax Consequences for Non-U.S. Holders

    127  

Underwriting

    131  

Legal Matters

    137  

Experts

    137  

Where You Can Find More Information

    137  

Index to Consolidated Financial Statements

    F-1  

              You should rely only on the information contained in this prospectus and in any free writing prospectus prepared by or on behalf of us and delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or any related free writing prospectus. We do not take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

              No action is being taken in any jurisdiction outside the United States to permit a public offering of our common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in a jurisdiction outside the United States are required to inform themselves about, and to observe any restrictions as to, this offering and the distribution of this prospectus applicable to that jurisdiction.

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PROSPECTUS SUMMARY

               This summary highlights information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. You should read this entire prospectus and should consider, among other things, the matters set forth under "Risk Factors," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes thereto appearing elsewhere in this prospectus before making your investment decision.

Overview

              Control4 is a leading provider of automation and control solutions for the connected home. We unlock the potential of connected devices, making entertainment systems easier to use, homes more comfortable and energy efficient, and families more secure. We provide our consumers with the ability to integrate music, video, lighting, temperature, security, communications and other functionalities into a unified home automation solution that enhances our consumers' daily lives. More than 75% of our consumers have integrated two or more of these functionalities with our solution. At the center of our solution is our advanced software platform, which we provide through our products that interface with a wide variety of connected devices that are developed both by us and by third parties.

              Our solution functions as the operating system of the home, making connected devices work together to control, automate and personalize the homes of our consumers. For example, our solution can be configured so that:

    A half hour before you wake up in the morning, the thermostat adjusts to heat up the house, the lights slowly become brighter and the shades gradually open;

    As you leave for work, one push of a button locks the doors, arms the security system, turns off all the lights, powers down all non-essential devices and adjusts the temperature settings to the "away" mode;

    When you return home in the evening, the push of a button opens your garage door, unlocks the door and adjusts the thermostat to your preferred temperature;

    When you are ready to watch a movie, instead of having to use several remotes, a single interface—be it a touch screen, smartphone, tablet or simple remote—provides you with easy control of your entire entertainment system. As the movie starts, the window blinds close, the lights dim and the temperature adjusts to keep your family comfortable; and

    When it is time for bed, the press of a "goodnight" button closes the blinds, turns off the lights, locks the doors, arms the security system and turns off all televisions and game consoles.

              At the center of the Control4 product line is the Control4 Home Operating System, which we refer to as the C4 OS. We embed our C4 OS in a range of products, including controller appliances, interfaces and connected devices that interact with various music, video, lighting, temperature, security, communications and other devices. We offer our 4Sight subscription service, which allows consumers to control and monitor their homes remotely from their smartphone, tablet or laptop, and allows our dealers to perform remote diagnostic services. For example, 4Sight allows a consumer to remotely unlock the front door to let in a repairman, to turn on the air conditioning on the way home, and to monitor the home security cameras from a smartphone. In addition, our 4Store application marketplace offers a range of third-party applications for use with our products. We derive virtually all of our revenue from the sale of products that contain our proprietary software, and a smaller portion from software licensing and annual service subscriptions.

 

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              We were founded in 2003 to deliver a home automation solution to the mainstream market by enabling consumers to unify their connected devices into a personalized system at an accessible and affordable entry point. Based on our analysis, through March 31, 2013, we estimate that we have automated more than 120,000 homes representing cumulative sales of more than 275,000 of our controller appliances, the brain of the connected home. We sell and deliver our solutions through an extensive worldwide dealer and distributor network and have solutions installed in 81 countries. Our top 100 dealers represented 24% of our total revenue in 2012.

              We generated revenue of $74.9 million, $93.4 million and $109.5 million in 2010, 2011 and 2012, respectively, and $26.6 million for the three months ended March 31, 2013. We had a net loss of $16.3 million, $3.9 million and $3.7 million in 2010, 2011 and 2012, respectively, and $1.5 million for the three months ended March 31, 2013.

Our Industry

Market Opportunity

              Consumers are becoming more reliant on network-aware devices in their everyday lives, contributing to the creation of a large opportunity in the mainstream home automation market. Growth in smart devices, such as smartphones and tablets, and the ubiquity of wireless networks have combined to create the "connected consumer." These consumers are seeking a connected home with expanded capabilities in the form of networks, connected devices and smart systems.

              Historically, the home automation market was primarily comprised of luxury systems that were so expensive that only wealthy consumers could afford the programming and installation costs. As consumer awareness of home automation grows and expectations for interoperable and more affordable solutions increase, the mainstream segment of the home automation market is expected to expand rapidly. According to ABI Research, the mainstream segment of the home automation market was estimated to be a $571 million market in 2012 and a $2.6 billion market by 2017, representing a CAGR of 35%, as consumers look for centralized solutions to provide personalized control and automation of their homes.

Consumer Requirements

              For mainstream consumers to embrace a home automation solution, we believe that the solution must have the following attributes:

    Easy to Use.   Accustomed to easy-to-use smartphones, consumers want a simple, unified, yet powerful and innovative interface for the unique set of devices and systems they have in their homes;

    Interoperable.   Consumers are looking for a single solution with the ability to manage their network of current and future devices, regardless of manufacturer, technology or communication protocol;

    Personalized and Flexible.   Consumers want to be able to easily personalize the behavior of the devices in their homes to reflect their own lifestyles and preferences—now and into the future—providing flexibility as their needs and lifestyles change;

    Affordable and Future-Proof.   Consumers want a home automation solution that delivers rich functionality at an affordable price point and that adapts to changing needs over time without significant cost or disruption; and

    Accessible Service and Support.   Consumers are looking for solutions that are supported by local trained specialists who can provide both responsive initial consultation and installation, as well as ongoing service and support.

 

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Limitations of Traditional Approaches

              The home automation market has traditionally been comprised of:

    Luxury Installations.   Generally found in the highest end segment of the market, these systems and installations are typically complex, lengthy, inflexible and expensive;

    Managed Services.   Generally provided by a cable, telephone or security provider, these services come as a non-personalized, one-size-fits-all service with narrow capabilities and recurring monthly charges; and

    Point Products.   Generally supplied by companies focused on a discrete function within the home, these products typically lack interoperability with other devices.

Our Solution

              The Control4 solution, built around our advanced software platform, sits at the center of the fast-growing mainstream segment of the home automation market. Our solution functions as the operating system of the home, integrating music, video, lighting, temperature, security, communications and other devices into a unified automation solution that enhances our consumers' daily lives. Our solution provides the consumer with the following key benefits:

    Easy to Use.   Our solution is designed to be simple and intuitive. For example, our easy-to-use interfaces can be as advanced as a smartphone, tablet, in-wall touch panel, television or multi-function remote control, or as simple as a single button or switch;

    Broad Device Interoperability.   Our open and flexible solution provides consumers with access to a broad universe of over 6,400 discrete third-party devices. With our solution, consumers can connect and automate the devices they already own—as well as the devices they purchase in the future—and have the confidence that all of those devices will interoperate as seamlessly as if they were made by the same manufacturer;

    Advanced Personalization.   Our adaptable solution enables consumers to personalize the features and functionality of their Control4 system. Our modular design also enables the smooth integration of new third-party products to meet the evolving needs of our consumers as their lifestyles change;

    Attractive Entry Point.   According to ABI Research, the typical luxury home automation installation can cost $60,000 or more for whole-home systems. With our solution, consumers can start with a single-room multi-media automation experience for about $1,000 and scale to an integrated solution with an average cost of $26,000;

    Professional Installation and Support Through Our Global Dealer Network.   We have built a global network of over 2,800 active direct dealers and distributors to help consumers develop and install their customized home automation experiences with the Control4 solution; and

    Remote Access and Specialized Apps.   We have developed complementary services and applications offerings to provide consumers more access, control and enhanced functionality over their automated homes.

 

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Our Growth Strategy

              Our goal is to be the leading global provider of mainstream home automation solutions and the operating system of choice for the home. The following are key elements of our growth strategy:

    Enhance Our Software Platform and Products.   We intend to continue to invest in our software platform to develop new products, features and capabilities that deliver exceptional performance and value to our consumers;

    Strengthen and Expand Our Global Dealer Network.   We plan to continue to expand, train, support and optimize our global certified dealer network to ensure that we have sufficient geographic coverage across both existing and new markets;

    Increase Penetration of Our North America Core Market.   We intend to continue to focus sales and marketing resources to increase penetration of the residential market in North America;

    Expand Our Focus on Adjacent Markets.   We plan to continue making investments to capitalize on opportunities outside the residential market, including in the light commercial, multi-dwelling unit and hospitality markets, and internationally;

    Enhance Our Solution with Services and Apps.   We intend to continue to enhance our 4Sight subscription services and to support third-party apps via our 4Store application marketplace to deliver more functionality and value to our consumers;

    Pursue Technology Licensing Opportunities.   We plan to expand our licensing activities to leverage third-party distribution channels, grow our partner relationships, and simplify the home automation experience for dealers and consumers; and

    Pursue Strategic Acquisitions.   We intend to identify, acquire and integrate strategic technologies, assets and businesses that we believe will enhance the overall strength of our business.

Risks Related to Our Business

              Our business is subject to numerous risks and uncertainties, including those highlighted in "Risk Factors" immediately following this prospectus summary. These risks include, but are not limited to, the following:

    We have incurred operating losses in the past, may incur operating losses in the future, and may not achieve or maintain profitability;

    The markets in which we participate are highly competitive and many companies, including large technology companies, broadband and security service providers and other managed service providers, are actively targeting the home automation market. Our failure to differentiate ourselves and compete successfully with these companies would make it difficult for us to add and retain consumers, and would reduce or impede the growth of our business;

    Consumers may choose to adopt point products that provide control of a discrete home function rather than adopting our unified home automation solution. If we are unable to increase market awareness of the benefits of our unified solution, our revenue may not continue to grow, or it may decline;

    Many of the competitors in our market, including providers of luxury integrated solutions with long operating histories, established markets, broad user bases and proven consumer acceptance, may be successful in expanding into the mainstream home automation market, which may harm our growth and future prospects;

 

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    Since we rely on third-party dealers and distributors to sell and install our solutions, we do not have a direct sales pipeline, which makes it difficult for us to accurately forecast future sales and correctly predict manufacturing requirements;

    Our quarterly results of operations have fluctuated and may continue to fluctuate. As a result, we may fail to meet or exceed the expectations of investors or securities analysts, which could cause our stock price to decline; and

    If we are unable to develop new solutions, sell our solutions into new markets or further penetrate our existing markets, our revenue may not grow as expected.

Corporate Information

              We were incorporated in Delaware in 2003. Our principal executive offices are located at 11734 South Election Road, Suite 200, Salt Lake City, Utah 84020, and our telephone number is (801) 523-3100. Our principal website address is www.control4.com . Information contained on our website does not constitute a part of, and is not incorporated by reference into, this prospectus.

              Control4, the Control4 logo, 4Sight, 4Store and Control4 MyHome are registered trademarks or trademarks of Control4 Corporation in the United States and, in certain cases, in other countries. This prospectus contains additional trade names, trademarks and service marks of other companies. We do not intend our use or display of these companies' trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

              We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a "large accelerated filer," with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; or the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

 

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THE OFFERING

Common stock offered by Control4 Corporation

                          shares

Common stock to be outstanding after the offering

 

                        shares

Option to purchase additional shares offered by Control4 Corporation. 

 

                        shares

Use of Proceeds

 

The net proceeds to us from this offering will be approximately $            million (or approximately $             million if the underwriters' option to purchase additional shares is exercised in full), based upon an assumed initial public offering price of $        share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures. We intend to use $            million of the net proceeds from this offering to pay off the remaining amounts owed under a litigation settlement agreement. We may also use a portion of the net proceeds from this offering for acquisitions of complementary technologies, assets or businesses.

Risk Factors

 

See "Risk Factors" and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

Proposed NASDAQ Global Market trading symbol

 

"CTRL"

              The number of shares of our common stock to be outstanding after the completion of this offering is based on:

    92,566,014 shares outstanding as of March 31, 2013;

    248,392 shares of common stock, on an as-converted basis, issuable upon the net exercise of a warrant to purchase 949,868 shares of preferred stock outstanding as of March 31, 2013 at an exercise price of $1.78, which would terminate upon this offering in accordance with its terms; and

    508,839 shares of common stock issuable upon the net exercise of warrants to purchase 2,444,432 shares of common stock outstanding as of March 31, 2013 at an exercise price of $1.91, which would terminate upon this offering in accordance with their terms.

              The number of shares of our common stock to be outstanding after the completion of this offering excludes:

    23,972,031 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2013 at a weighted average exercise price of $1.07 per share;

 

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    370,000 shares of common stock issuable upon the exercise of a warrant to purchase common stock outstanding as of March 31, 2013 at an exercise price of $1.44 per share that will remain outstanding following this offering if not exercised;

    60,926 shares of common stock, on an as-converted basis, issuable upon the exercise of warrants to purchase preferred stock outstanding as of March 31, 2013 at a weighted average exercise price of $1.48 per share that will remain outstanding following this offering if not exercised; and

    shares reserved for future issuance under our 2013 Stock Option and Incentive Plan, as well as shares originally reserved for issuance under our 2003 Equity Incentive Plan, but which may become available for awards under our 2013 Stock Option and Incentive Plan, which plan will become effective in connection with this offering and contains provisions that will automatically increase its share reserve each year, as more fully described in "Executive Compensation—Employee Benefit Plans."

              Except for historical financial statements or as otherwise indicated, information in this prospectus reflects or assumes the following:

    The filing of our amended and restated certificate of incorporation immediately prior to the closing of this offering;

    The conversion of all of our outstanding preferred stock into an aggregate of 79,528,755 shares of common stock immediately prior to the closing of this offering;

    No exercise after March 31, 2013 of outstanding options or warrants; and

    No exercise of the underwriters' option to purchase additional shares.

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

              We have derived the summary consolidated statements of operations data for the fiscal years ended December 31, 2010, 2011 and 2012 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statements of operations data for the three months ended March 31, 2012 and March 31, 2013 and our consolidated balance sheet data as of March 31, 2013 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim financial statements reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for the fair presentation of the financial statements. Our historical results are not necessarily indicative of our future results. The following summary consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
  (In thousands, except per share data)
 

Consolidated Statements of Operations Data:

                               

Revenue

  $ 74,925   $ 93,376   $ 109,512   $ 22,628   $ 26,571  

Cost of revenue

    43,357     50,534     57,225     12,466     13,550  

Cost of revenue—inventory purchase commitment

            1,840          
                       

Gross margin

    31,568     42,842     50,447     10,162     13,021  

Operating expenses:

                               

Research and development        

    15,922     19,211     20,310     4,813     6,066  

Sales and marketing

    22,491     17,546     20,182     5,038     5,605  

General and administrative        

    8,876     9,805     10,150     2,532     2,828  

Litigation settlement

            2,869          
                       

Total operating expenses

    47,289     46,562     53,511     12,383     14,499  
                       

Loss from operations

    (15,721 )   (3,720 )   (3,064 )   (2,221 )   (1,478 )

Interest and other expense, net

    (544 )   (165 )   (518 )   (462 )   (49 )
                       

Loss before income taxes

  $ (16,265 ) $ (3,885 ) $ (3,582 ) $ (2,683 ) $ (1,527 )

Income tax (expense) benefit

            (141 )       56  
                       

Net loss

  $ (16,265 ) $ (3,885 ) $ (3,723 ) $ (2,683 ) $ (1,471 )
                       

Net loss per common share, basic and diluted

  $ (1.91 ) $ (0.39 ) $ (0.30 ) $ (0.23 ) $ (0.11 )
                       

Weighted-average number of shares, basic and diluted

    8,531     10,014     12,286     11,708     13,022  
                       

Pro forma net loss per common share, basic and diluted (unaudited) (1)

              $ (0.04 )       $ (0.02 )
                             

Pro forma weighted-average number of common shares, basic and diluted (unaudited)

                92,575           93,308  
                             

Other Non-GAAP Financial Data:

                               

Adjusted gross margin

  $ 31,596   $ 42,891   $ 52,365   $ 10,179   $ 13,037  

Adjusted gross margin percentage

    42.2%     45.9%     47.8%     45.0%     49.1%  

Adjusted operating income (loss)

  $ (14,252 ) $ (1,707 ) $ 4,514   $ (1,490 ) $ (640 )

(1)
Pro forma net loss per common share has been calculated assuming the conversion of all outstanding shares of our preferred stock as of March 31, 2013 into 79,528,755 shares of common stock and the net exercise of outstanding warrants to purchase 3,394,300 shares of capital stock into an aggregate of 757,231 shares of common stock as of March 31, 2013 prior to the completion of this offering.

 

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              Stock-based compensation expense included in the consolidated statements of operations data above was as follows:

 
  Years Ended December 31,   Three Months
Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
  (In thousands)
 

Cost of revenue

  $ 28   $ 49   $ 78   $ 17   $ 16  

Research and development

    249     492     704     130     236  

Sales and marketing

    546     523     580     144     184  

General and administrative

    646     949     1,507     440     402  
                       

Total stock-based compensation expense

  $ 1,469   $ 2,013   $ 2,869   $ 731   $ 838  
                       

Reconciliation of Non-GAAP Financial Data

Adjusted Gross Margin

              A reconciliation of Adjusted gross margin to gross margin, the most directly comparable GAAP financial measure, is presented below:

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
  (Dollars in thousands)
 

Gross margin

  $ 31,568   $ 42,842   $ 50,447   $ 10,162   $ 13,021  

Stock-based compensation expense included in cost of revenue

    28     49     78     17     16  

Cost of revenue—inventory purchase commitment

            1,840          
                       

Adjusted gross margin

  $ 31,596   $ 42,891   $ 52,365   $ 10,179   $ 13,037  
                       

Adjusted gross margin percentage

    42.2%     45.9%     47.8%     45.0%     49.1%  

              To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this prospectus Adjusted gross margin, a non-GAAP financial measure. We have included Adjusted gross margin in this prospectus because Adjusted gross margin is a key measure used by our management and board of directors to understand and evaluate our operating performance and trends, to prepare and approve our annual budget, and to develop short- and long-term operational plans.

              Adjusted gross margin is defined as gross margin less stock-based compensation expense and loss on inventory purchase commitment. Management believes that the use of Adjusted gross margin provides consistency and comparability with our past and future performance, facilitates period-to-period comparisons and also facilitates comparisons with other companies.

              Management believes that it is useful to exclude stock-based compensation expense from gross margin because the amount of such expense in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude loss on inventory purchase commitment because it is an expense that arose from our commitment to purchase energy-related products from our contract manufacturing partner that we will not use due to our decision to discontinue our energy product line for utility customers. We have not incurred that type of expense in past periods and we believe that past and future periods are more comparable if we exclude that expense from gross margin.

 

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              Our use of Adjusted gross margin has limitations as an analytical tool and you should not consider it in isolation or a substitute for our analysis of our results as reported under GAAP. Some of these limitations are:

    Adjusted gross margin does not reflect the potentially dilutive impact of equity-based compensation; and

    Although we have not incurred significant loss on purchase commitments in the past, there is no guarantee that we will not incur those expenses in the future and therefore Adjusted gross margin may not be indicative of future performance.

              Because of these limitations, you should consider Adjusted gross margin alongside other financial performance measures.

Adjusted Operating Income

              A reconciliation of Adjusted operating income (loss) to loss from operations, the most directly comparable GAAP financial measure, is presented below:

 
  Years Ended December 31,   Three Months
Ended March 31,
 
 
  2010   2011   2012   2012   2013  
 
  (In thousands)
 

Loss from operations

  $ (15,721 ) $ (3,720 ) $ (3,064 ) $ (2,221 ) $ (1,478 )

Stock-based compensation expense

    1,469     2,013     2,869     731     838  

Cost of revenue—inventory purchase commitment

            1,840          

Litigation settlement

            2,869          
                       

Adjusted operating income (loss)

  $ (14,252 ) $ (1,707 ) $ 4,514   $ (1,490 ) $ (640 )
                       

              To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this prospectus Adjusted operating income, a non-GAAP financial measure. We have included Adjusted operating income in this prospectus because Adjusted operating income is a key measure used by our management and board of directors to understand and evaluate our operating performance and trends. We use it to prepare and approve our annual budget and to develop short- and long-term operational plans.

              Adjusted operating income is defined as operating income less stock-based compensation expense, loss on inventory purchase commitment and litigation settlement expense. Management believes that the use of Adjusted operating income provides consistency and comparability with our past and future performance, facilitates period-to-period comparisons and also facilitates comparisons with other companies.

              Management believes that it is useful to exclude stock-based compensation expense from operating income because the amount of such expense in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude loss on inventory purchase commitment because it is an expense that arose from our commitment to purchase energy-related products from our contract manufacturing partner that we will not use due to our decision to discontinue our energy product line for utility customers. We have not incurred that type of expense in past periods and we believe that past and future periods are more comparable if we exclude that expense from operating income.

              We believe it is useful to exclude litigation settlement expense from operating income because that expense was related to two separate legal settlements that were resolved in 2012. Those settlements are not indicative of past or future operating performance. We believe that past and future periods are more comparable if we exclude that expense from operating income.

 

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              Our use of Adjusted operating income has limitations as an analytical tool and you should not consider it in isolation or as a substitute for our analysis of our results as reported under GAAP. Some of these limitations are:

    Adjusted operating income does not reflect the potentially dilutive impact of equity-based compensation;

    Although we have not incurred significant loss on purchase commitments in the past, there is no guarantee that we will not incur those expenses in the future and therefore Adjusted operating income may not be indicative of future performance; and

    We are involved in litigation matters from time to time and we may incur litigation settlement expenses in future periods and, therefore, Adjusted operating income may not be indicative of future performance.

              Because of these limitations, you should consider Adjusted operating income alongside other financial performance measures.

 

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Consolidated Balance Sheet Data

              The following table sets forth our summary consolidated balance sheet data as of March 31, 2013:

    On an actual basis;

    On a pro forma basis to reflect the conversion of all outstanding shares of our preferred stock into 79,528,755 shares of our common stock, which will occur immediately prior to the closing of this offering assuming our valuation prior to this offering is at least $225 million and the net proceeds to us from this offering are not less than $35 million, the net exercise of outstanding warrants to purchase 3,394,300 shares of capital stock into an aggregate of 757,231 shares of common stock as of March 31, 2013, the corresponding reclassification of our warrant liability to additional paid-in capital, which will occur immediately prior to the closing of this offering unless earlier exercised or expired, and the filing of our post-offering amended and restated certificate of incorporation, which will occur immediately prior to the closing of this offering; and

    On a pro forma as adjusted basis to reflect the pro forma adjustments described above and our receipt of the net proceeds from our sale of                        shares of common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 
  As of March 31, 2013  
 
  Actual   Pro forma   Pro forma
as adjusted (1)
 
 
  (In thousands)
 

Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

  $ 14,573   $ 14,573        

Property and equipment, net

    3,566     3,566        

Working capital, excluding deferred revenue

    21,582     21,582        

Total assets

    49,455     49,455        

Redeemable convertible preferred stock

    116,313            

Total stockholders' equity (deficit)

    (93,204 )   23,685        

(1)
A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) cash and cash equivalents and each of working capital, excluding deferred revenue, total assets and total stockholders' equity (deficit) by $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us. Each increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease cash and cash equivalents and each of working capital, excluding deferred revenue, total assets and total stockholders' equity (deficit) by $             million assuming that the assumed price per share remains the same, and after deducting estimated underwriting discounts and commissions payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

 

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RISK FACTORS

               Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including our financial statements and related notes, before deciding whether to purchase shares of our common stock. If any of the following risks is realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

We have incurred operating losses in the past, may incur operating losses in the future, and may not achieve or maintain profitability.

              We began our operations in 2003. For substantially all of our history, we have experienced net losses and negative cash flows from operations. As of March 31, 2013, we had an accumulated deficit of $107.1 million. We expect our operating expenses to increase in the future as we expand our operations. Furthermore, as a public company, we will incur additional legal, accounting and other expenses that we did not incur as a private company. If our revenue does not grow to offset these increased expenses, we will not become profitable. We may incur significant losses in the future for a number of reasons, including without limitation the other risks and uncertainties described in this prospectus. Additionally, we may encounter unforeseen operating or legal expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods. If these losses exceed our expectations or our revenue growth expectations are not met in future periods, our financial performance will be harmed.

The markets in which we participate are highly competitive and many companies, including large technology companies, broadband and security service providers and other managed service providers, are actively targeting the home automation market. Our failure to differentiate ourselves and compete successfully with these companies would make it difficult for us to add and retain consumers, and would reduce or impede the growth of our business.

              The market for automation and control solutions for the connected home is increasingly competitive and global. Many large technology companies have expanded into the connected home market by developing their own solutions, or by acquiring other companies with home automation solution offerings. For example, Microsoft Corporation recently acquired id8 Group R2 Studios Inc., a home entertainment technology company. These large technology companies already have broad consumer awareness and sell a variety of devices for the home, and consumers may choose their offerings instead of ours, even if we offer superior products and services. Similarly, many managed service providers, such as cable TV, telephone and security companies, are beginning to offer services that provide device control and automation capability within the home for an additional monthly service fee. For example, Comcast is expanding its Xfinity service to provide residential security, energy and automation services. These managed service providers have the advantage of leveraging their existing consumer base, network of installation and support technicians and name recognition to gain traction in the home automation market. In addition, consumers may prefer the monthly service fee with little to no upfront cost offered by some of these managed service providers over a larger upfront cost with little to no monthly service fees.

              We expect competition from these large technology companies and managed service providers to increase in the future. This increased competition could result in pricing pressure, reduced sales, lower margins or the failure of our solutions to achieve or maintain broad market acceptance. To remain competitive and to maintain our position as a leading provider of automation and control solutions for the connected home, we will need to invest continuously in product development, marketing, customer service and support and product delivery infrastructure. We may not have

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sufficient resources to continue to make the investments in all of the areas needed to maintain our competitive position. In addition, most of our competitors have longer operating histories, greater name recognition, larger consumer bases and significantly greater financial, technical, sales, marketing and other resources than us, which may provide them with an advantage in developing, marketing or servicing new solutions. Increased competition could reduce our market share, revenue and operating margins, increase our operating costs, harm our competitive position and otherwise harm our business and results of operations.

Consumers may choose to adopt point products that provide control of discrete home functions rather than adopting our unified home automation solution. If we are unable to increase market awareness of the benefits of our unified solution, our revenue may not continue to grow, or it may decline.

              Many vendors have emerged, and may continue to emerge, to provide point products with advanced functionality for use in the home, such as a thermostat that can be controlled by an application on a smartphone. We expect more and more consumer electronic and consumer appliance products to be network-aware and connected—each very likely to have its own smart device (phone or tablet) application. Consumers may be attracted to the relatively low costs of these point products and the ability to expand their home control solution over time with minimal upfront costs, despite some of the disadvantages of this approach. While we have built our solution to be flexible and support third-party point products, these products may reduce the revenue we receive for each installation. It is therefore important that we have technical expertise and provide attractive top quality products in many areas, such as lighting and video, and establish broad market awareness of these solutions. If a significant number of consumers in our target market choose to adopt point products rather than our unified automation solution, then our business, financial condition and results of operations will be harmed, and we may not be able to achieve sustained growth or our business may decline.

Many of the competitors in our market, including providers of luxury integrated installations with long operating histories, established markets, broad user bases and proven consumer acceptance, may be successful in expanding into the mainstream home automation market, which may harm our growth and future prospects.

              Many companies with which we directly compete have been operating in this industry for many years and, as a result, have established significant name recognition in the home automation industry. For example, Crestron, a provider of luxury integrated installations, has been in business for over 40 years and has become an established presence in the home automation industry. Another provider of luxury integrated installations is Savant Systems, which provides home automation based on the Apple iOS operating platform. To the extent these providers are able to develop more affordable products that compete more directly with our solution, our growth may be constrained and our business could suffer. In addition, given the strong growth potential of the market, we expect there to be many new entrants in the future.

Since we rely on third-party dealers and distributors to sell and install our solutions, we do not have a direct sales pipeline, which makes it difficult for us to accurately forecast future sales and correctly predict manufacturing requirements.

              We depend on our dealer and distributor network to sell and install our solution. As a result, we do not develop or control our sales pipeline, making it difficult for us to predict future sales. In addition, because the production of certain of our products requires long lead times, we enter into agreements for the manufacture and purchase certain of our products well in advance of the time in which those products will be sold. These contracts are based on our best estimates of our near-term product needs. If we underestimate consumer demand, we may forego revenue opportunities, lose market share and damage our relationships. Conversely, if we overestimate consumer demand, we may purchase more inventory than we are able to sell at any given time, or at all. If we fail to accurately

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estimate demand for our products, we could have excess or obsolete inventory, resulting in a decline in the value of our inventory, which would increase our costs of revenues and reduce our liquidity. Our failure to accurately manage inventory relative to demand would adversely affect our results of operations.

We have relatively limited visibility regarding the consumers that ultimately purchase our products, and we often rely on information from third-party dealers and distributors to help us manage our business. If these dealers and distributors fail to provide timely or accurate information, our ability to quickly react to market changes and effectively manage our business may be harmed.

              We sell our solutions through dealers and distributors. These dealers and distributors work with consumers to design, install, update and maintain their home automation installations. While we are able to track orders from dealers and distributors and have access to certain information about the configurations of their Control4 systems that we receive through our controller appliances, we also rely on dealers and distributors to provide us with information about consumer behavior, product and system feedback, consumer demographics, buying patterns and information on our competitors. We use this channel sell-through data, along with other metrics, to assess consumer demand for our solutions, develop new products, adjust pricing and make other strategic business decisions. Channel sell-through data is subject to limitations due to collection methods and the third-party nature of the data and thus may not be complete or accurate. In addition, to the extent we collect information directly from consumers, for example through surveys that we conduct, the consumers who supply this sell-through data self select and vary by geographic region and from period to period, which may impact the usefulness of the results. If we do not receive consumer information on a timely or accurate basis, or if we do not properly interpret this information, our ability to quickly react to market changes and effectively manage our business may be harmed.

Our quarterly results of operations have fluctuated and may continue to fluctuate. As a result, we may fail to meet or exceed the expectations of investors or securities analysts, which could cause our stock price to decline.

              Our quarterly revenue and results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterly revenue or results of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Fluctuations in our results of operations may be due to a number of factors, including:

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              Due to the foregoing factors and the other risks discussed in this prospectus, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance. You should not consider our recent revenue growth as indicative of our future performance.

If we are unable to develop new solutions, sell our solutions into new markets or further penetrate our existing markets, our revenue may not grow as expected.

              Our ability to increase sales will depend in large part on our ability to enhance and improve our solutions, to introduce new solutions in a timely manner, to sell into new markets and to further penetrate our existing markets. The success of any enhancement or new product or solution depends on several factors, including the timely completion, introduction and market acceptance of enhanced or new solutions, the ability to attract, retain and effectively train sales and marketing personnel, the ability to develop relationships with dealers and distributors and the effectiveness of our marketing programs. Any new product or solution we develop or acquire may not be introduced in a timely or cost-effective manner, and may not achieve the broad market acceptance necessary to generate significant revenue. Any new markets into which we attempt to sell our solutions, including new vertical markets and new countries or regions, may not be receptive. Our ability to further penetrate our existing markets depends on the quality of our solutions and our ability to design our solutions to meet consumer demand. Moreover, we are frequently required to enhance and update our solutions as a result of changing standards and technological developments, which makes it difficult to recover the cost of development and forces us to continually qualify new solutions with our consumers. If we are unable to successfully develop or acquire new solutions, enhance our existing solutions to meet consumer requirements, sell solutions into new markets or sell our solutions to additional consumers in our existing markets, our revenue may not grow as expected.

Our success depends, in part, on our ability to develop and expand our global network of dealers and distributors.

              We have developed a global network of over 2,800 active direct dealers and 27 distributors to sell, install and support our solutions. We rely on our dealers and distributors to provide consumers with a successful Control4 home automation experience. In some cases, dealers may choose not to offer our solution and instead offer a product from one of our competitors or, in other cases, the dealer may simply discontinue its operations. In order to continue our growth and expand our business, it is important that we continue to add new dealers and distributors and maintain most of our existing relationships. We must also work to expand our network of dealers and distributors to ensure that we have sufficient geographic coverage and technical expertise to address new markets and technologies. While it is difficult to estimate the total number of available dealers in our markets, there are a finite number of dealers that are able to perform the types of technical installations required for home automation systems. In the event that we saturate the available dealer pool, or if market or other forces cause the available pool of dealers to decline, it may be increasingly difficult to grow our business. As consumers' home automation options grow, it is important that we enhance our dealer footprint by broadening the expertise of our dealers, working with larger and more sophisticated dealers and expanding the mainstream consumer products our dealers offer. If we are unable to expand our network of dealers and distributors, our business could be harmed.

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We rely on our dealers and distributors to sell our solution, and if our dealers and distributors fail to perform, our ability to sell and distribute our products and services will be limited, and our results of operations may be harmed.

              Substantially all of our revenue is generated through the sales of our solution by our dealers and distributors. Our dealers and distributors are independent businesses that voluntarily sell our products as well as the products of other companies to consumers. We provide our dealers and distributors with specific training and programs to assist them in selling our products, but we cannot assure that these steps will be effective. We have observed, and expect to continue to observe, high volatility in the monthly, quarterly and annual sales performance of individual dealers and distributors. Although we can make estimated forecasts of cumulative sales of large numbers of dealers and distributors, we cannot assure their accuracy collectively nor individually. Accordingly, we may not be able to reduce or slow our spending quickly enough if our actual sales fall short of our expectations. As a result, we expect that our revenues, results of operations and cash flows may fluctuate significantly on a quarterly basis. We believe that period-to-period comparisons of our revenues, results of operations and cash flows may not be meaningful and should not be relied upon as an indication of future performance.

              Our dealers and distributors may be unsuccessful in marketing, selling, and supporting our products and services. If we are unable to develop and maintain effective sales incentive programs for our third-party dealers and distributors, we may not be able to incentivize them to sell our products to consumers and, in particular, to larger businesses and organizations. Our dealers and distributors may also market, sell and support products and services that are competitive with ours, and may devote more resources to the marketing, sales, and support of such competitive products. Our dealers and distributors may have incentives to promote our competitors' products to the detriment of our own, or may cease selling our products altogether. Our agreements with our dealers and distributors may generally be terminated for any reason by either party with advance notice. We cannot assure you that we will retain these dealers and distributors, or that we will be able to secure additional or replacement dealers and distributors. Further, if we alter our sales process in a region by switching from a distributor to a direct dealer model, our sales may be impacted leading up to or in connection with such change in sales process. In addition, while we take certain steps to protect ourselves from liability for the actions of our dealers and distributors, consumers may seek to recover amounts from us for any damages caused by dealers in connection with system installations, or the failure of a system to perform properly due to an incorrect installation by a dealer. In addition, our dealers and distributors may use our name and our brand in ways we do not authorize, and any such improper use may harm our reputation or expose us to liability for their actions.

              If we fail to effectively manage our existing sales channels, if our dealers or distributors are unsuccessful in fulfilling the orders for our products, or if we are unable to enter into arrangements with, and retain a sufficient number of, high quality dealers and distributors in each of the regions in which we sell products, and keep them motivated to sell our products, our results of operations may be harmed. The termination of our relationship with any significant dealer or distributor may also adversely impact our sales and results of operations.

We have entered into several strategic arrangements and intend to pursue additional strategic opportunities in the future. If the intended benefits from our strategic relationships are not realized, our growth and results of operations may be harmed .

              We are in the process of growing our relationships with strategic partners in order to attempt to reach markets that we cannot currently address cost-effectively and to increase awareness of our solution. If these relationships do not develop in the manner we intend, our future growth could be impacted. Furthermore, the termination of our relationship with a partner may cause us to incur expenses without corresponding revenue, incur a termination penalty and harm our sales and results of

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operations. For example, in 2012, we discontinued energy products for utility customers and, in connection with that decision, we incurred an expense related to an inventory purchase commitment and paid a fee to our counterparty to terminate the arrangement. Any loss of a major partner or distribution channel or other channel disruption could harm our results of operations and make us more dependent on alternate channels, damage our reputation, increase pricing and promotional pressures from other partners and distribution channels, increase our marketing costs, or harm buying and inventory patterns, payment terms or other contractual terms.

If we do not maintain the compatibility of our solutions with third-party products and applications that our consumers use, demand for our solutions could decline.

              Our solutions are designed to interoperate with a wide range of other third-party products, including products in the areas of music, video, lighting, temperature and security. If we do not support the continued integration of our solutions with third-party products and applications, including through the provision of application programming interfaces that enable data to be transferred readily between our solutions and third-party products and applications, demand for our solutions could decline and we could lose sales. We will also be required to make our solutions compatible with new or additional third-party products and applications that are introduced into the markets that we serve. To help us meet this challenge, we have developed our Simple Device Discovery Protocol, or SDDP, designed to enable our devices to recognize and control third-party products by embedding software in such products at the manufacturer, making it easier for dealers and consumers to add them to their Control4 systems. Although we are making SDDP available on a royalty-free basis to product manufacturers, its adoption is not yet substantial, and may not achieve greater or broad market acceptance. In addition, companies that provide popular point solutions have and may continue to eliminate or restrict our ability to control and be compatible with these products. For example, a thermostat company has restricted the interoperability of its products with our solutions. As a result, we may not be successful in making our solutions compatible with these third-party products and applications, which could reduce demand for our solutions. In addition, if prospective consumers require customized features or functions that we do not offer, then the market for our solutions may be harmed.

Our inability to adapt to technological change could impair our ability to remain competitive.

              The market for home automation and control solutions is characterized by rapid technological change, frequent introductions of new products and evolving industry standards. Our ability to attract new consumers and increase revenue from existing consumers will depend in significant part on our ability to anticipate changes in industry standards and to continue to enhance or introduce existing solutions on a timely basis to keep pace with technological developments. We are currently changing several aspects of our operating system, and may utilize Android open source technology in the future, which may cause difficulties including compatibility, stability and time to market. The success of this or any enhanced or new product or solution will depend on several factors, including the timely completion and market acceptance of the enhanced or new product or solution. Similarly, if any of our competitors implement new technologies before we are able to implement them, those competitors may be able to provide more effective products than ours, possibly at lower prices. Any delay or failure in the introduction of new or enhanced solutions could harm our business, results of operations and financial condition.

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We currently rely on contract manufacturers to manufacture our products and component vendors to supply parts used in our products. The majority of our components are supplied by a single source. Any disruption in our supply chain, or any our failure to successfully manage our relationships with our contract manufacturers or component vendors could harm our business.

              Our reliance on contract manufacturers reduces our control over the assembly process, exposing us to risks, including reduced control over quality assurance, production costs and product supply. We rely on a limited number of contract manufacturers to manufacture substantially all of our products. We also do business with a number of component vendors, and the parts they supply may not perform as expected. For certain of our products and components, we rely on a sole-source manufacturer or supplier. In 2012, two contract manufacturers, Sanmina and LiteOn, manufactured 82% of our inventory purchases. Certain of our contract manufacturers and component vendors are located outside of the United States and may be subject to political, economic, social and legal uncertainties that may harm our relationships with these parties. If we fail to manage our relationships with our contract manufacturers or component vendors effectively, or if our contract manufacturers or component vendors experience delays, disruptions, capacity constraints or quality control problems in their operations, our ability to ship products may be impaired and our competitive position and reputation could be harmed. In addition, any adverse change in our contract manufacturers' or component vendors' financial or business condition could disrupt our ability to supply quality products to our dealers and distributors. If we are required to change contract manufacturers or component vendors, we may lose revenue, incur increased costs or damage our relationships, or we might be unable to find a new contract manufacturer or component vendor on acceptable terms, or at all. In addition, qualifying a new contract manufacturer or component vendor can be an expensive and lengthy process. If we experience increased demand that our contract manufacturers or component vendors are unable to fulfill, or if they are unable to provide us with adequate supplies of high-quality products for any reason, we could experience a delay in our order fulfillment, and our business, results of operations and financial condition would be harmed.

Growth of our business will depend on market awareness and a strong brand, and any failure to develop, maintain, protect and enhance our brand would hurt our ability to retain or attract consumers.

              Because of the early stage of development of the mainstream home automation market, we believe that building and maintaining market awareness, brand recognition and goodwill is critical to our success. This will depend largely on our ability to continue to provide high-quality solutions, and we may not be able to do so effectively. While we may choose to engage in a broader marketing campaign to further promote our brand, this effort may not be successful. Our efforts in developing our brand may be affected by the marketing efforts of our competitors and our reliance on our dealers, distributors and strategic partners to promote our brand. If we are unable to cost-effectively maintain and increase awareness of our brand, our business, results of operations and financial condition could be harmed.

We operate in the emerging and evolving home automation market, which may develop more slowly or differently than we expect. If the mainstream home automation market does not grow as we expect, or if we cannot expand our solutions to meet the demands of this market, our revenue may decline, fail to grow or fail to grow at an accelerated rate, and we may incur additional operating losses.

              The market for home automation and control solutions is in an early stage of development, and it is uncertain whether, how rapidly or how consistently this market will develop, and even if it does develop, whether our solutions will achieve and sustain high levels of demand and market acceptance. Some consumers may be reluctant or unwilling to use our solutions for a number of reasons, including satisfaction with traditional solutions, concerns for additional costs and lack of awareness of our solutions. Unified home automation solutions such as ours have traditionally been luxury purchases for the high end of the residential market. Our ability to expand the sales of our

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solutions to a broader consumer base depends on several factors, including the awareness of our solutions, the timely completion, introduction and market acceptance of our solutions, the ability to attract, retain and effectively train sales and marketing personnel, the ability to develop relationships with dealers and distributors, the effectiveness of our marketing programs, the costs of our solutions and the success of our competitors. If we are unsuccessful in developing and marketing our home automation solutions to mainstream consumers, or if these consumers do not perceive or value the benefits of our solutions, the market for our solutions might not continue to develop or might develop more slowly than we expect, either of which would harm our revenue and growth prospects.

Our consumers may experience service failures or interruptions due to defects in the software, infrastructure, third-party components or processes that comprise our existing or new solutions, or due to dealer errors in product installation, any of which could harm our business.

              Our solutions may contain undetected defects in the software, infrastructure, third-party components or processes. If these defects lead to service failures after introduction of or an upgrade to a product or solution, we could experience harm to our branded reputation, claims by our consumers, dealers, distributors, strategic partners or developers or lost revenue during the period required to address the cause of the defects. We may find defects in new or upgraded solutions, resulting in loss of, or delay in, market acceptance of our solutions, which could harm our business, results of operations and financial condition.

              Since our solutions are installed by our dealers, if they do not install or maintain our solutions correctly, our solutions may not function properly. If the improper installation or maintenance of our solutions leads to service failures after introduction of, or an upgrade to, a product or solution, we could experience harm to our branded reputation, claims by our consumers, dealers, distributors, strategic partners or developers or lost revenue during the period required to address the cause of the problem. This could harm our business, results of operations and financial condition.

              Any defect in, or disruption to, our solutions could cause consumers not to purchase additional products from us, prevent potential consumers from purchasing our solutions or harm our reputation. Although our contracts with our consumers limit our liability to our consumers for these defects, disruptions or errors, we nonetheless could be subject to litigation for actual or alleged losses to our consumers' businesses, which may require us to spend significant time and money in litigation or arbitration, or to pay significant settlements or damages. Defending a lawsuit, regardless of its merit, could be costly, divert management's attention and affect our ability to obtain or maintain liability insurance on acceptable terms and could harm our business. Although we currently maintain some warranty reserves, we cannot assure you that these warranty reserves will be sufficient to cover future liabilities. Furthermore, we may be required to indemnify our dealers, distributors and partners against certain liabilities they may incur as a result of defects of our products. In 2012, we incurred significant costs associated with the recall and replacement of a defective chip from a third-party component used within one of our products.

We encounter seasonality in sales, which could harm the amount, timing and predictability of our revenue and cause our stock price to fluctuate.

              We have little recurring revenue or backlog and our revenue is generated from orders of our solutions from new and existing consumers, which may cause our quarterly results to fluctuate. We may experience seasonality in the sales of our solutions. Historically, our revenue is generally higher in the fourth quarter and lower in the first quarter. Seasonal variations in our sales may lead to significant fluctuations in our cash flows and results of operations on a quarterly basis. If we experience a delay in signing or a failure to sign a significant partner agreement in any particular quarter, then our results of operations for such quarter and for subsequent quarters may be below the expectations of securities analysts or investors, which may result in a decline in our stock price.

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We may not generate significant revenue as a result of our current research and development efforts.

              We have made and expect to continue to make significant investments in research and development and related product opportunities. In the year ended December 31, 2012, we spent $20.3 million on research and development expenses. High levels of expenditures for research and development could harm our results of operations, especially if not offset by corresponding future revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, it is difficult to estimate when, if ever, we will generate significant revenue as a result of these investments.

Our strategy includes pursuing acquisitions and our potential inability to successfully integrate newly-acquired technologies, assets or businesses may harm our financial results.

              We believe part of our growth will be driven by acquisitions of other companies or their technologies, assets and businesses. Any acquisitions we complete will give rise to risks, including:

              Fully integrating an acquired technology, asset or business into our operations may take a significant amount of time. We may not be successful in overcoming these risks or any other problems encountered with acquisitions. To the extent we do not successfully avoid or overcome the risks or problems related to any such acquisitions, our results of operations and financial condition could be harmed. Acquisitions also could impact our financial position and capital needs, or could cause fluctuations in our quarterly and annual results of operations. Acquisitions could include significant goodwill and intangible assets, which may result in future impairment charges that would reduce our stated earnings. We may incur significant costs in our efforts to engage in strategic transactions and these expenditures may not result in successful acquisitions.

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Future acquisitions of technologies, assets or businesses, which are paid for partially or entirely through the issuance of stock or stock rights, could dilute the ownership of our existing stockholders.

              We expect that the consideration we might pay for any future acquisitions of technologies, assets or businesses could include stock, rights to purchase stock, cash or some combination of the foregoing. If we issue stock or rights to purchase stock in connection with future acquisitions, net income (loss) per share and then-existing holders of our common stock may experience dilution.

Our gross margins can vary significantly depending on multiple factors, which can result in fluctuations in our results of operations.

              Our gross margins are likely to vary due to consumer demand, product mix, new product introductions, unit volumes, commodity and supply chain costs, product delivery costs, geographic sales mix, foreign currency exchange rates, excess and obsolete inventory and the complexity and functionality of new product innovations. In particular, if we are not able to introduce new solutions in a timely manner at the cost we expect, or if consumer demand for our solutions is less than we anticipate, or if there are product pricing, marketing and other initiatives by our competitors to which we need to react that lower our margins, then our overall gross margin will be less than we project. The impact of these factors on gross margins can create unanticipated fluctuations in our results of operations, which may cause volatility in our stock price.

If we are unable to substantially utilize our net operating loss carryforwards, our financial results will be harmed.

              As of December 31, 2012, our net operating loss, or NOL, carryforward amounts for U.S. federal income and state tax purposes were $83.6 million and $83.1 million, respectively. Under Section 382 of the Internal Revenue Code, a corporation that undergoes an "ownership change" may be subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. Purchases of our common stock in amounts greater than specified levels, which will be beyond our control, could create an additional limitation on our ability to utilize our NOLs for tax purposes in the future. Limitations imposed on our ability to utilize NOLs could cause U.S. federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs. Furthermore, we may not be able to generate sufficient taxable income to utilize our NOLs before they expire. If any of these events occur, we may not derive some or all of the expected benefits from our NOLs. In addition, at the state level there may be periods during which the use of NOLs is suspended or otherwise limited, which would accelerate or permanently increase state taxes owed.

Governmental regulations affecting the import or export of products could harm our revenue.

              The U.S. and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of some technologies, especially encryption technology, and may impose additional or broader controls, export license requirements and restrictions on the import or export of some technologies in the future. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow and governmental recovery of private encryption keys. Although we do not believe that any of our products currently require an export license, if our products or components of our products become subject to governmental regulation of encryption technology or other governmental regulation of imports or exports, we may be required to obtain import or export approval for such products, which could increase our costs and harm our international and domestic sales and our revenue. In addition, failure to comply with such regulations could result in penalties, costs and restrictions on export privileges, which would harm our results of operations.

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If we are unable to manage our growth and diverse and complex operations, our reputation in the market and our ability to generate revenue from new or existing consumers may be harmed.

              Because our operations are geographically diverse and complex, our personnel resources and infrastructure could become strained and our reputation in the market and our ability to successfully implement our business plan may be harmed. We have experienced a period of rapid growth in our headcount and operations. The growth in the size, complexity and diverse nature of our business and the expansion of our product lines and consumer base have placed increased demands on our management and operations, and further growth, if any, may place additional strains on our resources in the future. Our ability to effectively compete and to manage our planned future growth will depend on, among other things:

              If we do not manage the size, complexity and diverse nature of our business effectively, we could experience delayed product releases and longer response times for assisting our consumers with implementation of our solutions, and could lack adequate resources to support our consumers on an ongoing basis, any of which could harm our reputation in the market, our ability to successfully implement our business plan and our ability to generate revenue from new or existing consumers.

If we fail to retain our key employees, our business would be harmed and we might not be able to implement our business plan successfully.

              Given the complex nature of the technology on which our business is based and the speed with which such technology advances, our future success is dependent, in large part, upon our ability to attract and retain highly qualified managerial, engineering and sales personnel. Competition for talented personnel is intense, and we cannot be certain that we can retain our managerial, engineering and sales personnel or that we can attract, assimilate or retain such personnel in the future. Our inability to attract and retain such personnel could harm our business, results of operations and financial condition.

Downturns in general economic and market conditions and reductions in spending may reduce demand for our solutions, which could harm our revenue, results of operations and cash flows.

              Our revenue, results of operations and cash flows depend on the overall demand for our solutions. Concerns about the systemic impact of a potential widespread recession, energy costs, geopolitical issues, the availability and cost of credit and the global housing and mortgage markets have contributed to increased market volatility, decreased consumer confidence and diminished growth expectations in the U.S. economy and abroad. The current unstable general economic and market conditions have been characterized by a dramatic decline in consumer discretionary spending and have disproportionately affected providers of products and services that represent discretionary purchases. While the decline in consumer spending has recently moderated, these economic conditions could still lead to continued declines in consumer spending over the foreseeable future, and may have resulted in a resetting of consumer spending habits that may make it unlikely that such spending will return to prior levels for the foreseeable future.

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              During weak economic times, the available pool of dealers and distributors may decline as the prospects for home building and home renovation projects diminish, which may have a corresponding impact on our growth prospects. In addition, there is an increased risk during these periods that an increased percentage of our dealers will file for bankruptcy protection, which may harm our reputation, revenue, profitability and results of operations. We also face risks from international dealers and distributors that file for bankruptcy protection in foreign jurisdictions, in that the outcome of the application of foreign bankruptcy laws may be more difficult to predict. In addition, we may determine that the cost of pursuing any claim may outweigh the recovery potential of such claim. Likewise, consumer bankruptcies can detrimentally affect the business stability of our dealers and distributors. Prolonged economic slowdowns and reductions in new home construction and renovation projects may result in diminished sales of our solutions. Further worsening, broadening or protracted extension of the economic downturn could have a negative impact on our business, revenue, results of operations and cash flows.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.

              The preparation of financial statements in conformity with generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations," the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include, or may in the future include, those related to revenue recognition, allowance for doubtful accounts, inventories, product warranties, income taxes and stock-based compensation expense. Our results of operations may be harmed if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.

Changes in existing financial accounting standards or practices, or taxation rules or practices, may harm our results of operations.

              Changes in existing accounting or taxation rules or practices, new accounting pronouncements or taxation rules, or varying interpretations of current accounting pronouncements or taxation practice could harm our results of operations or the manner in which we conduct our business.

Mergers or other strategic transactions involving our competitors could weaken our competitive position, which could harm our results of operations.

              Our industry is highly fragmented, and we believe it is likely that some of our existing competitors will consolidate or be acquired. In addition, some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships with systems integrators, third-party consulting firms or other parties. Any such consolidation, acquisition, alliance or cooperative relationship could lead to pricing pressure and our loss of market share and could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our business, results of operations and financial condition.

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We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our results of operations and our ability to attract and retain qualified executives and board members.

              As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements. These requirements include compliance with Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, as well as rules implemented by the Securities and Exchange Commission, or SEC, The NASDAQ Stock Market LLC, or NASDAQ, and other applicable securities or exchange-related rules and regulations. In addition, our management team will also have to adapt to the requirements of being a public company. We expect complying with these rules and regulations will substantially increase our legal and financial compliance costs and make some activities more difficult, time consuming or costly, particularly if we are no longer an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

              As a public company, we also expect that it may be more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

We are an "emerging growth company," and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

              We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding an annual non-binding advisory vote on executive compensation and nonbinding stockholder approval of any golden parachute payments not previously approved. If we choose not to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, our auditors will not be required to attest to the effectiveness of our internal control over financial reporting. As a result, investors may become less comfortable with the effectiveness of our internal controls and the risk that material weaknesses or other deficiencies in our internal controls go undetected may increase. If we choose to provide reduced disclosures in our periodic reports and proxy statements while we are an emerging growth company, investors would have access to less information and analysis about our executive compensation, which may make it difficult for investors to evaluate our executive compensation practices. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions and provide reduced disclosure. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be harmed. We will remain an "emerging growth company" for up to five years or such earlier time that we are no longer an emerging growth company. We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a "large accelerated filer," with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; or the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

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              In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

As a result of becoming a public company, we will be obligated to develop and maintain a system of effective internal controls over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may harm investor confidence in our company and, as a result, the value of our common stock.

              We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report we file with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. However, our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an "emerging growth company" as defined in the JOBS Act if we take advantage of the exemptions available to us through the JOBS Act.

              We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to remediate any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls when they are required to issue such opinion, investors could lose confidence in the accuracy and completeness of our financial reports, which could harm our stock price.

Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our results of operations.

              We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for at least the next 12 months. We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests and the value of shares of our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, if at all, we may not be able to, among other things:

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              Our inability to do any of the foregoing could reduce our ability to compete successfully and harm our results of operations.

We may be subject to additional tax liabilities, which would harm our results of operations.

              We are subject to income, sales, use, value added and other taxes in the United States and other countries in which we conduct business, which laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect sales, use, value added or other taxes on our sales may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future. Significant judgment is required in determining our worldwide provision for income taxes. These determinations are highly complex and require detailed analysis of the available information and applicable statutes and regulatory materials. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be different from our historical tax practices, provisions and accruals. If we receive an adverse ruling as a result of an audit, or we unilaterally determine that we have misinterpreted provisions of the tax regulations to which we are subject, our tax provision, results of operations or cash flows could be harmed. In addition, liabilities associated with taxes are often subject to an extended or indefinite statute of limitations period. Therefore, we may be subject to additional tax liability (including penalties and interest) for a particular year for extended periods of time.

Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by manmade problems such as terrorism.

              A significant natural disaster, such as an earthquake, fire or a flood, or a significant power outage could harm our business, results of operations and financial condition. Natural disasters could affect our manufacturing vendors or logistics providers' ability to perform services such as manufacturing products or assisting with shipments on a timely basis. Sanmina and LiteOn, two of our contract manufacturers that manufactured 82% of our inventory purchases in 2012, have manufacturing facilities located in China. In the event our manufacturing vendors' information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed, resulting in missing financial targets, such as revenue and shipment targets, for a particular quarter. Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenue, such as metropolitan areas in North America, consumers in that region may delay or forego purchases of our solutions from dealers and distributors in the region, which may harm our results of operations for a particular period. In addition, acts of terrorism could cause disruptions in our business or the business of our manufacturers, logistics providers, dealers, distributors, consumers or the economy as a whole. Given our typical concentration of sales at the end of each month and quarter, any disruption in the business of our manufacturers, logistics providers, dealers, distributors and consumers that impacts sales at the end of our quarter could have a greater impact on our quarterly results. All of the aforementioned risks may be augmented if the disaster recovery plans for us and our suppliers prove to be inadequate. To the extent that any of the above results in delays or cancellations of orders, or delays in the manufacture, deployment or shipment of our products, our business, financial condition and results of operations would be harmed.

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Global or regional economic, political and social conditions could harm our business and results of operations.

              External factors such as potential terrorist attacks, acts of war, financial crises, trade friction or geopolitical and social turmoil in those parts of the world that serve as markets for our solutions, such as Europe or Asia, or elsewhere could harm our business and results of operations. These uncertainties may cause our consumers to reduce discretionary spending on their home and make it difficult for us to accurately plan future business activities. More generally, these geopolitical, social and economic conditions could result in increased volatility in worldwide financial markets and economies that could harm our sales. We are not insured for losses or interruptions caused by terrorist acts or acts of war. The occurrence of any of these events or circumstances could harm our business and results of operations.

Failure to comply with laws and regulations could harm our business.

              Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially harmed. In addition, responding to any action will likely result in a significant diversion of management's attention and resources and an increase in professional fees. Enforcement actions and sanctions could further harm our business, results of operations and financial condition.

Risks Related to Our International Operations

In recent years, a significant amount of our revenue has come from sales outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.

              We have a limited history of marketing, selling, and supporting our products and services internationally. However, consumers in countries outside of North America accounted for 25% of our revenue for the year ended December 31, 2012 and we expect that percentage to grow in the future. As a result, we must hire and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing, and retaining an international staff, and specifically staff related to sales management and sales personnel, we may experience difficulties in sales productivity in foreign markets.

              If we are not able to increase the sales of our solutions to consumers located outside of North America, our results of operations or revenue growth may be harmed. In addition, in connection with our expansion into foreign markets, we are a receiver of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, will negatively affect our net sales and gross margins as expressed in U.S. dollars. There is also a risk that we will have to adjust local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates.

              Conducting and launching operations on an international scale requires close coordination of activities across multiple jurisdictions and time zones and consumes significant management resources. Our limited experience in operating our business outside of the United States increases the risk that our current and any future international expansion efforts will not be successful. Conducting

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international operations subjects us to risks that, generally, we do not face in the United States, including:

              The impact of any one of these risks could harm our international business and, consequently, our results of operations generally. Additionally, operating in international markets also requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required in establishing, acquiring or integrating operations in other countries will produce desired levels of revenue or profitability.

Due to the global nature of our business, we could be harmed by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or similar anti-bribery laws in other jurisdictions in which we operate, or various international trade and export laws.

              The global nature of our business creates various domestic and local regulatory challenges. The U.S. Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act 2010, or the U.K. Bribery Act, and similar anti-bribery laws in other jurisdictions generally prohibit U.S.-based companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. In addition, U.S.-based companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. We operate in areas of the world that experience corruption by government officials to some degree and, in certain circumstances, compliance with anti-bribery laws may conflict with local customs and practices. Our global operations require us to import from and export to several countries, which geographically stretches our compliance obligations. In addition, changes in such laws could result in increased regulatory requirements and compliance costs which could harm our business, financial condition and results of operations. Our employees or other agents may engage in prohibited conduct and render us responsible under the FCPA, the U.K. Bribery Act or similar anti-bribery laws. If we are found to be in violation of the FCPA, the U.K. Bribery Act or other anti-bribery laws (either due to acts or inadvertence of our employees, or due to the acts or inadvertence of others), we could suffer criminal or civil penalties or other sanctions, which could harm on our business.

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Risks Related to Our Intellectual Property

From time to time, we are defendants in legal proceedings as to which we are unable to assess our exposure and which could become significant liabilities in the event of an adverse judgment.

              We are defendants in legal proceedings from time to time. Companies in our industry have been subject to claims related to patent infringement and product liability, as well as contract and employment-related claims. We may not be able to accurately assess the risks related to these suits, and we may be unable to accurately assess our level of exposure. In December 2012, we entered into a settlement agreement relating to alleged patent infringements, which included future royalty payments on certain products and the payment of a lump sum amount for alleged past damages.

If we fail to protect our intellectual property and proprietary rights adequately, our business could be harmed.

              We believe that proprietary technology is essential to establishing and maintaining our leadership position. We seek to protect our intellectual property through trade secrets, copyrights, confidentiality, non-compete and nondisclosure agreements, patents, trademarks, domain names and other measures, some of which afford only limited protection. We also rely on patent, trademark, trade secret and copyright laws to protect our intellectual property. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our technology or to obtain and use information that we regard as proprietary. Our means of protecting our proprietary rights may not be adequate or our competitors may independently develop similar or superior technology, or design around our intellectual property. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States. Intellectual property protections may also be unavailable, limited or difficult to enforce in some countries, which could make it easier for competitors to capture market share. Our failure or inability to adequately protect our intellectual property and proprietary rights could harm our business, financial condition and results of operations.

              To prevent substantial unauthorized use of our intellectual property rights, it may be necessary to prosecute actions for infringement and/or misappropriation of our proprietary rights against third parties. Any such action could result in significant costs and diversion of our resources and management's attention, and we cannot assure you that we will be successful in such action. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.

An assertion by a third party that we are infringing its intellectual property could subject us to costly and time-consuming litigation or expensive licenses that could harm our business and results of operations.

              The industries in which we compete are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets, and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. We have been subject to patent litigation in the past and we may be subject to similar litigation in the future. Given that our solution integrates with all aspects of the home, the risk that our solution may be subject to these allegations is exacerbated. As we seek to extend our solutions, we could be constrained by the intellectual property rights of others. In addition, our dealer and distributor contracts require us to indemnify them against certain liabilities they may incur as a result of our infringement of any third-party intellectual property.

              We might not prevail in any intellectual property infringement litigation given the complex technical issues and inherent uncertainties in such litigation. Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays or require us to enter into royalty or licensing agreements. In addition, we

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currently have a limited portfolio of issued patents compared to our larger competitors, and therefore may not be able to effectively utilize our intellectual property portfolio to assert defenses or counterclaims in response to patent infringement claims or litigation brought against us by third parties. Further, litigation may involve patent holding companies or other adverse patent owners who have no relevant products or revenues and against which our potential patents provide no deterrence, and many other potential litigants have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. If our solutions exceed the scope of in-bound licenses or violate any third-party proprietary rights, we could be required to withdraw those solutions from the market, re-develop those solutions or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all. Any efforts to re-develop our solutions, obtain licenses from third parties on favorable terms or license a substitute technology might not be successful and, in any case, might substantially increase our costs and harm our business, financial condition and results of operations. If we were compelled to withdraw any of our solutions from the market, our business, financial condition and results of operations could be harmed.

We are generally obligated to indemnify our dealers, distributors and partners for certain expenses and liabilities resulting from intellectual property infringement claims regarding our products, which could force us to incur substantial costs.

              We have agreed, and expect to continue to agree, to indemnify our dealers, distributors and partners for certain intellectual property infringement claims regarding our products. As a result, in the case of infringement claims against these dealers, distributors and partners, we could be required to indemnify them for losses resulting from such claims or to refund amounts they have paid to us. We expect that some of our dealers, distributors and partners may seek indemnification from us in connection with infringement claims brought against them. We evaluate each such request on a case-by-case basis and we may not succeed in refuting all such claims. If a dealer, distributor or partner elects to invest resources in enforcing a claim for indemnification against us, we could incur significant costs disputing it. If we do not succeed in disputing it, we could face substantial liability.

The use of open source software in our solutions may expose us to additional risks and harm our intellectual property.

              Some of our solutions use or incorporate software that is subject to one or more open source licenses. Open source software is typically freely accessible, usable and modifiable. Certain open source software licenses require a user who intends to distribute the open source software as a component of the user's software to disclose publicly part or all of the source code to the user's software. In addition, certain open source software licenses require the user of such software to make any derivative works of the open source code available to others on potentially unfavorable terms or at no cost.

              The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and accordingly there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our solutions. In that event, we could be required to seek licenses from third parties in order to continue offering our solutions, to re-develop our solutions, to discontinue sales of our solutions or to release our proprietary software code under the terms of an open source license, any of which could harm our business. Further, given the nature of open source software, it may be more likely that third parties might assert copyright and other intellectual property infringement claims against us based on our use of these open source software programs.

              While we monitor the use of all open source software in our products, solutions, processes and technology and seek to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product or solution when we do not wish to do so, we are currently conducting a comprehensive audit of open source software contained in our solutions.

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Although we are not aware of any use of open source software in our solutions that would require us to disclose all or a portion of the source code underlying our solutions, we have not completed our open source software audit; therefore, it is possible that such use may have inadvertently occurred in deploying our solutions. Additionally, if a third-party software provider has incorporated certain types of open source software into software we license from such third party for our solutions without our knowledge, we could, under certain circumstances, be required to disclose the source code to our solutions. This could harm our intellectual property position and our business, results of operations and financial condition.

We rely on the availability of third-party licenses. If these licenses are available to us only on less favorable terms or not at all in the future, our business and results of operations may be harmed.

              We have incorporated third-party licensed technology into our products. It may be necessary in the future to renew licenses relating to various aspects of these products or to seek additional licenses for existing or new products. The necessary licenses may not be available on acceptable terms, or at all. The inability to obtain certain licenses or other rights, or to obtain those licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in our inability to include certain features in our products or delays in product releases until such time, if ever, as equivalent technology could be identified, licensed or developed and integrated into our products, which may have a material adverse effect on our business, results of operations and financial condition. Moreover, the inclusion in our products of intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietary rights in our products.

Failure to maintain the security of our information and technology networks, including information relating to our dealers, distributors, consumers and employees, could adversely affect us.

              We are dependent on information technology networks and systems, including the Internet, to process, transmit and store electronic information and, in the normal course of our business, we collect and retain certain information pertaining to our dealers, distributors, consumers and employees. The legal, regulatory and contractual environment surrounding information security and privacy is constantly evolving and companies that collect and retain such information are under increasing attack by cyber-criminals around the world. A significant actual or potential theft, loss, fraudulent use or misuse of dealer, distributor, consumer, employee or other personally identifiable data, whether by third parties or as a result of employee malfeasance or otherwise, non-compliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could result in significant costs, fines, litigation or regulatory actions against us. Such an event could additionally result in adverse publicity and therefore adversely affect the market's perception of the security and reliability of our services. Security breaches of, or sustained attacks against, this infrastructure could create system disruptions and shutdowns that could result in disruptions to our operations. We cannot be certain that advances in cyber-capabilities or other developments will not compromise or breach the technology protecting the networks that access our products and services. If any one of these risks materializes our business, financial condition, results of operations and cash flows could be materially and adversely affected.

If security breaches in connection with the delivery of our services allow unauthorized third parties to obtain control or access of our consumers' appliances containing our products, our reputation, business, results of operations and financial condition could be harmed.

              Certain of our employees and dealers can access and update certain of our home automation products and services through the Internet. If security breaches in connection with the delivery of our services via the Internet allow unauthorized third parties to obtain control of our consumers' appliances containing our products, our reputation, business, results of operations and financial condition could be

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harmed. Furthermore, although we do not recommend or approve of port forwarding for remote access to our solutions, certain of our dealers have in the past and may in the future enable port forwarding, which could create security vulnerabilities in a consumer's home network. If security breaches in connection with the delivery of our solutions occur, our reputation, business, results of operations and financial condition could be harmed.

Risks Related to Owning Our Common Stock and this Offering

Our share price may be volatile and you may be unable to sell your shares at or above the offering price.

              The initial public offering price for our shares was determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

              Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may harm the market price of our common stock. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us

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could result in substantial costs and divert our management's attention from other business concerns, which could harm our business.

No public market for our common stock currently exists and an active trading market may not develop or be sustained following this offering.

              Prior to this offering, there has been no public market for our common stock. An active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them, or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

              The trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish research or reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

Future sales of our common stock in the public market could cause our share price to fall.

              Sales of a substantial number of shares of our common stock in the public market after this offering, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. Based on the number of shares of common stock outstanding as of March 31, 2013, upon the closing of this offering, we will have                        shares of common stock outstanding, assuming no exercise of outstanding options or the underwriters' option to purchase additional shares.

              All of the common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act except for any shares held by our affiliates as defined in Rule 144 under the Securities Act.                    shares of common stock outstanding after this offering, or        % based on shares outstanding as of March 31, 2013, will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers for at least 180 days after the date of this prospectus, subject to certain extensions.

              The underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements with the underwriters prior to expiration of the lock-up period. See "Shares Eligible for Future Sale."

              The holders of                                    shares of common stock, or        % based on shares outstanding as of March 31, 2013, will be entitled to rights with respect to registration of such shares under the Securities Act pursuant to an investors' rights agreement between such holders and us. See "Description of Capital Stock—Registration Rights." If such holders, by exercising their registration rights, sell a large number of shares, the market price for our common stock could be harmed. If we file a registration statement for the purpose of selling additional shares to raise capital and are required to include shares held by these holders pursuant to the exercise of their registration rights, our ability to raise capital may be impaired. We intend to file a registration statement on Form S-8 under the Securities Act to register shares for issuance under our 2003 Equity Incentive Plan and 2013 Stock Option and Incentive Plan. Our 2013 Stock Option and Incentive Plan provides for automatic increases

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in the shares reserved for issuance under the plan which could result in additional dilution to our stockholders. Once we register these shares, they can be freely sold in the public market upon issuance and vesting, subject to a lock-up period of at least 180 days and other restrictions provided under the terms of the applicable plan and/or the option agreements entered into with option holders.

Our management team may invest or spend the proceeds of this offering in ways with which you may not agree, or in ways which may not yield a positive return.

              The net proceeds from this offering may be used for working capital purposes and for other general corporate purposes, including the research and development of new solutions, sales and marketing activities, paying off remaining amounts owed under a litigation settlement agreement, financing acquisition opportunities and other capital expenditures. Although we may use a portion of the net proceeds to acquire complementary products, solutions, technologies or businesses, we have no current understandings, agreements or commitments to do so at this time.

              Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not improve our results of operations or increase our market value.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

              The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our outstanding common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur immediate dilution of $            in net tangible book value per share from the price you paid. In addition, following this offering, purchasers in this offering will have contributed        % of the total consideration paid by our stockholders to purchase shares of common stock, in exchange for acquiring approximately        % of our total outstanding shares as of March 31, 2013 after giving effect to this offering. In addition, if outstanding options to purchase our common stock are exercised, you will experience additional dilution.

Our directors, executive officers and principal stockholders will continue to have substantial control over us after this offering and could delay or prevent a change in corporate control.

              After this offering, our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, will beneficially own, in the aggregate,        % of our outstanding common stock, assuming no exercise of the underwriters' option to purchase additional shares of our common stock in this offering. As a result, these stockholders, acting together, would have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock by:

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Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

              Provisions in our certificate of incorporation and bylaws, as amended and restated upon the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective upon the closing of this offering, include provisions that:

              These provisions, alone or together, could delay or prevent hostile takeovers and changes in control. These provisions may also frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

              As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.

              Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change of control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

We do not intend to pay dividends for the foreseeable future.

              We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

              This prospectus contains forward-looking statements that are based on our management's beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in, but not limited to, the "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and "Executive Compensation." Forward-looking statements include all statements that are not historical facts and can be identified by terms such as "anticipates," "believes," "could," "seeks," "estimates," "expects," "intends," "may," "plans," "potential," "predicts, "projects," "should," "will," "would" or similar expressions and the negatives of those terms. Forward-looking statements include, but are not limited to, statements about:

              Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in "Risk Factors" and elsewhere in this prospectus. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

              Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

              This prospectus also contains estimates and other information concerning our industry, including market size and growth rates, which are based on industry publications, surveys and forecasts, including those generated by ABI Research and IDC. These industry publications, surveys and forecasts generally indicate that their information has been obtained from sources believed to be reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in "Risk Factors."

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USE OF PROCEEDS

              We estimate that the net proceeds from our sale of                        shares of common stock in this offering at an assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $             million, or $             million if the underwriters' option to purchase additional shares is exercised in full. A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us from this offering by $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.

              We intend to use the net proceeds of this offering primarily for general corporate purposes, including working capital and capital expenditures. We intend to use $             million of the net proceeds from this offering to pay off the remaining amounts owed under a litigation settlement agreement.

              In addition, if appropriate opportunities arise to acquire or invest in complementary technologies, assets or businesses, we may use a portion of the net proceeds for such acquisition or investment. However, we are not currently discussing any such potential acquisition or investment with any third party. The amount and timing of these expenditures will vary depending on a number of factors, including competitive and technological developments and the rate of growth, if any, of our business.

              Pending their use, we plan to invest our net proceeds from this offering in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.


DIVIDEND POLICY

              We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. In addition, our credit facility prohibits us from declaring or paying cash dividends on our capital stock.

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CAPITALIZATION

              The following table sets forth our capitalization as of March 31, 2013:

              The information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes appearing elsewhere in this prospectus.

 
  As of March 31, 2013  
 
  Actual   Pro Forma   Pro Forma
As Adjusted
 
 
  (In thousands)
 

Total debt and settlement obligations

  $ 7,233   $ 7,233        

Warrant liability

    576            

Redeemable Convertible Preferred stock, $0.0001 par value, 83,163,408 shares authorized, 79,528,755 shares issued and outstanding, actual; 83,163,408 shares authorized, no shares issued and outstanding, pro forma; no shares authorized, issued, and outstanding, pro forma as adjusted

    116,313            

Stockholders' equity (deficit)

                   

Preferred stock, $0.0001 par value, no shares authorized, issued, and outstanding, actual and pro forma; 25,000,000 shares authorized, no shares issued and outstanding, pro forma as adjusted

               

Common stock, $0.0001 par value, 127,836,592 shares authorized, 13,037,259 shares issued and outstanding, actual; 500,000,000 shares authorized, 93,323,245 shares issued and outstanding, pro forma; 500,000,000 shares authorized,                        shares issued and outstanding, pro forma as adjusted

    1     9        

Additional paid-in capital

    13,862     130,743        

Accumulated deficit

    (107,058 )   (107,058 )      

Accumulated other comprehensive loss

    (9 )   (9 )      
               

Total stockholders' equity (deficit)

    (93,204 )   23,685        
               

Total capitalization

  $ 30,918   $ 30,918   $    
               

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              The number of shares of our common stock to be outstanding after the completion of this offering is based on:

              The number of shares of our common stock to be outstanding after the completion of this offering excludes:

              A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) cash and cash equivalents and total stockholders' equity (deficit) and total capitalization by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us. Each increase or decrease of 1.0 million shares in the number of shares offered by us, assuming that the assumed initial public offering price remains the same, would increase or decrease cash and cash equivalents and total stockholders' equity (deficit) and total capitalization by $         million.

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DILUTION

              If you invest in our common stock, your interest will be diluted to the extent of the difference between the amount per share paid by purchasers of shares of common stock in this initial public offering and the pro forma as adjusted net tangible book value per share of common stock immediately after this offering.

              At March 31, 2013, our net tangible book value was approximately $         million, or $         per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the shares of common stock outstanding at March 31, 2013. After giving effect to our sale of                         shares of common stock in this offering at an assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at March 31, 2013 would have been $            , or $            per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $            per share to existing stockholders and an immediate dilution of $            per share to new investors.

              The following table illustrates this dilution:

Assumed initial public offering price per share

      $

Net tangible book value per share as of March 31, 2013

  $    

Increase per share attributable to this offering

       
         

Pro forma as adjusted net tangible book value per share after giving effect to this offering

       
         

Net tangible book value dilution per share to investors in this offering

      $
         

              If all our outstanding options had been exercised, the pro forma net tangible book value as of March 31, 2013 would have been $             million, or $             per share, and the pro forma net tangible book value after this offering would have been $             million, or $            per share, causing dilution to new investors of $            per share.

              If the underwriters fully exercise their option to purchase additional shares, the pro forma as adjusted net tangible book value per share after giving effect to this offering would be $            per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $            per share.

              The following table summarizes, on a pro forma as adjusted basis as of March 31, 2013, the total number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid to us by existing stockholders and by new investors purchasing shares in this offering at the assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 
  Shares Purchased   Total Consideration    
 
 
  Average Price
Per Share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders

            % $         % $    

New investors

                               
                         

Total

          100.0 % $       100.0 % $    
                       

              The foregoing calculations are based on:

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              The foregoing calculations exclude:

              A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value by $             million, or $            per share, and the pro forma dilution per share to investors in this offering by the $            per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us. Each increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease our pro forma as adjusted net tangible book value by approximately $             million, or $            per share, and the pro forma dilution to investors in this offering would be $            per share, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions payable by us. The pro forma information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

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SELECTED CONSOLIDATED FINANCIAL DATA

              We have derived the selected consolidated statements of operations data for the fiscal years ended December 31, 2010, 2011 and 2012 and the selected consolidated balance sheet data as of December 31, 2011 and 2012 from our audited consolidated financial statements and related notes included elsewhere in this prospectus. We have derived the selected consolidated statements of operations data for the three months ended March 31, 2012 and March 31, 2013 and the selected consolidated balance sheet data as of March 31, 2013 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. We have derived the selected consolidated statements of operations data for the fiscal years ended December 31, 2008 and 2009 from our audited consolidated financial statements not included in this prospectus. We have derived the selected consolidated balance sheet data as of March 31, 2012 from our unaudited consolidated financial statements not included in this prospectus. Our unaudited interim consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of those statements. The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any future period and the results for any interim period are not necessarily indicative of the results to be expected in the full year.

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2008   2009   2010   2011   2012   2012   2013  
 
  (In thousands, except per share data)
   
   
 

Consolidated Statements of Operations Data:

                                           

Revenue

 
$

57,098
 
$

67,742
 
$

74,925
 
$

93,376
 
$

109,512
 
$

22,628
 
$

26,571
 

Cost of revenue

    35,330     41,674     43,357     50,534     57,225     12,466     13,550  

Cost of revenue—inventory purchase commitment

                    1,840          
                               

Gross margin

    21,768     26,068     31,568     42,842     50,447     10,162     13,021  

Operating expenses:

                                           

Research and development

    12,013     10,862     15,922     19,211     20,310     4,813     6,066  

Sales and marketing

    15,079     16,483     22,491     17,546     20,182     5,038     5,605  

General and administrative

    8,225     6,690     8,876     9,805     10,150     2,532     2,828  

Litigation settlement

    3,937                 2,869          
                               

Total operating expenses

    39,254     34,035     47,289     46,562     53,511     12,383     14,499  
                               

Loss from operations

    (17,486 )   (7,967 )   (15,721 )   (3,720 )   (3,064 )   (2,221 )   (1,478 )

Interest and other expense, net

    (47 )   (401 )   (544 )   (165 )   (518 )   (462 )   (49 )
                               

Loss before income taxes

    (17,533 )   (8,368 )   (16,265 )   (3,885 )   (3,582 )   (2,683 )   (1,527 )

Income tax (expense) benefit

                    (141 )       56  
                               

Net loss

  $ (17,533 ) $ (8,368 ) $ (16,265 ) $ (3,885 ) $ (3,723 ) $ (2,683 ) $ (1,471 )
                               

Net loss per common share,
basic and diluted

  $ (2.28 ) $ (1.04 ) $ (1.91 ) $ (0.39 ) $ (0.30 ) $ (0.23 ) $ (0.11 )
                               

Other Non-GAAP Financial Data:

                                           

Adjusted gross margin

 
$

21,811
 
$

26,094
 
$

31,596
 
$

42,891
 
$

52,365
 
$

10,179
 
$

13,037
 

Adjusted gross margin percentage

    38.2%     38.5%     42.2%     45.9%     47.8%     45.0%     49.1%  

Adjusted operating income (loss)

  $ (12,541 ) $ (6,928 ) $ (14,252 ) $ (1,707 ) $ 4,514   $ (1,490 ) $ (640 )

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              Stock-based compensation expense included in the consolidated statements of operations data above was as follows:

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2008   2009   2010   2011   2012   2012   2013  
 
  (In thousands)
   
   
 

Cost of revenue

  $ 43   $ 26   $ 28   $ 49   $ 78   $ 17   $ 16  

Research and development

    167     229     249     492     704     130     236  

Sales and marketing

    245     339     546     523     580     144     184  

General and administrative

    553     445     646     949     1,507     440     402  
                               

Total stock-based compensation expense

  $ 1,008   $ 1,039   $ 1,469   $ 2,013   $ 2,869   $ 731   $ 838  
                               

Adjusted Gross Margin

              A reconciliation of Adjusted gross margin to gross margin, the most directly comparable GAAP financial measure, is presented below:

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2008   2009   2010   2011   2012   2012   2013  
 
  (Dollars in thousands)
   
   
 

Gross margin

  $ 21,768   $ 26,068   $ 31,568   $ 42,842   $ 50,447   $ 10,162   $ 13,021  

Stock-based compensation expense included in cost of revenue

    43     26     28     49     78     17     16  

Cost of revenue—inventory purchase commitment

                    1,840          
                               

Adjusted gross margin

  $ 21,811   $ 26,094   $ 31,596   $ 42,891   $ 52,365   $ 10,179   $ 13,037  
                               

Adjusted gross margin percentage

    38.2%     38.5%     42.2%     45.9%     47.8%     45.0%     49.1%  

              To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this prospectus Adjusted gross margin, a non-GAAP financial measure. We have included Adjusted gross margin in this prospectus because Adjusted gross margin is a key measure used by our management and board of directors to understand and evaluate our operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans.

              Adjusted gross margin is defined as gross margin less stock-based compensation expense and loss on inventory purchase commitment. Management believes that the use of Adjusted gross margin provides consistency and comparability with our past and future performance, facilitates period-to-period comparisons and also facilitates comparisons with other companies.

              Management believes that it is useful to exclude stock-based compensation expense from gross margin because the amount of such expense in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude loss on inventory purchase commitment because it is an expense that arose from our commitment to purchase energy-related products from our contract manufacturing partner that we will not use due to our decision to discontinue our energy product line for utility customers. We have not incurred that type of expense in past periods and we believe that past and future periods are more comparable if we exclude that expense from gross margin.

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              Our use of Adjusted gross margin has limitations as an analytical tool and you should not consider it in isolation or a substitute for our analysis of our results as reported under GAAP. Some of these limitations are:

              Because of these limitations, you should consider Adjusted gross margin alongside other financial performance measures.

Adjusted Operating Income

              A reconciliation of Adjusted operating income (loss) to loss from operations, the most directly comparable GAAP financial measure, is presented below:

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2008   2009   2010   2011   2012   2012   2013  
 
  (In thousands)
   
   
 

Loss from operations

  $ (17,486 ) $ (7,967 ) $ (15,721 ) $ (3,720 ) $ (3,064 ) $ (2,221 ) $ (1,478 )

Stock-based compensation expense

    1,008     1,039     1,469     2,013     2,869     731     838  

Cost of revenue—inventory purchase commitment

                    1,840          

Litigation settlement

    3,937                 2,869          
                               

Adjusted operating income (loss)

  $ (12,541 ) $ (6,928 ) $ (14,252 ) $ (1,707 ) $ 4,514   $ (1,490 ) $ (640 )
                               

              To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this prospectus Adjusted operating income, a non-GAAP financial measure. We have included Adjusted operating income in this prospectus because Adjusted operating income is a key measure used by our management and board of directors to understand and evaluate our operating performance and trends. We use it to prepare and approve our annual budget and to develop short- and long-term operational plans.

              Adjusted operating income is defined as operating income less stock-based compensation expense, less loss on inventory purchase commitment and litigation settlement expense. Management believes that the use of Adjusted operating income provides consistency and comparability with our past and future performance, facilitates period-to-period comparisons and also facilitates comparisons with other companies.

              Management believes that it is useful to exclude stock-based compensation expense from operating income because the amount of such expense in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude loss on inventory purchase commitment because it is an expense that arose from our commitment to purchase energy-related products from our contract manufacturing partner that we will not use due to our decision to discontinue our energy product line for utility customers. We have not incurred that type of expense in past periods and we believe that past and future periods are more comparable if we exclude that expense from operating income. We believe it is useful to exclude litigation settlement expense

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from operating income because that expense was related to two separate legal settlements that were resolved in 2012. Those settlements are not indicative of past or future operating performance. We believe that past and future periods are more comparable if we exclude that expense from operating income.

              Our use of Adjusted operating income has limitations as an analytical tool and you should not consider it in isolation or a substitute for our analysis of our results as reported under GAAP. Some of these limitations are:

              Because of these limitations, you should consider Adjusted operating income alongside other financial performance measures.

Consolidated Balance Sheet Data

              The following table sets forth our selected consolidated balance sheet data as of the dates presented:

 
  As of December 31,   As of March 31,  
 
  2011   2012   2012   2013  
 
  (In thousands)
   
   
 

Consolidated Balance Sheet Data:

                         

Cash and cash equivalents

  $ 18,468   $ 18,695   $ 16,561   $ 14,573  

Property and equipment, net

    2,127     2,666     2,262     3,566  

Working capital, excluding deferred revenue

    24,908     23,832     23,156     21,582  

Total assets

    43,534     50,638     42,126     49,455  

Long-term debt, including current portion

    2,320     3,159     2,388     3,394  

Redeemable convertible preferred stock and warrant liability

    116,660     116,914     117,059     116,889  

Total stockholders' deficit

    (92,506 )   (92,603 )   (94,499 )   (93,204 )

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

               You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the "Risk Factors" section.

Overview

              Control4 is a leading provider of automation and control solutions for the connected home. We unlock the potential of connected devices, making entertainment systems easier to use, homes more comfortable and energy efficient, and families more secure. We provide our consumers with the ability to integrate music, video, lighting, temperature, security, communications and other functionalities into a unified home automation solution that enhances our consumers' daily lives. More than 75% of our consumers have integrated two or more of these functionalities with our solution. At the center of our solution is our advanced software platform, which we provide through our products that interface with a wide variety of connected devices that are developed by us and by third parties.

              We derive virtually all of our revenue from the sale of products that contain our proprietary software, which functions as the operating system of the home. Currently, we derive a smaller portion of our revenue from licensing our MyHome software, which allows consumers to access their home control system from their smartphone, tablet or laptop. In the future, we plan to bundle MyHome software licenses with our controller appliances. We also generate revenue from the sale of annual subscriptions to our 4Sight service, which allows consumers to receive alerts regarding activities in their home, and also allows dealers to perform remote diagnostic services. Although our subscription-based revenue is currently insignificant, we intend over time to develop additional subscription-based services and increase our subscription-based revenue.

              We outsource the manufacturing of our hardware products to contract manufacturers. The majority of our hardware products are manufactured by Sanmina and LiteOn at their respective facilities in southern China, with additional manufacturing performed by six other contract manufacturers throughout Asia.

              Consumers purchase our products from our worldwide network of certified independent dealers, regional and national retailers and distributors. These dealers design and install a solution to fit the specific needs of each consumer, whether it is a one-room home theatre solution or a whole-home automation solution that includes the integration of music, video, lighting, temperature, security and communications devices. Our products are primarily installed in both new and existing residences. A portion of our revenue is attributable to small commercial installations and multi-dwelling units, including hotels. During the year ended December 31, 2012, we sold our products directly to over 2,800 active direct dealers in the United States, Canada, the United Kingdom and 40 other countries, and partnered with 27 distributors to cover an additional 38 countries where we do not have direct dealer relationships. These distributors sell our solutions through dealers and provide warehousing, training, technical support, billing and service for dealers in each of those countries.

              We were founded in 2003 and began shipping our products and generating revenue in 2005. Our revenue has increased from $23.0 million for the year ended December 31, 2006 to $109.5 million for the year ended December 31, 2012. Our revenue for the three months ended March 31, 2013 was $26.6 million, compared to $22.6 million for the three months ended March 31, 2012. Our revenue growth has resulted primarily from a combination of adding new dealers and distributors to our sales

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channel, as well as increasing revenue from existing dealers and distributors by enhancing and expanding our product offerings and solutions.

              We refer to revenue from sales through our dealer and distributor network in the United States and Canada (which we refer to as North America) and outside of North America (which we refer to as International) as our Core revenue. Our Core revenue excludes revenue attributable to products we sell to hotels and other multi-dwelling units, and certain other revenue. Our North America Core revenue represented 74% and 77% of our revenue for the year ended December 31, 2012 and the three months ended March 31, 2013, respectively. Our International Core revenue has been growing at a faster rate than our North America Core revenue. Our International Core revenue for the three months ended March 31, 2013 increased by 20% compared to the three months ended March 31, 2012, primarily due to our addition of new international dealers and distributors.

              To date, nearly all of our revenue growth has been organic. We have completed small acquisitions, but those acquisitions have been technology- and distribution-related and have not contributed materially to our revenue. We intend to identify, acquire and integrate strategic technologies, assets and businesses that we believe will enhance the overall strength of our business.

              We have historically experienced seasonal variations in our revenue as a result of holiday-related factors that are common in our industry. Our revenue is generally highest in the fourth quarter due to consumers' desires to complete their home installations prior to the Thanksgiving and Christmas holidays. We generally see decreased sales in the first quarter due to the number of installations that were completed in the fourth quarter and the resulting decline in dealer activity in the first quarter. We generally expect these seasonal trends to continue in the future, which may cause quarterly fluctuations in our results of operations and certain financial metrics.

Factors and Trends Affecting Our Performance

              A number of industry trends have facilitated our growth over the past several years, including the proliferation of connected devices and the ubiquity and growth of network-enabled homes. From 2006 through 2008, the majority of our sales were for use in new, single-family homes. During the slowdown in the new housing market beginning in 2008, our dealers redirected their focus to existing homes, and today, we estimate that the majority of our installations are in existing homes. We expect that future increases in either new home construction or existing home renovations will have a positive impact on our revenue.

              We believe that the growth of our business and our future success are dependent upon many factors, including the rates at which consumers adopt our products and services, our ability to strengthen and expand our dealer and distributor network, our ability to expand internationally and our ability to meet competitive challenges. While each of these areas presents significant opportunities for us, they also pose important challenges that we must successfully address in order to sustain or expand the growth of our business and improve our results of operations. These challenges include:

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Key Operating and Financial Metrics

              We use the following key operating and financial metrics to evaluate and manage our business.

 
  As of or for the Years Ended
December 31,
  As of or for the
Three Months
Ended March 31,
 
 
  2009   2010   2011   2012   2012   2013  

Number of North America Dealers

    1,633     1,944     2,215     2,350     2,240     2,371  

Number of Direct International Dealers

    159     261     375     501     400     514  

Number of Controller Appliances Sold

    36,796     49,703     62,760     69,209     15,222     17,758  

Core Revenue Growth

    13%     26%     24%     20%     17%     19%  

International Core Revenue as a Percentage of Total Revenue

    9%     14%     18%     22%     20%     20%  

Number of North America and Direct International Dealers

              Because our dealers promote, sell, install and support our products, a broader dealer network allows us to reach more potential consumers across more geographic regions. We expect our dealer network to continue to grow, both in North America and internationally. While we have historically focused on dealers affiliated with the Custom Electronics Design and Installation Association, or CEDIA, we believe there is an opportunity to establish relationships with dealers outside of CEDIA, including electrical contractors, heating and cooling specialists, and security system installers. The number of dealers in the above table reflects active direct dealers that have placed an order with us in the trailing 12-month period.

              Our international dealer network is growing at a faster rate than our North America dealer network, and we expect this trend to continue as we increase our presence in new and existing international markets. In addition, in some international markets, we plan to establish direct relationships with selected dealers that we previously served through distributors, which we expect will further increase our number of direct international dealers.

Number of Controller Appliances Sold

              Our controller appliances contain our proprietary software and provide consumers with the essential software technology to enable home control, automation and personalization. Historically, on average, our consumers have purchased 2.26 controller appliances per installation. The number of controller appliances we sell in a given period provides us with an indication of consumer adoption of our technology. Our sales of controller appliances also create significant opportunity to sell our other products and services. Historically, for every one dollar of controller revenue we generate, we have recognized approximately two dollars of revenue from the sale of our other products and services,

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although this varies from period to period. Once a consumer has deployed our controller appliances, we believe that the consumer is more likely to remain committed to our technology platform and purchase more of our products, applications and services in the future.

Core Revenue Growth

              The majority of our revenue comes from sales of our products through our distribution channels comprised of dealers in the United States and Canada and dealers and distributors located throughout the rest of the world. We refer to revenue attributable to sales through dealers located in the United States and Canada as North America Core revenue and revenue attributable to sales through dealers and distributors located throughout the rest of the world as International Core revenue. Core revenue does not include revenue from sales to hotels or multi-dwelling units, sales to utility customers and certification fees paid to us. Our revenue from sales to hotels, multi-dwelling units and other sources is generally project-based and has been significant in some periods and insignificant in other periods. In the future, we expect revenue from these sources to continue to be attributable to large projects and will continue to be significant in some periods and insignificant in other periods. We, therefore, believe that our core revenue growth is a good measure of our market penetration and the growth of our business.

International Revenue as a Percentage of Total Revenue

              We believe that the international market represents a large and underpenetrated opportunity for us. In recent years, we have established offices in international regions, we have formed relationships with international dealers and distributors and we have expanded foreign language support for our solutions. We track International revenue as a percentage of total revenue as a key measure of our success expanding our business internationally.

Basis of Presentation and Key Components of Results of Operations

Revenue

              We derive revenue primarily from the sale of products that contain our proprietary software. We generally recognize revenue upon the shipment of our products. We also license software that allows our customers to manage and control their homes from their smartphones, tablets or laptops. We recognize software license revenue at the time the software license is provided to the customer. In addition, we sell a subscription service, 4Sight, that allows consumers to control and monitor their homes remotely from their smartphones, tablets or laptops, and allows our dealers to perform remote diagnostic services. We defer subscription revenue at the time of payment and recognize it ratably over the term the service is provided. We record estimated reductions to revenue for dealer and distributor incentives at the time of the initial sale. We also record estimated reductions to revenue for estimated returns from our dealers and distributors at the time of the initial sale.

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              The following is a breakdown of our revenue between North America and International and a further breakdown between our Core revenue and other revenue:

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2009   2010   2011   2012   2012   2013  
 
  (In thousands)
 

North America Core Revenue

  $ 50,134   $ 60,245   $ 71,472   $ 81,130   $ 17,257   $ 20,470  

Other North America Revenue

    11,116     3,120     2,633     1,280     516     576  
                           

Total North America Revenue

    61,250     63,365     74,105     82,410     17,773     21,046  
                           

International Core Revenue

   
6,106
   
10,699
   
16,797
   
24,471
   
4,507
   
5,386
 

Other International Revenue

    386     861     2,474     2,631     348     139  
                           

Total International Revenue

    6,492     11,560     19,271     27,102     4,855     5,525  
                           

Total Revenue

 
$

67,742
 
$

74,925
 
$

93,376
 
$

109,512
 
$

22,628
 
$

26,571
 
                           

North America Core Revenue as a % of Total Revenue

   
74%
   
80%
   
77%
   
74%
   
76%
   
77%
 

International Core Revenue as a % of Total Revenue

    9%     14%     18%     22%     20%     20%  

Cost of Revenue

              Cost of revenue is comprised primarily of the price we pay our contract manufacturers for the components and products that they produce on our behalf. We closely monitor our product costs and continually work to reduce the cost of our products through negotiation with our contract manufacturers and component vendors, and engineering design changes. Cost of revenue also includes all of the overhead expenses associated with procuring, warehousing and shipping our products (both inbound and outbound). Cost of revenue also includes estimated and actual expenses associated with excess and obsolete inventory, as well as warranty expenses and royalty fees paid to third-party licensors.

Gross Margin

              As a percentage of revenue, our gross margin has been and will continue to be affected by a variety of factors. Our gross margin is relatively consistent across our products. Our gross margin is higher on software licensing and subscription revenue than it is on product sales. Our gross margin is also higher on our sales made directly through dealers than it is on our sales made through distributors. Gross margin may also be negatively affected by price competition in our target markets. Our gross margin on third-party products we sell through our online distribution platform is higher than our gross margin on our other product sales because we only recognize our net profit on these sales as revenue.

              In the near term, we generally expect our gross margin to increase modestly as a result of our continued efforts to work with our contract manufacturers and component vendors to reduce the cost of components we purchase, engineer product design improvements, manage our supply chain and realize economies of scale as we grow our business. We also expect increased third-party product sales through our online distribution platform to have a positive impact on our gross margin going forward. From time to time, however, we may experience fluctuations in our gross margin as a result of the factors discussed in the preceding paragraph.

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Operating Expenses

Research and Development

              Research and development expenses consist primarily of compensation for our engineers and product managers. Research and development expenses also include prototyping expenses incurred in the development of our products, including products used for testing. We also include fees paid to agencies to obtain regulatory certifications. We expect our research and development expenses to increase in absolute dollars for the foreseeable future as we continue to invest in the development of new solutions; however, we expect those expenses to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenue and the timing of those expenses.

Sales and Marketing

              Sales and marketing expenses consist primarily of compensation and related travel expenses for our sales and marketing personnel. Sales and marketing expenses also include expenses associated with trade shows, marketing events, advertising and other marketing-related programs. We expect our sales and marketing expenses to increase in absolute dollars for the foreseeable future as we add sales personnel, particularly in our international channel, and continue to invest in advertising and promotions to increase awareness of our products. However, we also expect our sales and marketing expenses to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenue and the timing of those expenses.

General and Administrative

              General and administrative expenses consist primarily of compensation for our employees in our executive administration, finance, information systems and legal departments. Also included in general and administrative expenses are outside legal fees, audit fees, facilities expenses and insurance costs. We expect our general and administrative expenses to increase in absolute dollars primarily as a result of the increased cost associated with being a public company. However, we also expect our general and administrative expenses to fluctuate as a percentage of our revenue in future periods based on fluctuations in our revenue and the timing of those expenses.

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Results of Operations

              The following tables set forth our results of operations for the periods presented in absolute dollars and as a percentage of our revenue for those periods.

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
  (In thousands)
 

Revenue

  $ 74,925   $ 93,376   $ 109,512   $ 22,628   $ 26,571  

Cost of revenue

    43,357     50,534     57,225     12,466     13,550  

Cost of revenue—inventory purchase commitment

            1,840          
                       

Gross margin

    31,568     42,842     50,447     10,162     13,021  

Operating expenses:

                               

Research and development

    15,922     19,211     20,310     4,813     6,066  

Sales and marketing

    22,491     17,546     20,182     5,038     5,605  

General and administrative

    8,876     9,805     10,150     2,532     2,828  

Litigation settlement

            2,869          
                       

Total operating expenses

    47,289     46,562     53,511     12,383     14,499  
                       

Loss from operations

    (15,721 )   (3,720 )   (3,064 )   (2,221 )   (1,478 )

Other income (expense):

                               

Interest expense, net

    (404 )   (392 )   (264 )   (62 )   (75 )

Other income (expense)

    (140 )   227     (254 )   (400 )   26  
                       

Total other expense

    (544 )   (165 )   (518 )   (462 )   (49 )
                       

Loss before income taxes

    (16,265 )   (3,885 )   (3,582 )   (2,683 )   (1,527 )

Income tax (expense) benefit

            (141 )       56  
                       

Net loss

  $ (16,265 ) $ (3,885 ) $ (3,723 ) $ (2,683 ) $ (1,471 )
                       

Includes stock-based compensation expense as follows:

 
  Years Ended December 31,   Three Months
Ended March 31,
 
 
  2010   2011   2012   2012   2013  
 
  (In thousands)
 

Cost of revenue

  $ 28   $ 49   $ 78   $ 17   $ 16  

Research and development

    249     492     704     130     236  

Sales and marketing

    546     523     580     144     184  

General and administrative

    646     949     1,507     440     402  
                       

Total stock-based compensation expense

  $ 1,469   $ 2,013   $ 2,869   $ 731   $ 838  
                       

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  Years Ended
December 31,
  Three Months
Ended March 31,
 
 
  2010   2011   2012   2012   2013  
 
  (As a percentage of revenue)
 

Revenue

    100 %   100 %   100 %   100 %   100 %

Cost of revenue

    58     54     52     55     51  

Cost of revenue—inventory purchase commitment

    0     0     2          
                       

Gross margin

    42     46     46     45     49  

Operating expenses:

                               

Research and development

    21     21     19     21     23  

Sales and marketing

    30     19     18     22     21  

General and administrative

    12     11     9     11     11  

Litigation settlement expense

    0     0     3          
                       

Total operating expenses

    63     50     49     55     55  
                       

Loss from operations

    (21 )   (4 )   (3 )   (10 )   (6 )

Other income (expense):

                               

Interest expense, net

    (1 )   0     0     0     0  

Other income (expense)

    0     0     0     (2 )   0  
                       

Total other expense

    (1 )   0     (0 )   (2 )   0  
                       

Loss before income taxes

    (22 )   (4 )   (3 )   (12 )   (6 )

Income tax (expense) benefit

    0     0     0     0     0  
                       

Net loss

    (22 )%   (4 )%   (3 )%   (12 )%   (6 )%
                       

Comparison of the Three Months Ended March 31, 2012 and 2013:

Revenue

 
  Three Months
Ended March 31,
  Change  
 
  2012   2013   $   %  
 
  (Dollars in thousands)
 

Revenue

  $ 22,628   $ 26,571   $ 3,943     17%  

              Revenue increased by $3.9 million, or 17%, in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. North America core revenue increased by $3.2 million, or 19%, from $17.3 million in the three months ended March 31, 2012 to $20.5 million in the three months ended March 31, 2013, while International core revenue increased by $900,000, or 20%, from $4.5 million in the three months ended March 31, 2012 to $5.4 million in the three months ended March 31, 2013. The increase in North America core revenue was due to a combination of the net increase in the number of active direct dealers selling our products and services and an increase in sales from existing direct dealers, both resulting in an increased number of system sales. The increase in International core revenue was primarily due to an increase in the number of dealers and distributors selling our products and services and the resulting increase in the number of system sales. Our International core revenue increased at a slower rate than it increased for the full year 2012 compared to 2011 primarily due to lower sales in China and certain countries in Latin America. Other revenue declined by $200,000 from $900,000 for the three months ended March 31, 2012 to $700,000 for the three months ended March 31, 2013. The decline in other revenue is due primarily to sales to energy-related customers in 2012 that did not recur in 2013.

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Gross Margin

 
  Three Months
Ended March 31,
  Change  
 
  2012   2013   $   %  
 
  (Dollars in thousands)
 

Gross margin

  $ 10,162   $ 13,021   $ 2,859     28%  

Percentage of revenue

    45%     49%              

              As a percentage of revenue, our gross margin increased from 44.9% in the three months ended March 31, 2012 to 49.0% in the three months ended March 31, 2013. The increase in gross margin was due to a combination of component cost reductions, a decrease in fixed overhead as a percentage of revenue and higher sales of third-party products sold through our online distribution platform.

Research and Development Expenses

 
  Three Months
Ended March 31,
  Change  
 
  2012   2013   $   %  
 
  (Dollars in thousands)
 

Research and development expenses

  $ 4,813   $ 6,066   $ 1,253     26%  

Percentage of revenue

    21%     23%              

              Research and development expenses increased by $1.3 million, or 26%, in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. Research and development expenses increased as a percentage of revenue from 21% in the three months ended March 31, 2012 to 23% in the three months ended March 31, 2013. The increase in research and development expenses was due primarily to increased cash and stock compensation expense as a result of adding product development and product management personnel. Expenses associated with prototyping and test units associated with products announced or to be announced in 2013 also increased in the first quarter of 2013 compared to the first quarter of 2012.

Sales and Marketing Expenses

 
  Three Months
Ended March 31,
  Change  
 
  2012   2013   $   %  
 
  (Dollars in thousands)
 

Sales and marketing expenses

  $ 5,038   $ 5,605   $ 567     11%  

Percentage of revenue

    22%     21%              

              Sales and marketing expenses increased by $567,000, or 11%, in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. Sales and marketing expenses decreased as a percentage of revenue from 22% in the three months ended March 31, 2012 to 21% in in the three months ended March 31, 2013. The increase in sales and marketing expenses was due to increased compensation expense as a result of adding sales and marketing personnel, increased trade show-related expenses and increased credit card merchant fess associated with the increase in revenue.

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General and Administrative Expenses

 
  Three Months
Ended March 31,
  Change  
 
  2012   2013   $   %  
 
  (Dollars in thousands)
 

General and administrative expenses

  $ 2,532   $ 2,828   $ 296     12%  

Percentage of revenue

    11%     11%              

              General and administrative expenses increased by $296,000, or 12%, in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. General and administrative expenses were 11% of revenue in the three months ended March 31, 2012 and 2013. The increase in general and administrative expenses was due primarily to increased consulting, accounting and legal fees. Compensation expense was also higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012 due to the addition of general and administrative personnel.

Other Income (Expense)

 
  Three Months
Ended March 31,
  Change
 
  2012   2013   $   %
 
  (Dollars in thousands)

Other income (expense)

  $ (462 ) $ (49 ) $ 413     (89)%

              Other expense increased by $413,000 for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The increase is due primarily to the change in the fair value of the warrant to purchase Series G-1 redeemable convertible preferred stock.

Comparison of the Years Ended December 31, 2010, 2011 and 2012

Revenue

 
  Years Ended December 31,    
   
 
 
  2011 over
2010
  2012 over
2011
 
 
  2010   2011   2012  
 
  (Dollars in thousands)
 

Revenue

  $ 74,925   $ 93,376   $ 109,512     25%     17%  

2012 Compared to 2011

              Revenue increased by 17% in 2012 compared to 2011. North America core revenue increased by $9.7 million, or 14%, from $71.5 million in 2011 to $81.1 million in 2012, while International core revenue increased by $7.7 million, or 46%, from $16.8 million in 2011 to $24.5 million in 2012. The increase in North America core revenue was primarily due to the net increase in the number of active direct dealers and the resulting increase in the number of system sales. Our International core revenue increased at a faster rate than our North America core revenue primarily due to the growth rate being measured from a smaller base, increased dealer penetration into regions where we had previously done business, and our expansion into new regions. As of December 31, 2012, we had 2,350 active dealers in North America compared to 2,215 at the end of 2011. Similarly, we had 501 active direct International dealers compared to 375 at the end of 2011. Other revenue declined by $1.2 million, or 23%, from $5.1 million in 2011 to $3.9 million in 2012. The decline was primarily due to a decrease in revenue from sales to hotels and multi-dwelling units. Revenue from sales to hotels and multi-dwelling units is difficult for us to predict and we are uncertain as to how much revenue we will receive from these projects in the future.

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2011 Compared to 2010

              Revenue increased by 25% in 2011 compared to 2010. North America core revenue increased by $11.3 million, or 19%, from $60.2 million in 2010 to $71.5 million in 2011, while International core revenue increased by $6.1 million, or 57%, from $10.7 million in 2010 to $16.8 million in 2011. The increase in North America core revenue was primarily due to an increase in the number of dealers selling our products and the resulting increase in the number of system sales. International core revenue increased at a faster rate than North America core revenue primarily due to increased penetration in countries and regions where we had previously done business, as well as our expansion into new countries and regions.

Gross Margin

 
  Years Ended December 31,    
   
 
 
  2011 over
2010
  2012 over
2011
 
 
  2010   2011   2012  
 
  (Dollars in thousands)
 

Gross margin

  $ 31,568   $ 42,842   $ 50,447     36%     18%  

Percentage of revenue

    42%     46%     46%              

2012 Compared to 2011

              As a percentage of revenue, our gross margin increased from 45.9% in 2011 to 46.1% in 2012. In 2012, our total cost of revenue included the loss on inventory purchase commitments of $1.8 million recorded in the third quarter of 2012. The loss on inventory purchase commitments was the result of our commitment to purchase energy-related products from our contract manufacturing partner that we will not use due to our decision to discontinue our energy product line in 2012 because the near- and mid-term demand of utility customers for the energy product line was lower than expected and the costs of developing and servicing the energy product line was higher than we expected. Our energy product line consisted of a wireless thermostat and an in-home controller device that connected wirelessly to the home's smart meter, allowing utility customers to monitor their energy usage and to modify their energy consumption. We generated less than 1% of our total revenue from our energy product line in each of 2010, 2011 and 2012. Excluding the loss on inventory purchase commitments, gross margin would have increased by $9.4 million, or 22%, in 2012 compared to 2011. Gross margin would have increased as a percentage of revenue from 45.9% in 2011 to 47.7% in 2012. That increase in gross margin as a percentage of revenue was due primarily to a combination of a decrease in fixed manufacturing overhead as a percentage of revenue and component cost reductions.

2011 Compared to 2010

              As a percentage of revenue, our gross margin increased from 42.1% in 2010 to 45.9% in 2011. The increase in gross margin was due to a combination of favorable sales mix and component cost reductions. In 2011, we began selling MyHome software applications, which represented approximately 5% of our revenue in 2011 and contributed to the favorable sales mix compared to 2010. Fixed overhead as a percentage of revenue was relatively constant in 2011 compared to 2010.

Research and Development Expenses

 
  Years Ended December 31,    
   
 
 
  2011 over
2010
  2012 over
2011
 
 
  2010   2011   2012  
 
  (Dollars in thousands)
 

Research and development expenses

  $ 15,922   $ 19,211   $ 20,310     21%     6%  

Percentage of revenue

    21%     21%     19%              

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2012 Compared to 2011

              Research and development expenses increased by $1.1 million, or 6%, in 2012 compared to 2011. Research and development expenses declined as a percentage of revenue from 21% in 2011 to 19% in 2012. The increase in research and development expenses was due primarily to increased cash and stock compensation expense as a result of adding product development and product management personnel. Expenses associated with prototyping and compliance agency approvals also increased in 2012 compared to 2011 due to new products introduced in 2012 and new products that will be introduced in 2013.

2011 Compared to 2010

              Research and development expenses increased by $3.3 million, or 21%, in 2011 compared to 2010 and remained at 21% of revenue in both 2010 and 2011. The increase was primarily due to increased compensation paid for product management and product development personnel in 2011 compared to 2010. The increase in compensation was partially offset by a reduction in contract labor expense and recruiting and relocation expense.

Sales and Marketing Expenses

 
  Years Ended December 31,    
   
 
 
  2011 over
2010
  2012 over
2011
 
 
  2010   2011   2012  
 
  (Dollars in thousands)
 

Sales and marketing expenses

  $ 22,491   $ 17,546   $ 20,182     (22 )%   15%  

Percentage of revenue

    30%     19%     18%              

2012 Compared to 2011

              Sales and marketing expenses increased by $2.6 million, or 15%, in 2012 compared to 2011. Sales and marketing expenses declined as percentage of revenue from 19% in 2011 to 18% in 2012. The increase in sales and marketing expenses was due primarily to increased compensation expense as a result of adding marketing personnel. We also increased the amount spent on advertising and public relations and general marketing expenses in 2012 compared to 2011. These increases were partially offset by a reduction in the amount spent period-over-period on tradeshows, in particular due to our reduced investment in the Consumer Electronics Show, or CES.

2011 Compared to 2010

              Sales and marketing expenses decreased by $4.9 million, or 22%, in 2011 compared to 2010 and decreased as a percentage of revenue from 30% in 2010 to 19% in 2011. The decrease was primarily due to a decrease in advertising and other discretionary marketing expenses in 2011 compared to 2010 resulting from higher advertising and promotions expenses in 2010. There was also a reduction in sales and marketing compensation in 2011 compared to 2010, primarily resulting from reduced investment in resources associated with energy-related products for utilities in 2011 compared to 2010.

General and Administrative Expenses

 
  Years Ended December 31,    
   
 
 
  2011 over
2010
  2012 over
2011
 
 
  2010   2011   2012  
 
  (Dollars in thousands)
 

General and administrative expenses

  $ 8,876   $ 9,805   $ 10,150     10%     4%  

Percentage of revenue

    12%     11%     9%              

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2012 Compared to 2011

              General and administrative expenses increased by $345,000, or 4%, in 2012 compared to 2011. General and administrative expenses declined as a percentage of revenue from 11% in 2011 to 9% in 2012. The increase in general and administrative expenses was due to increased cash and stock compensation expense resulting from the addition of administrative personnel. Professional services expenses, primarily external legal fees, were also higher in 2012 compared to 2011. These increased expenses were offset by lower facilities expenses resulting from the renegotiation of our corporate headquarters building lease and lower recruiting and relocation expenses in 2012 compared to 2011.

2011 Compared to 2010

              General and administrative expenses increased by $929,000, or 10%, in 2011 compared to 2010 and declined as a percentage of revenue from 12% in 2010 to 11% in 2011. The increase was due to small increases in compensation, recruiting and relocation, and facilities expenses, as well as communications-related expenses. The increases were partially offset by a decrease in professional services fees, primarily outside legal fees.

Litigation Settlement Expense

              In the third quarter of 2012, we recorded an expense of $2.9 million in connection with two separate legal settlements. In December 2012, we entered into a license agreement to settle a patent-related dispute resulting in an expense of $2.1 million. In addition, we made a payment of $750,000 to release our obligations under a long-term energy-related contract.

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Unaudited Quarterly Results of Operations and Other Data

              The following tables present our unaudited quarterly consolidated results of operations and other data for each of the nine quarters ended March 31, 2013, both in absolute dollars and as a percentage of revenue. This unaudited quarterly consolidated information has been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, the statement of operations data includes all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. You should read this table in conjunction with our audited consolidated financial statements and related notes located elsewhere in this prospectus. The results of operations for any quarter are not necessarily indicative of the results of operations for a full year or any future periods.

 
  Three Months Ended  
 
  March 31,
2011
  June 30,
2011
  Sept 30,
2011
  Dec 31,
2011
  March 31,
2012
  June 30,
2012
  Sept 30,
2012
  Dec 31,
2012
  March 31,
2013
 
 
  (In thousands)
 

Revenue

  $ 19,745   $ 23,772   $ 24,906   $ 24,953   $ 22,628   $ 27,614   $ 28,605   $ 30,665   $ 26,571  

Cost of revenue

    10,830     12,593     13,308     13,803     12,466     14,326     14,918     15,515     13,550  

Cost of revenue—inventory purchase commitment

                            1,840          
                                       

Gross margin

    8,915     11,179     11,598     11,150     10,162     13,288     11,847     15,150     13,021  

Operating expenses:

                                                       

Research and development

    4,789     4,655     4,667     5,100     4,813     5,148     5,158     5,191     6,066  

Sales and marketing

    4,957     4,115     4,644     3,830     5,038     5,108     5,333     4,703     5,605  

General and administrative

    2,266     2,787     2,288     2,464     2,532     2,663     2,471     2,484     2,828  

Litigation settlement

                            2,869          
                                       

Total operating expenses

    12,012     11,557     11,599     11,394     12,383     12,919     15,831     12,378     14,499  
                                       

Income (loss) from operations

    (3,097 )   (378 )   (1 )   (244 )   (2,221 )   369     (3,984 )   2,772     (1,478 )

Other income (expense):

                                                       

Interest expense, net

    (133 )   (124 )   (67 )   (68 )   (62 )   (73 )   (63 )   (66 )   (75 )

Other income (expense)

    75     33     93     26     (400 )   223     (45 )   (32 )   26  
                                       

Total other income (expense)

    (58 )   (91 )   26     (42 )   (462 )   150     (108 )   (98 )   (49 )
                                       

Income (loss) before income taxes

  $ (3,155 ) $ (469 ) $ 25   $ (286 ) $ (2,683 ) $ 519   $ (4,092 ) $ 2,674   $ (1,527 )

Income tax (expense) benefit

                                (141 )   56  
                                       

Net income (loss)

  $ (3,155 ) $ (469 ) $ 25   $ (286 ) $ (2,683 ) $ 519   $ (4,092 ) $ 2,533   $ (1,471 )
                                       

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              Includes stock-based compensation expense as follows:

 
  Three Months Ended  
 
  March 31,
2011
  June 30,
2011
  Sept 30,
2011
  Dec 31,
2011
  March 31,
2012
  June 30,
2012
  Sept 30,
2012
  Dec 31,
2012
  March 31,
2013
 
 
  (In thousands)
 

Cost of revenue

  $ 7   $ 6   $ 22   $ 14   $ 17   $ 18   $ 18   $ 25   $ 16  

Research and development

    152     109     117     114     130     129     202     243     236  

Sales and marketing

    153     139     109     122     144     138     139     159     184  

General and administrative

    191     249     165     344     440     356     363     348     402  
                                       

Total stock-based compensation expense

  $ 503   $ 503   $ 413   $ 594   $ 731   $ 641   $ 722   $ 775   $ 838  
                                       

 

 
  Three Months Ended  
 
  March 31,
2011
  June 30,
2011
  Sept 30,
2011
  Dec 31,
2011
  March 31,
2012
  June 30,
2012
  Sept 30,
2012
  Dec 31,
2012
  March 31,
2013
 
 
  (As a percentage of revenue)
 

Revenue

    100 %   100 %   100 %   100 %   100 %   100 %   100 %   100 %   100 %

Cost of revenue

    55     53     53     55     55     52     52     51     51  

Cost of revenue—inventory purchase commitment

    0     0     0     0     0     0     6     0     0  
                                       

Gross margin

    45     47     47     45     45     48     41     49     49  

Operating expenses:

                                                       

Research and development

    24     20     19     20     21     19     18     17     23  

Sales and marketing

    25     17     19     15     22     18     19     15     21  

General and administrative

    11     12     9     10     11     10     9     8     11  

Litigation settlement

    0     0     0     0     0     0     10     0     0  
                                       

Total operating expenses

    61     49     47     46     55     47     55     40     55  

Income (loss) from operations

    (16 )   (2 )   0     (1 )   (10 )   1     (14 )   9     (6 )

Other income (expense)

                                                       

Interest expense, net

    (1 )   (1 )   0     0     0     0     0     0     0  

Other income (expense)

    0     0     0     0     (2 )   1     0     0     0  
                                       

Total other income (expense)

    0     0     0     0     (2 )   1     0     0     0  
                                       

Income (loss) before income taxes

    (16 )   (2 )   0     (1 )   (12 )   2     (14 )   9     (6 )

Income tax (expense) benefit

    0     0     0     0     0     0     0     0     0  
                                       

Net income (loss)

    (16 )%   (2 )%   0 %   (1 )%   (12 )%   2 %   (14 )%   8 %   (6 )%
                                       

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Reconciliation of Non-GAAP Financial Data

Adjusted Gross Margin

 
  Three Months Ended  
 
  March 31,
2011
  June 30,
2011
  Sept 30,
2011
  Dec 31,
2011
  March 31,
2012
  June 30,
2012
  Sept 30,
2012
  Dec 31,
2012
  March 31,
2013
 

Gross margin

  $ 8,915   $ 11,179   $ 11,598   $ 11,150   $ 10,162   $ 13,288   $ 11,847   $ 15,150   $ 13,021  

Stock-based compensation expense included in cost of revenue

    7     6     22     14     17     18     18     25     16  

Cost of revenue—inventory purchase commitment

                            1,840            
                                       

Adjusted gross margin

  $ 8,922   $ 11,185   $ 11,620   $ 11,164   $ 10,179   $ 13,306   $ 13,705   $ 15,175     13,037  
                                       

Adjusted gross margin percentage

    45.2%     47.1%     46.7%     44.7%     45.0%     48.2%     47.9%     49.5%     49.1%  

Adjusted Operating Income

 
  Three Months Ended  
 
  March 31,
2011
  June 30,
2011
  Sept 30,
2011
  Dec 31,
2011
  March 31,
2012
  June 30,
2012
  Sept 30,
2012
  Dec 31,
2012
  March 31,
2013
 

Income (loss) from operations

  $ (3,097)   $ (378)   $ (1)   $ (244)   $ (2,221)   $ 369   $ (3,984)   $ 2,772   $ (1,478)  

Stock-based compensation expense

    503     503     413     594     731     641     722     775     838  

Cost of revenue—inventory purchase commitment

                            1,840          

Litigation settlement expense

                            2,869          
                                       

Adjusted operating income (loss)

  $ (2,594)   $ 125   $ 412   $ 350   $ (1,490)   $ 1,010   $ 1,447   $ 3,547   $ (640)  
                                       

              We have historically experienced seasonal variations in our revenue as a result of holiday-related factors that are common in our industry. Our revenue is generally highest in the fourth quarter due to consumers' desire to complete their home installations prior to the Thanksgiving and Christmas holidays. We generally see decreased sales in the first quarter due to the number of installations that were completed in the fourth quarter and the resulting decline in dealer activity in the first quarter. In the fourth quarter of 2011, our revenue fell below our expectations and therefore did not increase at the rate it had in the fourth quarter of prior years. Our revenue in the fourth quarter of 2012 was representative of our historical percentage increase from the third quarter to the fourth quarter.

              Our gross margin declined slightly in the fourth quarter of 2011 due to reserves that we recorded for excess and obsolete inventory in that quarter. Our gross margin in the first quarter of 2012 was equal to the fourth quarter of 2011, but lower than previous and subsequent quarters due to the mix of our product sales and higher fixed manufacturing overhead as a percentage of revenue. Our gross margin in the third quarter of 2012 was negatively impacted by the loss on inventory purchase commitments we recorded to recognize the loss resulting from our commitment to purchase energy-related products from one of our contract manufacturers that we will not use due to our decision to discontinue our energy product line for utility customers. Our gross margin in the fourth quarter of 2012 benefited from higher prices on product sales to international multi-dwelling unit customers and lower manufacturing overhead as a percentage of revenue.

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              Research and development expenses were relatively flat in absolute dollars during the four quarters of 2011, although they were slightly higher in the fourth quarter of 2011 compared to the first three quarters due to higher prototyping expenses and compliance agency fees associated with new product introductions. The increase in research and development expenses in the second, third and fourth quarters of 2012 compared to the first quarter was primarily due to higher sales and wages and higher prototyping expenses. The increase in research and development expenses in the first quarter of 2013 compared to the fourth quarter of 2012 was due primarily to higher salaries and wages resulting from the addition of product management and product development personnel late in the fourth quarter of 2012 and early in the first quarter of 2013. In addition, spending on research and development-related tools and supplies and travel associated with new product development was higher in the first quarter of 2013.

              Sales and marketing expenses are typically higher in the first and third quarters of each year due to the timing of trade shows. The Consumer Electronics Show, or CES, and Integrated Systems Europe, or ISE, trade shows occur in the first quarter and the CEDIA trade show occurs in the third quarter. In 2012, trade show expenses in the first quarter were lower than in previous years due to reduced investment in CES. In addition, increased spending on compensation, advertising and marketing promotions in the second quarter resulted in total sales and marketing expenses in the second quarter approximately equal to the first quarter of 2012. The increases in sales and marketing expenses in 2012 compared to 2011 was due to higher compensation expenses resulting from the increase in the number of sales and marketing personnel and higher discretionary marketing expenses. The decrease in sales and marketing expenses in the fourth quarter of 2012 compared to the third quarter of 2012 was due to lower trade show expenses, lower discretionary marketing expenses and lower bad debt expense.

              General and administrative expenses were higher in the second quarter of 2011 due to increased recruiting and relocation expenses and higher external legal fees. General and administrative expenses were higher in the second quarter of 2012 due to higher external legal fees related to patent litigation that was settled in the fourth quarter of 2012.

Liquidity and Capital Resources

              As of March 31, 2013, we had $14.6 million in cash and cash equivalents. We consider all highly liquid short-term investments with original maturities of three months or less at the time of purchase to be cash equivalents.

              Since inception, we have funded our operations primarily through private sales of equity securities and, to a lesser extent, from borrowings under secured credit facilities. We have raised $118.2 million through the sale of preferred stock to financial and strategic investors. Our last financing round was completed in February 2011. In that financing round, we generated net proceeds of $19.8 million from the sale of Series H Preferred Stock.

              Our cash flows from operating activities are impacted by our net income or loss and the timing of the major components of working capital, with the primary variances occurring in accounts receivable, inventory, accounts payable and accrued liabilities. We closely monitor our inventory, our days sales outstanding and our payment terms with our major vendors to maximize our cash flows from operating activities. We turn our inventory approximately 5 times per year. Our days sales outstanding has averaged 37 over the past 12 months. We have 45- and 60-day payment terms with our two major contract manufacturers.

              Our cash flows from investing activities are primarily due to our purchase of fixed assets to support the growth of the business.

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              Our cash flows from financing activities are primarily from the sale of preferred stock as well as the net proceeds from equipment loans and our revolving line of credit. We have also generated cash from the exercise of common stock options by current and former employees.

              We believe that our existing cash and cash equivalents, excluding the net proceeds from this offering, will be sufficient to fund our operations and make payments under our settlement agreements for at least the next 12 months. From time to time, we may explore additional financing sources to develop or enhance our product solutions, to fund expansion of our business, to respond to competitive pressures, or to acquire or invest in complementary products, businesses or technologies. We cannot assure you that any additional financing will be available to us on acceptable terms, if at all. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock, including shares of common stock sold in this offering.

              Summary cash flow information for the years ended December 31, 2010, 2011 and 2012 and for the three months ended March 31, 2012 and 2013 is set forth below.

 
  Years Ended December 31,   Three Months Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
  (In thousands)
 

Cash and cash equivalents at beginning of period

  $ 17,398   $ 6,054   $ 18,468   $ 18,468   $ 18,695  

Net cash provided by (used in) operating activities

    (13,078 )   (586 )   991     (1,391 )   (2,937 )

Net cash used in investing activities

    (2,344 )   (1,989 )   (2,360 )   (542 )   (1,431 )

Net cash provided by financing activities

    4,042     14,999     1,624     68     272  

Effect of exchange rate changes on cash and cash equivalents

    36     (10 )   (28 )   (42 )   (26 )
                       

Net change in cash for the period

    (11,344 )   12,414     227     (1,907 )   (4,122 )
                       

Cash and cash equivalents at the end of the period

  $ 6,054   $ 18,468   $ 18,695   $ 16,561   $ 14,573  
                       

Net Cash Used in Operating Activities

              Historically, we have experienced negative cash flows from operating activities primarily due to our continued investment in research and development and sales and marketing resources needed to design, develop, market and sell our solutions worldwide.

              Our cash used in operating activities for the three months ended March 31, 2013 was comprised of the net loss of $1.5 million, offset by non-cash expenses of $1.5 million. Changes in working capital, other assets and long-term liabilities resulted in a net use of cash totaling $2.9 million. The non-cash expenses included in the net loss consist primarily of stock-based compensation expense of $838,000 and depreciation expense of $512,000. The changes in working capital were comprised primarily of an increase in other assets of $1.6 million and a decrease in accounts payable of $1.3 million. The increase in other assets was due primarily to deferred expenses related to this offering that have been recorded as other assets and will be offset against the proceeds of the offering. The decrease in accounts payable was due to the timing of payments to our vendors.

              Our cash used in operating activities for the three months ended March 31, 2012 was comprised of the net loss of $2.7 million, offset by non-cash expenses of $1.7 million. Changes in working capital, other assets and long-term liabilities resulted in a net use of cash totaling $400,000. The non-cash expenses included in the net loss consist primarily of stock-based compensation expense of $731,000, depreciation expense of $407,000 and warrant liability expense of $399,000. The changes in working capital were comprised primarily of an increase in inventory of $492,000, a decrease in accrued

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liabilities of $424,000 and a decrease in other long-term liabilities of $125,000. These uses of cash were offset by cash provided by an increase in accounts payable of $614,000.

              Our cash provided by operating activities for the year ended December 31, 2012 was comprised of the net loss of $3.7 million, offset by non-cash expenses of $7.2 million. Changes in working capital, other assets and long-term liabilities resulted in a net use of cash totalling $2.5 million. The non-cash expenses included in the net loss primarily consist of a loss on inventory purchase commitments of $1.8 million, depreciation expense of $1.7 million, provision for doubtful accounts of $184,000 and stock-based compensation expense of $2.9 million. The changes in working capital were comprised of an increase in accounts payable and accrued liabilities of $6.7 million, offset by an increase in inventory of $4.9 million, an increase in accounts receivable of $2.6 million. In addition, we recognized a decrease in long-term liabilities of $621,000. These increases in inventory, accounts receivable, accounts payable and accrued liabilities were all a result of increased revenue, cost of revenue and expenses during 2012. The decrease in long-term liabilities was due to the payment of a liability resulting from a litigation settlement recorded in 2008.

              Our cash used in operating activities for 2011 was comprised of net loss of $3.9 million offset by non-cash expenses of $3.8 million. Changes in working capital and long-term liabilities resulted in a net use of cash totalling $524,000. The change in working capital was due primarily to an increase in accounts receivable of $2.6 million offset by a decrease in inventory of $2.3 million and changes in other components of working capital of $363,000. In addition, we recognized a decrease in long-term liabilities of $565,000. The increase in accounts receivable was due to the increase in revenue. The decrease in inventory was the result of our concerted effort to reduce inventory levels and increase inventory turns in 2011.

              Our cash used in operating activities for 2010 was comprised of net loss of $16.3 million offset by non-cash expenses of $3.7 million. Changes in working capital and long-term liabilities resulted in a net use of cash totalling $506,000. The net loss in 2010 was a result of lower than planned revenue growth combined with increased investments in research and development expenses and sales and marketing expenses. A portion of these increased operating expense investments were tied to the start-up of our energy-related product development for utility customers and additional sales and marketing efforts. The changes in working capital and long-term liabilities was attributable primarily to an increase in inventory of $4.7 million offset by a decrease in in accounts receivable of $1.6 million and an increase in accounts payable of $2.5 million.

Net Cash Used in Investing Activities

              Net cash used in investing activities has historically been due primarily to purchases of property and equipment needed to support the growth of our business. Our purchases of property and equipment have been for computer equipment and software used internally, manufacturing tooling and test equipment that we purchase and own, but is located with our manufacturing partners, furniture and fixtures for our facilities, lab and warehouse equipment for our engineering and supply chain organizations, marketing equipment that is primarily used for trade shows, and leasehold improvements to our facilities.

              For the three months ended March 31, 2013, our cash used in investing activities was $1.4 million and consisted entirely of purchases of property and equipment for general business use.

              For the three months ended March 31, 2012, our cash used in investing activities was $542,000 and consisted entirely of purchases of property and equipment for general business use.

              For the year ended December 31, 2012, our cash used in investing activities was $2.4 million and consisted entirely of purchases of property and equipment for general business use.

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              Our cash used in investing activities in 2011 was $2.0 million, consisting of the purchase of property and equipment of $1.3 million and acquisition of intangible assets of $725,000. The purchases of property and equipment were for general business use and the acquisition of intangible assets related to technology that we purchased to allow our customers to access and control their homes via their mobile Android-based devices.

              Our cash used in investing activities in 2010 was $2.3 million, consisting of the purchase of property and equipment of $2.0 million and acquisition of intangible assets of $319,000. The purchases of property and equipment were for general business use and the acquisition of intangible assets related to technology that we purchased to allow our customers to access and control their homes via their mobile iOS-based devices.

Net Cash Provided by Financing Activities

              Net cash provided by financing activities for the three months ended March 31, 2013 was $272,000 and consisted primarily of $235,000 in net proceeds from borrowings under our equipment loan.

              Net cash provided by financing activities for the three months ended March 31, 2012 was $68,000 and consisted of net proceeds from borrowings under our equipment loan.

              Net cash provided by financing activities for the year ended December 31, 2012 was $1.6 million and consisted of $839,000 in net proceeds from borrowings under our equipment loan and $785,000 in cash generated from the exercise of common stock options.

              Net cash provided by financing activities in 2011 was $15.0 million and consisted of $19.8 million in net proceeds from the sale of Series H Preferred Stock and $1.2 million in proceeds from the exercise of common stock options. These proceeds were offset by the payment against our revolving credit line and equipment loans of $6.0 million. In 2011, we paid off the entire balance outstanding on our revolving credit line and we did not borrow against that credit line in 2012.

              Net cash provided by financing activities in 2010 was $4.0 million and consisted of net borrowings against our revolving credit line and equipment loans of $3.8 million and proceeds from the exercise of common stock options of $202,000.

Debt Obligations

              In June 2013, we entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank, or the SVB Agreement, which consists of a revolving credit facility of $13.0 million (subject to certain borrowing base restrictions) and term borrowings to fund purchases of property and equipment. All borrowings under the SVB Agreement are collateralized by our general assets. The credit facility has a variable rate of interest of prime (as published in the Wall Street Journal) or LIBOR plus 2.50%, as selected by us. The SVB Agreement provides for $2.75 million in term borrowings to fund purchases of property and equipment. Term borrowings are payable in 42 equal monthly payments of principal plus interest and bear interest at prime plus 0.50%, which was 3.75% at March 31, 2013.

              Borrowing under the revolving credit facility is subject to certain collateral restrictions relating primarily to our accounts receivable and inventory levels. As of March 31, 2013, our total borrowing capacity was approximately $12.9 million. We have not borrowed against the revolving credit facility as of December 31, 2011 or 2012 or March 31, 2013. The revolving credit facility has a maturity date of May 29, 2015.

              The SVB Agreement contains various restrictive and financial covenants and we were in compliance with each of these covenants as of December 31, 2011 and 2012 and March 31, 2013.

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              Future principal payments on outstanding term borrowings as of December 31, 2012 are as follows (in thousands):

2013

  $ 1,321  

2014

    840  

2015

    588  

2016

    410  
       

  $ 3,159  
       

Off-Balance Sheet Arrangements

              We do not engage in off-balance sheet activities. We do not have any off-balance interest in variable interest entities, which include special purpose entities and other structured finance entities.

Contractual Obligations

              We enter into long-term contractual obligations in the normal course of business, primarily debt obligations and non-cancellable operating leases. In addition, in 2008 and 2012, we entered into settlement agreements with two different parties relating to alleged patent infringements, which included future payment obligations.

              Our contractual cash obligations at December 31, 2012 are as follows:

 
  Total   Less than
1 year
  1-3 years   3-5 years   More than
5 years
 
 
  (In thousands)
 

Long-term debt obligations, including interest

  $ 3,397   $ 1,620   $ 1,414   $ 363   $  

Operating lease obligations

    5,872     794     2,488     2,101     489  

Settlement agreements (1)

    4,200     2,400     1,200     600      

Purchase commitments

    19,479     19,479              
                       

Total contractual obligations

  $ 32,948   $ 24,293   $ 5,102   $ 3,064   $ 489  
                       

(1)
The counterparty in one of the settlement agreements has the contractual right to accelerate $900,000 of the future obligation due in 2014 to a $700,000 payment in June 2013.

              Changes in our contractual obligations during the three months ended March 31, 2013 are insignificant and consist primarily of fluctuations in our purchase commitments in the ordinary course of business.

Quantitative and Qualitative Disclosures About Market Risk

              We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes.

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Interest Rate Risk

              Our exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalents as we do not have any short-term investments as of December 31, 2012 and March 31, 2013. Our cash and cash equivalents as of December 31, 2012 and March 31, 2013 were $18.7 million and $14.6 million, respectively, and consisted primarily of cash and money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of the interest rates in the United States. However, because of the short-term nature of our interest-bearing securities, a 10% change in market interest rates would not be expected to have a material impact on our consolidated financial condition or results of operations.

Foreign Currency Exchange Risk

              Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Canadian dollar, the Euro and the British pound. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We believe that our operating activities act as a natural hedge for a substantial portion of our foreign currency exposure because we typically collect revenue and incur costs in the currency in the location in which we provide our solutions. Although we have experienced and will continue to experience fluctuations in our net income (loss) as a result of transaction gains (losses) related to transactions denominated in currencies other than the U.S. dollar, we believe that a 10% change in foreign exchange rates would not have a material impact on our financial condition or results of operations. To date, we have not entered into any foreign currency hedging contracts, but we may consider entering into such contracts in the future. As our international operations grow, we will continue to reassess our approach to managing our risk relating to fluctuations in foreign currency exchange rates.

Critical Accounting Estimates and Policies

              Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

              We believe that the assumptions and estimates associated with our revenue recognition, allowance for doubtful accounts, inventories, product warranty, income taxes and stock-based compensation have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, please see Note 1 of the accompanying notes to our consolidated financial statements.

              We are choosing to "opt out" of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Revenue Recognition

              We sell our products through a network of independent dealers and distributors and not directly to consumers. These dealers and distributors generally sell our products to the consumer as

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part of a bundled sale, which typically includes other third-party products and related services, project design and installation services and ongoing support.

              Our products include embedded software that is essential to the functionality of the hardware, but the software is not sold separately and doesn't have stand-alone value. Accordingly, the hardware and software are accounted for as a combined unit and revenue is recognized when both elements are delivered. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. Product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred. For most of our product sales, these criteria are met at the time the product is shipped. Payments received in advance of providing products are recorded as deferred revenue and recognized as revenue when the revenue recognition criteria are met and the earnings process is complete.

              We record estimated reductions to revenue for dealer, retailer and distributor incentives, primarily comprised of volume rebates, at the time of the initial sale. The estimated reductions to revenue for rebates are based on the sales terms and our historical experience and trend analysis. The most common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives.

              Software license revenue represents fees earned from activating applications that allow consumers to manage and control their automation systems using tablets, smartphones and other third-party devices. Our perpetual software licenses do not include acceptance provisions, rights to updates or post-contract customer support. We generally recognize revenue at the time the software license is provided to the customer.

              We offer a subscription service that allows consumers to control and monitor their homes remotely and allows our dealers to perform remote diagnostic services. Subscription revenue is deferred at the time of payment and recognized on a straight-line basis over the period the service is provided.

              We recognize revenue net of cost of revenue for third-party products sold through our online ordering system. While we assume credit risk on sales to our customers, we do not determine the product selling price, do not retain associated inventory risks and are not the primary obligor to the customer.

              Our agreements with dealers and distributors generally do not include rights of return or acceptance provisions. Even though contractual agreements do not provide return privileges, there are circumstances in which we will accept returns. In addition, agreements with certain retail customers contain stock rotation and other rights of return. We maintain a reserve for such returns based on retail sell-through and our historical return experience.

              Shipping charges billed to customers are included in product revenue and related shipping costs are included in cost of revenue.

Allowance for Doubtful Accounts

              We extend credit to the majority of our customers, which consist primarily of small, local businesses. Issuance of credit is based on ongoing credit evaluations by us of our customers' financial condition and generally requires no collateral. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. We maintain an allowance for doubtful accounts to reserve for potential uncollectible receivables. The allowance is based upon the creditworthiness of our customers, the customers' historical payment experience, the age of the receivables and current market and economic conditions. Provisions for potentially uncollectible accounts are recorded in sales and marketing expenses. We write off accounts receivable balances to the allowance for doubtful accounts when it becomes likely that they will not be collected. As of December 31, 2011 and 2012 and

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March 31, 2013, the allowance for doubtful accounts was $0.7 million, $0.6 million and $0.6 million, respectively.

Inventories

              Inventories consist of hardware and related component parts and are stated at the lower of cost or market using the first-in, first-out method. We periodically assess the recoverability of our inventory and reduce the carrying value of the inventory when items are determined to be obsolete, defective or in excess of forecasted sales requirements. Inventory write-downs for excess, defective and obsolete inventory are recorded as cost of revenue and totaled $1.1 million, $1.3 million, $1.5 million and $0.4 million in 2010, 2011 and 2012 and for the three months ended March 31, 2013, respectively.

Product Warranty

              We provide our customers a limited product warranty of two years, which requires us to repair or replace defective products during the warranty period at no cost to the customer. We estimate the costs that may be incurred to replace or repair defective products and record a reserve at the time revenue is recognized. Factors that affect our warranty liability include the number of installed systems, our historical experience and management's judgment regarding anticipated rates of product warranty returns. We assess the adequacy of our recorded warranty liability each period and make adjustments to the liability as necessary. Our warranty liability was $775,000, $1.0 million, $1.2 million and $1.2 million as of December 31, 2010, 2011 and 2012 and March 31, 2013, respectively.

Income Taxes

              We recognize deferred tax assets and liabilities for the future tax consequences attributable to the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the fiscal year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

              We operate in various tax jurisdictions and are subject to audit by various tax authorities. We provide for tax contingencies whenever it is deemed probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are based upon their technical merits, relative tax law and the specific facts and circumstances as of each reporting period. Changes in facts and circumstances could result in material changes to the amounts recorded for such tax contingencies.

              We recognize uncertain income tax positions taken on income tax returns at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

              Our policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of our income tax provision. During the years December 31, 2010, 2011 and 2012 and for the three months ended March 31, 2012 and 2013, we did not record any material interest income, interest expense or penalties related to uncertain tax positions or the settlement of audits for prior periods.

Stock-Based Compensation

              Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, net of estimated forfeitures, over the requisite service period, which is the vesting period of the respective award.

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              Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. These variables include the fair value of our common stock, our expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates and expected dividends, which are estimated as follows:

    Fair Value of Our Common Stock.   Because our stock is not publicly traded, we must estimate the fair value of our common stock, as discussed in "Common Stock Valuations" below.

    Expected Volatility.   As we do not have a trading history for our common stock, the expected stock price volatility for our common stock was estimated by taking the average of the historical volatilities of an index fund and industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. We did not rely on implied volatilities of traded options in our industry peers' common stock because the volume of activity was relatively low. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available.

    Risk-Free Interest Rate.   The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options.

    Expected Dividend Yield.   We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

    Expected Term.   The expected term represents the period that the stock-based awards are expected to be outstanding. For our option grants, we used the simplified method to determine the expected term as provided by the SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. We used the simplified method to determine our expected term because of our limited history of stock option exercise activity.

              In addition to the assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. Quarterly changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the financial statements.

              We will continue to use judgment in evaluating the expected volatility, expected terms and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to the estimates of our expected volatility, expected terms and forfeiture rates, which could materially impact our future stock-based compensation expense. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.

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              The following table presents the weighted-average assumptions used to estimate the fair value of options granted during the periods presented:

 
  Years Ended
December 31,
  Three Months
Ended
March 31,
 
 
  2010   2011   2012   2012 (1)   2013 (1)  

Expected volatility

    70-71%     71-73%     59-63%          

Expected dividends

    —%     —%     —%          

Expected term (in years)

    5.2-6.1     5.0-6.1     5.0-6.1          

Risk-free rate

    2.2-3.0%     1.1-2.5%     0.7-1.0%          

Forfeiture rate

    8.1%     11.6%     7.9%          

(1)
No options were granted during the three months ended March 31, 2012 or 2013.

Common Stock Valuations

              The fair value of the common stock underlying our stock options was determined by our board of directors, which intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions we use in the valuation model are based on future expectations combined with management judgment. In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:

    Independent third-party valuations of our common stock performed as of December 31, 2011, March 30, 2012, June 30, 2012, September 30, 2012, December 31, 2012 and March 31, 2013;

    The prices, rights, preferences and privileges of our preferred stock relative to our common stock;

    Our operating and financial performance;

    Current business conditions and projections;

    Our stage of development;

    The likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an initial public offering or sale of our company, given prevailing market conditions;

    The market performance of comparable publicly traded companies in the consumer technology, home automation and high-growth company spaces; and

    The U.S. and global capital market conditions.

              In valuing our common stock, our board of directors determined the equity value of our business by taking a combination of the value indications under two valuation approaches, an income approach and a market approach.

              The income approach estimates the fair value of a company based on the present value of the company's future estimated cash flows and the residual value of the company beyond the forecast period. These future values are discounted to their present values to reflect the risks inherent in the

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company achieving these estimated cash flows. Significant inputs of the income approach (in addition to our estimated future cash flows themselves) include the long-term growth rate assumed in the residual value, discount rate, terminal value and normalized long-term operating margin. To estimate the value of cash flows after the defined projection period, a terminal value, which represents the estimated perpetual cash flows, was also calculated. To calculate the terminal value, a perpetual growth rate is applied to the last year of forecasted cash flows. This estimated perpetual cash flow is then divided by the capitalization rate.

              The market approach estimates the fair value of a company by applying market multiples of comparable publicly traded companies in the same industry or similar lines of business. The market multiples are based on key metrics implied by the price investors have paid for publicly traded companies. Given our significant focus on investing in and growing our business, we primarily utilized the revenue multiple when performing valuation assessments under the market approach. When considering which companies to include in our comparable industry peer companies, we focused on U.S.-based publicly traded companies with businesses similar to ours. The selection of our comparable industry peer companies requires us to make judgments as to the comparability of these companies to us. We considered a number of factors including business description, business size, market share, revenue model, development stage and historical results of operations. We then analyzed the business and financial profiles of the selected companies for relative similarities to us and, based on this assessment, we selected our comparable industry peer companies. Several of the comparable industry peer companies are our competitors and are generally larger than us in terms of total revenue and assets.

              The valuation reports prepared for us were based on the income approach. Due to the limited comparability with the guideline firms, a market approach was performed to assess the reasonableness of the income approach conclusions.

              For each valuation, the equity value was then allocated to the common stock using either the Option Pricing Method, or OPM, or Probability Weighted Expected Return Method, or PWERM.

              The OPM treats common stock and preferred stock as call options on an enterprise value, with exercise prices based on the liquidation preference of the preferred stock. Therefore, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preference at the time of a liquidity event such as a merger, sale or initial public offering, assuming the enterprise has funds available to make a liquidation preference meaningful and collectible by the stockholders. The common stock is modeled to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the preferred stock is liquidated. The OPM uses the Black-Scholes option pricing model to price the call option. The OPM is appropriate to use when the range of possible future outcomes is so difficult to predict that forecasts would be highly speculative.

              The PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. This method is particularly useful when discrete future outcomes can be predicted at a high confidence level with a probability distribution. Discrete future outcomes considered under the PWERM included non-initial public offering market based outcomes as well as initial public offering scenarios. In the non-initial public offering scenarios, a large portion of the equity value is allocated to the preferred stock to reflect the preferred stock liquidation preferences. In the initial public offering scenarios, the equity value is allocated pro rata among the shares of common stock and each series of preferred stock, which causes the common stock to have a higher relative value per share than under the non-initial public offering scenario. The fair value of the enterprise determined using the initial public offering and non-initial public offering scenarios was weighted according to the board of directors' estimate of the probability of each scenario.

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              Over time, as certainty developed regarding possible discrete events, including an initial public offering, or IPO, the allocation methodology utilized to allocate our enterprise value to our common stock transitioned away from exclusively the OPM, which was utilized for grants through December 31, 2011, to include a PWERM, which we utilized for grants beginning after September 26, 2012.

              We granted stock options with the following terms between December 29, 2011 and the date of this prospectus:

 
  Number of
Options
Granted
  Exercise Price
Per Share
  Common Stock
Fair Value
Per Share at
Grant Date
 

December 29, 2011

    2,314,000   $ 1.22   $ 1.22  

June 19, 2012

    425,000     1.70     1.70  

June 27, 2012

    900,000     1.70     1.70  

September 26, 2012

    460,000     1.76     1.76  

December 14, 2012

    150,000     1.91     1.91  

December 26, 2012

    495,000     1.91     1.91  

December 28, 2012

    1,289,700     1.91     1.91  

April 25, 2013

    449,500     2.17     2.17  

June 11, 2013

    815,000     2.17     2.17  

June 23, 2013

    762,500     2.17     2.17  

              The intrinsic value of all outstanding options as of March 31, 2013 was $             million, based on the estimated fair value for our common stock of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

December 2011 Awards

              As of December 29, 2011, our board of directors determined the fair value of the common stock to be $1.22 per share. We relied upon a contemporaneous valuation report prepared for us in contemplation of such option grants, which report used the OPM valuation methodology described above given the difficulty of predicting possible future liquidity outcomes for the company at that time.

              Total enterprise value was calculated using both the income approach and the market approach. With respect to the income approach, total enterprise value was calculated using estimated cash flows based on cash flow projections for the year ending December 31, 2011 through the year ending December 31, 2021, which were discounted based on a weighted average cost of capital, or WACC, of 18.0%, given our stage of development and inherent risks. With respect to the market approach, our board of directors analyzed the financial performance of publicly traded companies in the consumer technology, home automation and high growth company spaces.

              Based on the process described above, our board of directors determined that it had greater confidence in the income approach compared to the market approach given the lack of comparable industry peers, so it gave more weight to the income approach to determine total enterprise value. The enterprise value was then allocated to the common stock utilizing an OPM methodology using the assumptions described above. As a result, the fair value of the common stock was determined to be $1.22 per share.

June 2012 Awards

              As of June 19, 2012 and June 27, 2012, our board of directors determined the fair value of the common stock to be $1.70 per share. We relied upon an additional contemporaneous valuation report prepared for us in contemplation of such option grants, which report used the valuation methodology

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described above. Due to the continued difficulty of predicting possible future liquidity outcomes for the company, we continued to apply the OPM valuation methodology described above.

              Total enterprise value was calculated using both the income approach and the market approach. With respect to the income approach, total enterprise value was calculated using estimated cash flows based on cash flow projections for the year ending December 31, 2012 through the year ending December 31, 2022, which were discounted based on WACC of 17.0%. With respect to the market approach, our board of directors analyzed the financial performance of publicly traded companies in the consumer technology, home automation and high growth company spaces.

              Based on the process described above, our board of directors determined that it had greater confidence in the income approach compared to the market approach given the lack of comparable industry peers, so it gave more weight to the income approach to determine total enterprise value. The enterprise value was then allocated to the common stock utilizing an OPM methodology using the assumptions described above. As a result, the fair value of the common stock was determined to be $1.70 per share. The increase in value from the December 2011 grants was primarily due to an additional year of cash flow projections, our first quarter results of operations and an adjustment to our WACC given the slight reduction in the perceived risk associated with our company.

September 2012 Awards

              As of September 26, 2012, our board of directors determined the fair value of the common stock to be $1.76 per share. We relied upon an additional contemporaneous valuation report prepared for us in contemplation of such option grants, which report used a hybrid of the OPM and PWERM valuation methodologies described above. Since the date of the last report, we had begun considering the possibility of an initial public offering. As a result, the range of discrete events, specifically IPO and non-IPO scenarios, became easier to predict, therefore PWERM was utilized in part to estimate the fair value of our common stock during this period.

              The expected outcomes were weighted between an IPO scenario occurring during early to middle of 2013, which was valued using the market approach, and a non-IPO scenario that involved remaining a private company, which was valued using the income approach. The enterprise value under each of these scenarios was, in part, based on cash flow projections for year ending December 31, 2012 through the year ending December 31, 2022, which were discounted by a WACC of 17.0%. As a result, the fair value of the common stock was determined to be $1.76 per share. The increase in fair value from June 2012 was primarily due to our results of operations and our preliminary planning for an IPO, including (i) management provided our board of directors with a preliminary initial public offering timeline for consideration, and (ii) the board of directors requested that management proceed with the beginning stages of commencing an initial public offering, including conducting preliminary meetings with various investment banks.

December 2012 Awards

              As of December 28, 2012, our board of directors determined the fair value of the common stock to be $1.91 per share. We relied upon an additional contemporaneous valuation report prepared for us in contemplation of such option grants, which report used a hybrid of the OPM and PWERM valuation methodologies described above. Since the date of the last report, we had taken additional steps toward an initial public offering. Given the continued potential for an IPO scenario, PWERM was utilized in part to estimate the fair value of our common stock during this period.

              The expected outcomes continued to be weighted between an IPO scenario occurring during early to middle of 2013, which was valued using the market approach, and a non-IPO scenario that involved remaining a private company, which was valued using the income approach. The enterprise value under each of these scenarios was, in part, based on cash flow projections for year ending

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December 31, 2012 through the year ending December 31, 2022, which were discounted by a WACC of 16.0%. As a result, the fair value of the common stock was determined to be $1.91 per share. The increase in fair value from September 2012 was primarily due to our results of operations as well as our continued steps towards an IPO, including the selection of underwriters, an organizational meeting held in early December and the preparation of a registration statement on Form S-1.

April 2013 Awards

              As of April 25, 2013, our board of directors determined the fair value of the common stock to be $2.17 per share. We relied upon an additional contemporaneous valuation prepared for us in contemplation of such option grants, which used a hybrid of the OPM and PWERM valuation methodologies described above. Since the date of the last award, we had taken additional steps toward an initial public offering. Given the continued potential for an IPO scenario, the PWERM was utilized in part to estimate the fair value of our common stock during this period.

              The expected outcomes were weighted between an IPO scenario occurring during the middle of 2013, which was valued using the market approach, and a non-IPO scenario that involved remaining a private company, which was valued using the income approach. The enterprise value under each of these scenarios was, in part, based on cash flow projections for the year ending December 31, 2013 through the year ending December 31, 2022, which were discounted by a WACC of 16.0%. As a result, the fair value of the common stock was determined to be $2.17 per share. The increase in fair value from December 2012 was primarily due to our results of operations as well as our continued steps towards an IPO, including the continued preparation of a registration statement on Form S-1.

June 2013 Awards

              As of June 11, 2013 and June 23, 2013, our board of directors determined the fair value of the common stock to be $2.17 per share. We relied upon an additional contemporaneous valuation prepared for us in contemplation of such option grants, which used a hybrid of the OPM and PWERM valuation methodologies described above. Given the continued potential for an IPO scenario, the PWERM was utilized in part to estimate the fair value of our common stock during this period.

              The expected outcomes were weighted between an IPO scenario occurring during the middle of 2013, which was valued using the market approach, and a non-IPO scenario that involved remaining a private company, which was valued using the income approach. The enterprise value under each of these scenarios was, in part, based on cash flow projections for the year ending December 31, 2013 through the year ending December 31, 2022, which were discounted by a WACC of 16.0%. As a result, the fair value of the common stock was determined to be $2.17 per share.

Recent Accounting Pronouncements

              In May 2011, the FASB issued new guidance for fair value measurements to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements, particularly for level 3 fair value measurements. We adopted this guidance prospectively January 1, 2012 and noted no significant impact on our results of operations, financial position or cash flows.

              In February 2013, the FASB issued ASU 2013-02, "Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The amended guidance requires an entity to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period. The guidance is effective prospectively for the reporting periods beginning after

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December 15, 2012. We do not anticipate the adoption of the amended guidance to have significant impact on its consolidated financial statements.

              In June 2011, the FASB issued new guidance that improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income, or OCI, by eliminating the option to present components of OCI as part of the statement of changes in stockholders' equity. The amendments in this standard require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently, in December 2011, the FASB issued additional guidance, which indefinitely defers the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement where the components of net income and the components of OCI are presented. The amendments to these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components. This new guidance was effective for us beginning January 1, 2012 and was required to be applied retrospectively. The adoption of this guidance did not have an impact on our results of operations, financial position or cash flows as it relates only to financial statement presentation.

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BUSINESS

Overview

              We are a leading provider of automation and control solutions for the connected home. We unlock the potential of connected devices, making entertainment systems easier to use, homes more comfortable and energy efficient, and families more secure. We provide our consumers with the ability to integrate music, video, lighting, temperature, security, communications and other functionalities into a unified home automation solution that enhances our consumers' daily lives. More than 75% of our consumers have integrated two or more of these functionalities with our solution. At the center of our solution is our advanced software platform, which we provide through our products that interface with a wide variety of connected devices that are developed both by us and by third parties.

              Our solution functions as the operating system of the home, making connected devices work together to control, automate and personalize the homes of our consumers. For example, our solution can be configured so that:

              Consumer need for simplicity and a personalized experience, combined with advances in technology, are driving rapid growth in the connected home market. As a result of the significant growth in smart devices, mobile data networks, home broadband access and in-home wireless networking, consumers are more comfortable with ubiquitous connectivity and device interoperability. Accustomed to network connectivity and control of their digital lives, consumers are now looking for affordable ways to extend this functionality into their homes, driving growth in the mainstream home automation market. According to ABI Research, this mainstream segment of the home automation market was estimated to be $571 million in 2012, and is expected to grow at a compound annual growth rate, or CAGR, of 35% to $2.6 billion by 2017.

              We were founded in 2003 to deliver a mainstream home automation solution by enabling consumers to unify their connected devices into a personalized system at an accessible and affordable entry point. Sold through our worldwide network of over 2,800 active direct dealers, our solution sits at the center of the mainstream home automation market by providing integrated and extensible control of over 6,400 third-party devices and services. These devices and services span a broad variety of product categories including music, video, lighting, temperature, security, communications and other

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devices. Our platform capabilities provide consumers with solutions that are easy to use, comprehensive, personalized, flexible and affordable.

              Based on our analysis, we estimate that we have automated more than 120,000 homes representing cumulative sales of more than 275,000 of our controller appliances, the brain of the connected home. We sell and deliver our solutions through an extensive worldwide dealer and distributor network and have solutions installed in 81 countries. Our top 100 dealers represented 24% of our total revenue in 2012.

              We generated revenue of $74.9 million, $93.4 million and $109.5 million in 2010, 2011 and 2012, respectively, and $26.6 million for the three months ended March 31, 2013. We had a net loss of $16.3 million, $3.9 million and $3.7 million in 2010, 2011 and 2012, respectively, and $1.5 million for the three months ended March 31, 2013.

Our Industry

Home Automation

              Within the last decade, the pace of innovation in the electronics industry has accelerated rapidly. Network-aware devices—such as televisions, smartphones, tablets, thermostats, appliances and security systems—that separately connect to a home network create the "connected home." Home automation technology integrates devices in the connected home, unlocking the collective potential of these devices working together to improve consumers' lives. The home automation market has reached a major inflection point and is becoming a mainstream offering accessible by a broad base of consumers.

              Home automation solutions unify the control of music, video, lighting, temperature, security, communications and other devices in the connected home to provide consumers with improved convenience, comfort, energy efficiency and security. The key functional elements of home automation include:

Market Opportunity

              Consumers are becoming more reliant on network-aware devices in their everyday lives, contributing to the creation of a large opportunity in the mainstream home automation market. Growth in smart devices, such as smartphones and tablets, and the ubiquity of wireless networks have combined to create the "connected consumer." Accustomed to connectivity, centralized access to content and control from anywhere using any device, consumers are now looking for new areas where they can extend the utility, security and enjoyment of this "always connected" capability. The home—with its increasing capabilities in the form of networks (such as broadband, ZigBee and Wi-Fi), connected

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devices (such as tablets, smartphones, TVs and multi-room audio systems) and smart systems (such as lighting, temperature and security)—is the next center of attention for the connected consumer.

              An automated home is created through technologies that unify and personalize the control of lighting, temperature, music, entertainment, security, consumer appliances and more, whether throughout the entire home or limited to a single room. The home automation market has traditionally been fragmented as participants offered point products that only control one application (such as entertainment or temperature), managed services (such as security) or luxury installations (such as an expensive whole home custom programming system that enables a single control point to turn off lights, arm the security system, lower the blinds and lock the doors). As consumers look for a unified solution at an affordable price point, they are looking beyond the traditional market participants.

              The share of the market served by the mainstream home automation segment is expanding as a number of market dynamics evolve, including:

              As consumer awareness of home automation grows and expectations for interoperable solutions increase, the mainstream segment of the home automation market is expected to expand rapidly. The mainstream segment of the home automation market was estimated to be a $571 million market in 2012 and to become a $2.6 billion market by 2017, representing a CAGR of 35%, as consumers look for centralized solutions to provide personalized control and automation of their homes.

Consumer Requirements

              For the mainstream consumer to embrace a home automation solution, the solution must have the following attributes:

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Limitations of Traditional Approaches

              The home automation market has traditionally been served by three categories that in general have been unable to meet all consumer requirements or overcome the impediments to broad market adoption.

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Our Solution

              The Control4 solution, built around our advanced software platform, sits at the center of the fast growing mainstream segment of the home automation market. We unlock the potential of connected devices, making entertainment systems easier to use, homes more comfortable and energy efficient, and families more secure. Our solution functions as the operating system of the home, integrating music, video, lighting, temperature, security, communications and other devices into a unified automation solution that enhances our consumers' lives.


The Control4 Solution

GRAPHIC

              The Control4 solution integrates more than 6,400 third-party devices and systems into a unified, easy-to-use solution for mainstream consumers. As a result, our solution provides the consumer with the following benefits:

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Our Growth Strategy

              Our goal is to be the leading provider of mainstream home automation solutions and the operating system of choice for the home. The following are key elements of our growth strategy:

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Our Products and Services

              The primary benefits we provide consumers and dealers lie in the value and competitive differentiation of our software platform. We deliver value and differentiation to consumers and generate revenues by embedding our software into a range of physical products. Our products sit at the center of the connected home and are designed to be:

Software Platform

              At the center of the Control4 product line is the Control4 Home Operating System, which we refer to as the C4 OS, and the associated application software and software development kits, or SDKs. The high-level software components include:


Control4 Navigator Resides on Many Interface Devices

GRAPHIC

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Products with Embedded Software and Services

              Our products leverage our software platform to provide consumers with a comprehensive and easy-to-use connected home experience. We design and manufacture our products via contract manufacturers as well as certify partner products for sale through our dealers. Our products and services include:

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              Sales of our controller appliances, including software, represented 39% of our total revenue in 2012.

              Our installed solutions include functionalities in the following percentages:

Video

    100 %

Music

    57  

Lighting

    48  

Communications

    32  

Security

    29  

Temperature

    24  

              More than 75% of our consumers have integrated two or more of these functionalities with our solution.

Our Distribution Network

              In 2005, we started selling our solutions through a network of over 450 independent dealers. Since that time, our distribution network has grown to over 2,800 active direct dealers and distributors in 81 countries. Dealers range in size from small family businesses to very large organizations.

              Our dealers are home automation specialists that have significant experience in designing, installing and servicing both low- and high-voltage systems including music, video, security, communications and temperature control. Every Control4 dealer has gone through extensive training and has passed the necessary certification tests—either in one of our training facilities located in the United States or the United Kingdom, or in a training facility of one of our distributors. Every installer for each dealer must complete course work and pass pre-training examinations, as well as pass rigorous testing at the conclusion of the multi-day formal training in order to become certified to sell and install our solutions.

              We sell directly through dealers in the United States, Canada, the United Kingdom and 40 other countries. We partner with 27 distributors to serve 38 additional countries where currently we do not have dealer training and support facilities. Our distributors recruit, train and manage dealers within their region and also help dealers find country specific solutions for unique needs based on the special home automation market characteristics within each country. In recent years, we have moved more toward a dealer-direct model in specific international regions as we have added and continue to add sales and support staff, namely in the United Kingdom, China and India.

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              During the years ended December 31, 2010, 2011 and 2012 and the three months ended March 31, 2013, none of our dealers or distributors accounted for more than 5% of our revenue. None of our dealers or distributors have minimum or long-term purchase obligations. Dealer orders are typically placed on a project-by-project basis. As such, our dealers do not typically carry significant levels of inventory. The resulting just-in-time model helps reduce dealer inventory investment and also reduces dealer returns. Our dealers around the world are each responsible for local marketing, selling, installing and servicing the consumer.

Our Partners

              The home automation market is made up of a collection of thousands of electronically controllable products made by hundreds of key manufacturers. We believe that our success has come, in part, due to our success in forming relationships with many of these manufacturers. As of January 2013, we had agreements with over 130 manufacturers, of which 42 have formally submitted their devices to us for Control4 certification so that our worldwide dealer network can be assured that these third-party devices work well with our platform.

              In addition to standard interoperability with Control4, more and more manufacturers are realizing the value our technology can bring when it is embedded inside their products. For example, we recently launched our device auto-discovery technology, SDDP, which enables seamless installation of devices by embedding code at the manufacturer, making it easier for dealers and consumers to add new products to existing systems. Sony recently launched two home theater receivers with our platform embedded inside, giving consumers the full power of our software to automate the home.

              Third-party manufacturers are currently selling 22 brands through our online store. This provides manufacturers valuable reach into our trained dealer network, and it helps our dealers gain easy access to 426 products that they know are certified by Control4. We also partner with other companies for purposes of strategic initiatives.

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Our Technology

Core Automation Enabling Technology

              At the core of the Control4 platform is the C4 OS. The C4 OS consists of two main components, Director and Navigator software, that work in concert with different modules within the system to provide consumers with a unified and comprehensive connected home experience. These modules help our software platform manage media, update connected devices and interoperate using a variety of communication protocols including Ethernet, Wi-Fi, Bluetooth, ZigBee, Infrared, or IR, serial interfaces and more. Our software platform does not currently support the communication protocol Z-Wave. The following diagram shows the relationship between Director and Navigator software:


Control4 OS Architecture

CHART

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Simple Device Discovery Protocol (SDDP)

              We have a patented device auto-discovery technology called Simple Device Discovery Protocol, or SDDP, that we developed to enable seamless installation of devices in our system. When a new SDDP-enabled device is installed in a home, the device sends out a signal that is immediately discovered by the system, thereby allowing the new device to easily be added.

4Sight Subscription Service

              We offer a subscription service called 4Sight that enables remote access to the connected home without exposing the installer or consumer to the complexities of communicating around firewalls and private Internet Protocol addresses. This service facilitates connections between remote client devices and our systems through a cloud-based service. Using 4Sight, consumers can remotely monitor and control their Control4 systems as if they were at their homes.

Our Research and Development

              Our flexible research and development model relies upon a combination of in-house staff and offshore design and manufacturing partners to improve and enhance our existing products and services,

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as well as develop new products, features and functionality in a cost-effective manner. We believe that our software platform is critical to expanding our leadership position within the mainstream home automation market. As a result, we devote the majority of our research and development resources to software development. We work closely with our consumers to understand their current and future needs and have designed a product development process that captures and integrates feedback from our consumers.

              As of March 31, 2013, we had 148 employees in our research and development organization, substantially all of whom were located at our headquarters in Salt Lake City, Utah. Our research and development expenses were $19.2 million in 2011, $20.3 million in 2012 and $6.1 million for the three months ended March 31, 2013. We intend to continue to significantly invest in research and development to expand our solutions and capabilities in the future.

Our Manufacturing

              We outsource the manufacturing of our hardware products to contract manufacturers. The majority of our hardware products are manufactured by Sanmina and LiteOn at their respective facilities located in southern China, with additional manufacturing performed by six contract manufacturers located throughout Asia. Our agreement with Sanmina currently has no set term and may be terminated by us in writing at any time. Our agreement with LiteOn expires in December 2014, after which it automatically renews for successive one-year terms unless either party terminates the agreement with 180 days' notice. Our manufacturing partners assemble our products using our design specifications, quality assurance programs and standards, and procure components and assemble our products based on our demand forecasts. These forecasts represent our estimates of future demand for our products based upon historical trends and analysis from our sales and product management functions. We generally plan to have an average of six weeks of inventory on hand and in transit at any given time. We maintain fulfillment centers in Salt Lake City, Utah and York, England. Our manufacturing partners currently ship all hardware products to Utah and then we ship them directly to our dealers and distributors around the world.

              We have multiple sources for most of our components. However, we do depend on single source manufacturers for certain critical components, including processors, memory modules and touch panels. We can choose to change processor and memory modules for any of our products but because of high implementation costs, we generally choose to make these changes only upon development of new products. We also rely on certain custom connectors, cables and mechanical enclosures for our hardware products that are single sourced because of the high tooling costs of sourcing the components from multiple suppliers. In each of these cases, we own the drawings and design of these custom components.

Our Marketing

              Our marketing team supports our sales channel with dealer-directed advertising and promotions, lead-generation, social media engagements and training events, as well as the design and production of consumer-facing collateral, showroom signage and market-specific advertising. Our website is the anchor to our online and social media strategy, from which we direct leads to our dealers. Control4's bi-annual magazine, Home Smart Home, features lifestyle stories of Control4 installations from around the world and is available on iTunes and on our website. The publication is also reproduced and distributed to customers and prospects on our behalf by our dealers and partners.

              We are active participants at global industry conferences and maintain a significant presence at CEDIA trade shows. Beyond CEDIA in the United States, we sponsored the 2012 CEDIA Conference in London and an exhibit at Integrated Systems Europe, or ISE, the annual industry trade show held in

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Amsterdam. We are frequently featured in the trade press and maintain strong relationships with the industry's key analysts and associations.

              In 2012, we also initiated strategic marketing alliances with partners such as Sony and Sub-Zero Wolf to broaden our marketing reach beyond the sales channel and go directly to the consumer. We also recently completed our first Control4 showroom, constructed within ABT Electronics, to bring the Control4 experience to life to their broad customer base.

              We believe that partnering with device manufacturers, leveraging co-marketing partnerships, expanding our sales channels and increasing our brand recognition among consumers are key components of our growth strategy.

Our Competition

              The market for home automation systems is fragmented, highly competitive and continually evolving. Our current competitors fall into several categories:

              Companies that provide popular point solutions have and may continue to eliminate or restrict our ability to control and be compatible with their products. For example, a thermostat company has restricted the interoperability of its products with our solutions.

              In addition, large technology companies such as Apple, Google, Microsoft and Samsung offer control capabilities among their own products, applications and services, and have ongoing development efforts to address the broader home automation market. Given the growth dynamics of this market, there are many new and existing companies targeting portions of the mainstream home automation market. To the extent that consumers adopt products, applications and services from a single large technology company or any of these companies broaden their home automation capabilities, we will face increased competition.

              The principal competitive factors in our market include the:

              We believe that our home automation solution competes favorably with respect to these factors. Nevertheless, many of our competitors have substantially greater financial, technical and other resources, greater name recognition, larger sales and marketing budgets, broader distribution channels, and larger and more mature intellectual property portfolios than we do.

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Our Intellectual Property

              Our success and ability to compete effectively depend in part on our ability to protect our proprietary technology and to establish and adequately protect our intellectual property rights. To accomplish these objectives, we rely on a combination of patent, trademark, copyright and trade secret laws in the United States and other jurisdictions, as well as license agreements, confidentiality agreements and other contractual protections.

              As of March 31, 2013, we owned 34 issued United States patents (16 of which are design patents) that are scheduled to expire between 2025 and 2030, with respect to utility patents, and between 2020 and 2022, with respect to design patents. We continue to file patent applications in multiple jurisdictions and as of March 31, 2013, we had two patent applications allowed, 13 patent applications published and 11 patent applications pending in the United States. We also had five issued patents and 14 pending patent applications under foreign jurisdictions and treaties such as Canada, Australia, New Zealand, the United Kingdom and the European Patent Convention. The claims for which we have sought patent protection apply to both our hardware and software products. Our patent and patent applications generally apply to the features and functions of our C4 OS and the applications associated with our platform.

              We also rely on several registered and unregistered trademarks to protect our brand. We have registered the trademarks Control4, Control4 My Home, the Control4 logo and design, 4Store and Everyday Easy in the United States, and Control4 in the European Union. We have an additional five unregistered trademarks in the United States and 15 in foreign jurisdictions such as the European Union, China, India, Mexico and Brazil.

              We have filed for United States copyright protection for our source code for all major releases of our software. We also license software from third parties for integration into or use with our products, including open-source software and other commercially available software.

              In addition, we seek to protect our intellectual property rights by requiring our employees and independent contractors involved in development to enter into agreements acknowledging that all inventions, trade secrets, works of authorship, developments, concepts, processes, improvements and other works generated by them on our behalf are our intellectual property, and assigning to us any rights, including intellectual property rights, that they may claim in those works.

Our Employees

              As of March 31, 2013, we had 333 full-time employees, including 310 employees in the United States and 23 employees internationally. None of our employees are represented by a labor union with respect to his or her employment with us. We have not experienced any work stoppages and we consider our relations with our employees to be good.

Our Facilities

              Our corporate headquarters are located in Salt Lake City, Utah, where we lease approximately 56,000 square feet of commercial space under a lease that expires on June 30, 2018. We use this space for sales, research and development, customer service and administrative purposes. We also lease approximately 35,000 square feet of warehouse space in Salt Lake City, Utah under a lease that expires on March 31, 2017. In addition, we lease approximately 5,624 square feet of commercial space in York, United Kingdom under two separate leases that expire on November 14, 2014 and January 1, 2016. We use these properties for sales and training purposes and as fulfillment centers for the United Kingdom.

              In connection with our sales efforts in the United States and abroad, we lease office space typically on a short-term renewable basis domestically in San Jose, California, Santa Clara, California,

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Charlotte, North Carolina and Chicago, Illinois, and internationally in York, United Kingdom, Shanghai, China, Bangalore, India and Seoul, South Korea.

              We believe that our facilities are suitable to meet our current needs. We intend to expand our existing facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth. However, we expect to incur additional expenses in connection with such new or expanded facilities.

Our Legal Proceedings

              From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition or cash flows.

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MANAGEMENT

Executive Officers and Directors

              The following table sets forth the names, ages and positions of our executive officers and directors as of March 31, 2013:

Name
  Age   Position

Martin Plaehn

    55   President, Chief Executive Officer and Director

Dan Strong

    54   Chief Financial Officer

William B. West

    50   Founder, Chief Strategy Officer and Chairman of the Board

Eric Anderson

    54   Senior Vice President, Products

James B. Arnold

    56   Senior Vice President, Sales

Greg Bishop

    54   General Counsel and Chief Compliance Officer

Susan Cashen

    52   Senior Vice President, Marketing

Jeff Dungan

    43   Senior Vice President, Supply Chain Operations and Senior Vice President, Business Development

Rob Born (1)(3)

    45   Director

David C. Habiger (2)(3)

    44   Director

Len Jordan (2)

    47   Director

Christopher B. Paisley (1)(3)

    61   Director

Scott Petty (1)

    50   Director

Steven Vassallo (2)

    42   Director

(1)
Member of the Audit Committee

(2)
Member of the Compensation Committee

(3)
Member of the Nominating and Corporate Governance Committee

               Martin Plaehn has served as our President and Chief Executive Officer, and a member of our board of directors since September 2011. Prior to joining our company, Mr. Plaehn served as senior vice president of product and service development at RealNetworks, Inc., a provider of Internet media delivery software and services, from 2010 to 2011. Prior to that, Mr. Plaehn served as an advisor to chief executive officers, executive teams and investors for technology companies from 2008 to 2010. Prior to that, Mr. Plaehn served as the president and chief executive officer at Bungee Labs, a cloud computing and platform-as-a-service company, from 2006 to 2008. Prior to that, Mr. Plaehn served as executive vice president of technology products and services at RealNetworks, Inc., from 1999 through 2004, and then led RealNetworks, Inc.'s casual games division from 2004 to 2005. Prior to that, Mr. Plaehn served as chairman and chief executive officer of Viewpoint Digital, which was acquired by CA, Inc., an information technology management company, in 1998. Mr. Plaehn holds a Bachelor of Arts in mathematics from the University of California, San Diego and is a graduate of the Executive Program for Scientists and Engineers at the University of California, San Diego.

              We believe that Mr. Plaehn is qualified to serve as a director based on the perspective and experience he brings as our President and Chief Executive Officer and his experience as a seasoned executive.

               Dan Strong has served as our Chief Financial Officer since January 2008. Prior to joining our company, Mr. Strong served as the chief financial officer at iBAHN, a hospitality networking company, from 2004 to 2008. Prior to joining iBAHN, Mr. Strong served as vice president of financial planning and analysis, vice president and corporate controller, and interim chief financial officer at Iomega Corporation, a producer of storage hardware, from 1996 to 2004. Mr. Strong has also held executive-level corporate finance positions at Campus Pipeline, Inc., a developer of a software platform for colleges and universities. Mr. Strong holds a Bachelor of Science in accounting from the Eccles School of Business at the University of Utah.

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               William B. West co-founded our company in March 2003 and has served as the Chairman of our board of directors since October 2011. From 2003 to 2011, Mr. West served as our chief executive officer. Prior to that, Mr. West co-founded STSN (now known as iBAHN), a broadband services company designed for business travelers, and PHAST Corporation, a manufacturer of high-end home automation equipment. Mr. West holds a Bachelor of Arts in finance from the University of Utah and a Master of Business Administration from the Wharton School at the University of Pennsylvania. Mr. West also holds the Chartered Financial Analyst designation.

              We believe that Mr. West is qualified to serve as a director based on the perspective and experience he brings as one of our co-founders, his experience as a seasoned executive and his knowledge of the industry in which we operate.

               Eric Anderson has served as our Senior Vice President, Products, since June 2012. Prior to joining our company, Mr. Anderson was vice president, product management at NetIQ Corporation, a software company, from 2011 to 2012. Prior to that, Mr. Anderson held various executive positions at Novell, Inc., a security management software company, from 2006 to 2011, including chief technology officer and vice president of product management. Prior to that, Mr. Anderson, served in various management positions at BMC Software, Inc., a business service management software company, and Compaq Computer Corporation. Mr. Anderson holds a Bachelor of Science in marketing and a Master of Business Administration from Brigham Young University.

               James B. Arnold has served as our Senior Vice President, Sales, since February 2007. Prior to joining our company, Mr. Arnold served as senior vice president of sales and distribution at DIRECTV, Inc. from 2002 to 2006. Mr. Arnold holds a Bachelor of Arts in psychology and sociology from Washington University in St. Louis.

               Greg Bishop has served as our Vice President and General Counsel since March 2008. In January 2013, Mr. Bishop was also named our Chief Compliance Officer. Prior to joining our company, Mr. Bishop operated his own legal consulting firm, Outsourced GC, PLLC, from 2004 to 2008. Prior to that, Mr. Bishop was general counsel of Murex S.A. in Paris, France, a developer of software solutions for large financial institutions, from 2002 to 2004. Prior to that, Mr. Bishop held executive-level legal positions at Campus Pipeline, Inc., a developer of a software platform for colleges and universities, and Iomega Corporation, a producer of storage hardware. Prior to that, Mr. Bishop worked as legal counsel for Corning, Incorporated. Mr. Bishop holds a Bachelor of Arts in English literature, a Master of Business Administration and a Juris Doctor from Brigham Young University.

               Susan Cashen has served as our Senior Vice President, Marketing, since June 2010. Prior to that, Ms. Cashen managed marketing for our company's energy business unit from 2009 to 2010. Prior to joining our company, Ms. Cashen served as vice president of marketing at MyWaves, a mobile video service, from 2006 to 2009. Prior to that, Ms. Cashen served as the vice president of communications and vice president of marketing at TiVo Inc. from 2000 to 2005. Ms. Cashen holds a Bachelor of Arts in Russian studies from Hamilton College.

               Jeff Dungan has served as our Senior Vice President, Business Development, since April 2010, and our Senior Vice President, Supply Chain/Manufacturing, since June 2006. Prior to joining our company, Mr. Dungan held positions of senior director of information technology operations and general and administrative business solutions for BEA Systems, an enterprise infrastructure software products company, from 2001 to 2006. Mr. Dungan holds a Bachelor of Science in computer and electrical engineering from Colorado State University.

               Rob Born has been a member of our board of directors since June 2011. Mr. Born joined Thomas Weisel Venture Partners in 2001 and is currently managing the fund as a partner. Mr. Born has served on the boards of several private companies in the past. Mr. Born also holds a Bachelor of Arts in English literature from Amherst College and a Master of Business Administration and a Juris Doctor from Duke University.

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              We believe that Mr. Born is qualified to serve as a director based on his experience as a seasoned investor, a manager of a fund and a current and former director of many companies and his knowledge of the industry in which we operate.

               David C. Habiger has served as a member of our board of directors since September 2012. From 2011 to 2012, Mr. Habiger served as chief executive officer of NDS Group Ltd., a provider of video software and content security solutions, and served in that role until shortly prior to the time that the NDS business was acquired by Cisco Systems, Inc. Prior to that, Mr. Habiger served as chief executive officer of Sonic Solutions, Inc., a provider of software for digital media prior to its sale to Rovi Corporation, from 2005 to 2011. Mr. Habiger currently serves as a member of the board of directors of two public companies, RealD, Inc. and Echo Global Logistics, Inc., as well as several private companies. Mr. Habiger holds a Bachelor of Business Administration from St. Norbert College and a Master of Business Administration from the University of Chicago.

              We believe that Mr. Habiger is qualified to serve as a director based on his service on other public company boards, his prior executive leadership and his experience in and knowledge of the industry in which we operate.

               Len Jordan has been a member of our board of directors since June 2004. Mr. Jordan has served as the managing director of Madrona Venture Group since 2012 and joined Madrona Venture Group in 2010. Additionally, Mr. Jordan has served as a general partner of Frazier Technology Ventures since 2004. Prior to joining Frazier Technology Ventures, Mr. Jordan served as a senior vice president at RealNetworks, Inc. Mr. Jordan currently serves on the boards of several private companies. Mr. Jordan holds Bachelors of Science in finance and economics from the Eccles School of Business at the University of Utah.

              We believe that Mr. Jordan is qualified to serve as a director based on his experience as a seasoned investor and a current and former director of many companies and his knowledge of the industry in which we operate.

               Christopher B. Paisley has been a member of our board of directors since May 2006. Mr. Paisley served as chief financial officer of 3Com Corporation from 1985 to 2000. Mr. Paisley has served on the board of directors of Volterra Semiconductor Corporation, a semiconductor company, since 2000, Equinix, Inc., a networking company, since 2007, Ambarella Corporation, a semiconductor video processing solutions company, since 2012, Fortinet, Inc., a network security company, since 2012 and a member of its board of directors since 2004, and Bridge Capital Holdings, a holding company for venture capital banking, since 2011. Mr. Paisley served as a director of 3PAR Inc., a utility storage company that was publicly traded prior to its acquisition by Hewlett-Packard Company, from 2006 to 2010, and Electronics for Imaging, Inc., a digital printing company, from 2004 to 2008. Mr. Paisley currently also serves on the boards of several private companies. Mr. Paisley has been the Dean's Executive Professor of Accounting at the Leavey School of Business at Santa Clara University since 2001. Mr. Paisley holds a Bachelor of Arts in business economics from the University of California, Santa Barbara and a Master of Business Administration from the Anderson School at the University of California, Los Angeles.

              We believe that Mr. Paisley is qualified to serve as a director based on his service on other public company boards, broad industry expertise, extensive financial leadership experience and insight into SEC reporting and compliance.

               Scott Petty has served as a member of our board of directors since July 2003. Mr. Petty co-founded vSpring Capital (now Signal Peak Ventures) in 2000 and has been a managing director since its formation. Prior to that, Mr. Petty was chief operating officer and a member of the board of directors of Zuka Juice, Inc., a nutritional products company, from 1996 to 1999. Prior to that, Mr. Petty was a consultant with Bain & Company for seven years. Mr. Petty received a Bachelor of Science in economics from Brigham Young University and a Master of Business Administration from Harvard Business School.

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              We believe that Mr. Petty is qualified to serve as a director based on his experience as a seasoned investor and a current and former director of many companies and his knowledge of the industry in which we operate.

               Steven Vassallo has served as a member of our board of directors since March 2011. Mr. Vassallo joined Foundation Capital in 2007 and has been a general partner since 2011. Prior to that, Mr. Vassallo helped launch Ning, Inc., a consumer Internet service, from 2004 to 2006. Prior to that, Mr. Vassallo was director of engineering at Immersion Corporation, from 1999 to 2002. Mr. Vassallo earned a Bachelor of Science in mechanical engineering from Worcester Polytechnic Institute, a Master of Science in mechanical engineering from Stanford University and a Master of Business Administration from the Stanford Graduate School of Business.

              We believe that Mr. Vassallo is qualified to serve as a director based on his experience as a seasoned investor and a current and former director of many companies and his knowledge of the industry in which we operate.

              There are no family relationships among any of our directors and/or executive officers.

Board Composition

              Our board of directors is currently composed of eight members. Our amended and restated certificate of incorporation and bylaws provide that the number of our directors shall be fixed from time to time by a resolution of the majority of our board of directors. Our amended and restated certificate of incorporation to be effective upon completion of this offering will divide our board of directors into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class of directors whose terms are then expiring. The terms of the directors will expire upon the election and qualification of successor directors at the annual meeting of stockholders to be held during 2014 for the Class I directors, 2015 for the Class II directors and 2016 for the Class III directors.

    Our Class I directors will be Messrs. Jordan, Petty and Vassallo.

    Our Class II directors will be Messrs. Born and West.

    Our Class III directors will be Messrs. Habiger, Paisley and Plaehn.

              The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change of control. See "Description of Capital Stock—Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws" for a discussion of other anti-takeover provisions found in our amended and restated certificate of incorporation and bylaws.

Director Independence

              NASDAQ rules require that independent directors must comprise a majority of a listed company's board of directors within a specified period of the completion of its offering. In addition, these rules require that, subject to specified exceptions, each member of a listed company's audit, compensation and nominating and corporate governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. In addition, NASDAQ rules state that a director will only qualify as an "independent director" if, in the opinion of that company's board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

              In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (1) accept, directly or indirectly, any

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consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries, or (2) be an affiliated person of the listed company or any of its subsidiaries.

              On January 24, 2013, our board of directors undertook a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, our board of directors has determined that none of Messrs. Born, Habiger, Jordan, Paisley, Petty or Vassallo, representing six of our eight directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under NASDAQ rules. Our board of directors also determined that Messrs. Born, Paisley and Petty, who comprise our audit committee, Messrs. Habiger, Jordan and Vassallo, who comprise our compensation committee, and Messrs. Born, Habiger and Paisley, who comprise our nominating and corporate governance committee, satisfy the independence standards for those committees established by applicable SEC rules and NASDAQ rules. In making this determination, our board of directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

Role of the Board in Risk Oversight

              One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through its standing committees that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure. Our audit committee is responsible for reviewing and discussing our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies with respect to risk assessment and risk management. Our audit committee also monitors compliance with legal and regulatory requirements, in addition to oversight of the performance of our external audit function. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance guidelines. Our compensation committee reviews and discusses the risks arising from our compensation philosophy and practices applicable to all employees that are reasonably likely to have a materially adverse effect on us.

Board Committees

              Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee, each of which has the composition and responsibilities described below. The audit committee, compensation committee and nominating and corporate governance committee all operate under charters approved by our board of directors, which will be available on our website upon the closing of this offering. Our board of directors may from time to time establish other committees.

              Audit Committee.     Our audit committee oversees our corporate accounting and financial reporting process and assists the board of directors in monitoring our financial systems and our legal and regulatory compliance. Our audit committee will also:

    Oversee the work of our independent auditors;

    Approve the hiring, discharging and compensation of our independent auditors;

    Approve engagements of the independent auditors to render any audit or permissible non-audit services;

    Review the qualifications and independence of the independent auditors;

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    Monitor the rotation of partners of the independent auditors on our engagement team as required by law;

    Review our financial statements and review our critical accounting policies and estimates;

    Review the adequacy and effectiveness of our internal controls; and

    Review and discuss with management and the independent auditors the results of our annual audit and our quarterly financial statements.

              The members of our audit committee are Messrs. Born, Paisley and Petty. Mr. Paisley is our audit committee chairperson. Our board of directors has concluded that the composition of our audit committee meets the requirements for independence under, and the functioning of our audit committee complies with, the current requirements of applicable SEC and NASDAQ rules, and that Mr. Paisley is our audit committee financial expert as defined under applicable SEC rules.

              Compensation Committee.     Our compensation committee oversees our corporate compensation programs. The compensation committee will also:

    Review and approve corporate goals and objectives relevant to compensation of our chief executive officer and other executive officers;

    Evaluate the performance of our executive officers in light of established goals and objectives;

    Review and recommend compensation of our executive officers based on its evaluations;

    Review and recommend compensation of our directors; and

    Administer the issuance of stock options and other awards under our stock plans.

              The members of our compensation committee are Messrs. Habiger, Jordan and Vassallo. Mr. Habiger is the chairperson of our compensation committee. Our board of directors has determined that each member of our compensation committee is independent under the applicable NASDAQ rules and SEC rules and regulations.

              Nominating and Corporate Governance Committee.     Our nominating and corporate governance committee oversees and assists our board of directors in reviewing and recommending corporate governance policies and nominees for election to our board of directors. The nominating and corporate governance committee will also:

    Evaluate and make recommendations regarding the organization and governance of the board of directors and its committees;

    Assess the performance of members of the board of directors and make recommendations regarding committee and chair assignments;

    Recommend desired qualifications for board of directors membership and conduct searches for potential members of the board of directors; and

    Review and make recommendations with regard to our corporate governance guidelines.

              The members of our nominating and corporate governance committee are Messrs. Born, Habiger and Paisley. Mr. Born is the chairperson of our nominating and corporate governance committee. Our board of directors has determined that each member of our nominating and corporate governance committee is independent under the applicable NASDAQ rules.

Director Compensation

              The following table sets forth information concerning compensation paid or accrued for services rendered to us by members of our board of directors for the fiscal year ended December 31, 2012. The table excludes Mr. Plaehn, who is one of our named executive officers, and Mr. West, who is one of our employees, neither of whom received any compensation from us in their role as directors in

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the fiscal year ended December 31, 2012. The compensation received during 2012 by Mr. Plaehn for his service as an employee is reflected under "Executive Compensation—Summary Compensation Table" below.

Name
  Option
Awards (1)
  Total  

Rob Born

         

David C. Habiger (2)

  $ 211,200   $ 211,200  

Len Jordan

         

Thomas R. Kuhn (3)

         

Christopher B. Paisley (4)

         

Scott Petty

         

Steven Vassallo

         

(1)
The amounts reported in the Option Awards column represent the grant date fair value of the stock options granted to the non-employee directors during 2012, computed in accordance with ASC Topic 718. The assumptions used in calculating the grant date fair value of the stock options reported in the Option Awards column are set forth in Note 1 in the notes to our consolidated financial statements included elsewhere in this prospectus. The amounts reported in this column reflect the accounting cost for these stock-based awards, and do not correspond to the actual economic value that may be received by the non-employee directors from the awards.

(2)
As of December 31, 2012, Mr. Habiger held an option to purchase 120,000 shares of our common stock.

(3)
As of December 31, 2012, Mr. Kuhn held an option to purchase 243,538 shares of our common stock. Mr. Kuhn resigned from our board of directors effective on February 28, 2013.

(4)
As of December 31, 2012, Mr. Paisley held options to purchase 183,004 shares of our common stock.

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              Our policy has been and will continue to be to reimburse our non-employee directors for their travel, lodging and other reasonable expenses incurred in attending meetings of our board of directors and committees of the board of directors. In 2012, we did not maintain any standard fee arrangements for the non-employee members of our board of directors for their service as a director.

              In June 2013, our board of directors approved the following annual cash and equity retainers for our non-employee directors based on the recommendation of the compensation committee of our board of directors:

Annual Cash Retainers

 
  Cash Retainer  

Non-Employee Directors

  $ 36,000  

Board of Directors Chairperson

    24,000  

Audit Committee Chairperson

    22,000  

Audit Committee Non-Chairperson Member

    12,000  

Compensation Committee Chairperson

    12,000  

Compensation Committee Non-Chairperson Member

    6,000  

Nominating and Corporate Governance Committee Chairperson

    9,000  

Nominating and Corporate Governance Committee Non-Chairperson Member

    6,000  

Equity Retainers

 
  Fair Market Value on
the Date of Grant of
Equity Grants
Delivered as
 
 
  Stock
Options
  Restricted
Stock
Units
 

Initial Retainer for Non-Employee Directors, or Initial Grant

  $ 70,000   $ 70,000  

Annual Retainer for Non-Employee Directors, or Annual Grant

    37,500     37,500  

              The Initial Grant will be made to any new non-employee directors added to our board of directors following the completion of this offering. All shares subject to an Initial Grant for a non-employee director will vest annually over three years, provided such non-employee director continues to be a director on each such vesting date.

              The Annual Grant will be made to our non-employee directors then serving on our board of directors on the date of the annual meeting of stockholders, beginning with the annual meeting of stockholders to be held in 2014. All shares subject to an Annual Grant for a non-employee director will vest on the one-year anniversary of the grant date, provided such non-employee director continues to be a director on such date.

              Directors who are employees do not receive any compensation for their service on our board of directors.

Code of Business Conduct and Ethics

              Prior to the completion of this offering, we expect to adopt a code of business conduct and ethics that is applicable to all of our employees, officers and directors including our chief executive officer and senior financial officers, which will be available on our website upon the closing of this offering.

Compensation Committee Interlocks and Insider Participation

              During 2012, our compensation committee was comprised of Messrs. Born, Jordan and Vassallo. None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

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EXECUTIVE COMPENSATION

              The following table provides information regarding the compensation of our principal executive officer and each of the named executive officers as required by Item 402(m)(2) of Regulation S-K during our fiscal year ended December 31, 2012.

Name and Principal Position
  Year   Salary   Non-Equity
Incentive Plan
Compensation (1)
  Option
Awards (2)
  All Other
Compensation
  Total  

Martin Plaehn
President and Chief Executive Officer

    2012   $ 360,000   $ 25,571   $   $   $ 385,571  

Eric Anderson
Senior Vice President, Products

   
2012
   
123,000

(3)
 
   
1,530,000

(4)
 
3,025

(5)
 
1,656,025
 

Jeff Dungan
Senior Vice President, Supply Chain Operations, and Senior Vice President, Business Development

   
2012
   
200,000

(6)
 
15,271
   
176,000

(7)
 
   
391,271
 

(1)
Amounts represent cash bonuses earned in 2012 and paid in 2013, based on the achievement of company performance objectives and other criteria deemed important by our board of directors. Our 2012 company performance objectives were related to the attainment of revenue, gross margin and net income targets.

(2)
The amounts reported in the Option Awards column represent the grant date fair value of the stock options granted to our named executive officers during 2012 as computed in accordance with ASC Topic 718. The assumptions used in calculating the grant date fair value of the stock options reported in the Option Awards column are set forth in Note 7 in the notes to our consolidated financial statements included elsewhere in this prospectus. Note that the amounts reported in this column reflect the accounting cost for these stock options, and do not correspond to the actual economic value that may be received by the named executive officers from the options.

(3)
Mr. Anderson joined us as our Senior Vice President, Products in June 2012 and received a prorated base salary based on an annual base salary of $240,000. In June 2013, Mr. Anderson's base salary was increased to $250,000 effective July 1, 2013.

(4)
Represents an option to purchase 900,000 shares of our common stock. The shares underlying this option vest as follows: 25% of the shares underlying the option vest on June 27, 2013 and the remaining 75% of the shares vest in equal monthly installments over the next three years.

(5)
Represents value of beta equipment provided to Mr. Anderson in 2012.

(6)
In June 2013, Mr. Dungan's base salary was increased to $230,000 effective July 1, 2013.

(7)
Represents an option to purchase 100,000 shares of our common stock. The shares underlying this option vest as follows: 25% of the shares underlying the option vest on September 28, 2013 and the remaining 75% of the shares vest in equal monthly installments over the next three years.

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Benefits

              We provide the following benefits to our named executive officers, generally on the same basis provided to all of our employees:

    Medical, dental and vision insurance;

    401(k) plan (see "Employee Benefit Plans—Retirement Plans" below for a description of our 401(k) plan);

    Employee assistance program;

    Short- and long-term disability, life insurance, accidental death and dismemberment insurance; and

    Health and dependent care flexible spending accounts.

              We also allow our vice presidents and officers, including our named executive officers, to receive our beta equipment at no cost up to certain annual limits.

Employment Agreements and Change of Control Arrangements

              We have executed offer letters with each of our named executive officers, which are summarized below.

Mr. Plaehn

              We entered into an offer letter with Mr. Plaehn on August 20, 2011. Currently, Mr. Plaehn is entitled to receive $360,000 in annual base salary and is eligible for an incentive bonus of up to $126,000, based upon criteria established by our board of directors in its sole discretion. Mr. Plaehn is also eligible to participate in all employee benefit plans and vacation programs. For information relating to potential payments upon termination under Mr. Plaehn's offer letter, see "Potential Payments upon Termination or Change of Control."

Mr. Anderson

              We entered into an offer letter with Mr. Anderson on August 14, 2012. Currently, Mr. Anderson is entitled to receive $250,000 in annual base salary and, if our board of directors determines that our company has achieved requisite development, revenue and/or profitability milestones, Mr. Anderson may be entitled to receive an annual incentive bonus of up to $84,000. Mr. Anderson is also eligible to participate in all company employee benefit plans and vacation programs.

Mr. Dungan

              We entered into an offer letter with Mr. Dungan on August 1, 2006. Currently Mr. Dungan is entitled to receive $230,000 in annual base salary and, if our board of directors determines that our company has achieved requisite development, revenue and/or profitability milestones, Mr. Dungan may be entitled to receive an annual incentive bonus of up to $78,750. Mr. Dungan is also eligible to participate in all company employee benefit plans and vacation programs.

Compensation Risk Assessment

              We believe that our executive compensation program does not encourage excessive or unnecessary risk taking. This is primarily due to the fact that our compensation programs are designed to encourage our executive officers and other employees to remain focused on both short-term and long-term strategic goals, in particular in connection with our pay-for-performance compensation

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philosophy. As a result, we do not believe that our compensation programs are reasonably likely to have a material adverse effect on our company.

Potential Payments upon Termination or Change of Control

              Our compensation committee provides our executive officers with financial protection in the event of certain terminations of employment when it determines that such protection is necessary to attract or retain that executive. Under the terms of his offer letter, Mr. Plaehn is entitled to receive severance payments and benefits upon the occurrence of certain events, as set forth in his offer letter.

              In the event that Mr. Plaehn's employment is terminated by our company without Cause or by him for Good Reason, he will be entitled to receive the continued payment of his base salary for six months (provided that if such termination occurs within 90 days prior to or 12 months after a Change of Control, he will be entitled to receive such continued payment for 12 months), continued medical, dental and vision coverage for him and his dependents for 12 months, and earned but unpaid salary, bonuses and unreimbursed business expenses. In addition, if such termination occurs within 90 days prior to or within 12 months after a Change of Control, Mr. Plaehn is entitled to accelerated vesting of 100% of the his unvested options to purchase shares of our common stock initially granted to him upon the commencement of his employment with us, as well as the greater of: (1) 50% of the then unvested portion of the second option to purchase shares of our common stock granted to him; and (2) 25% of the total number of shares of common stock subject to such stock option.

              In addition, in the event Mr. Plaehn's employment with us is terminated by us without Cause or by Mr. Plaehn for Good Reason within 90 days prior to or within 12 months after a Change of Control, then 100% of the then unvested shares subject to the option granted to Mr. Plaehn on June 11, 2013 will vest and become exercisable.

              "Cause" means: (1) an employee's repeated failure, in the reasonable judgment of our board of directors, to perform one or more of his essential duties and responsibilities to our company after written notice thereof from our board of directors to the employee describing the employee's failure to perform such duties or responsibilities and, if such failure is remediable, his failure to remedy same within 10 days of receiving written notice; (2) an employee's refusal or failure to comply with the legal directives of our board of directors after written notice thereof from our board of directors to the employee describing the employee's failure to comply and, if such failure is remediable, his failure to remedy same within 10 days of receiving written notice; (3) an employee's material violation of any policy of our company; (4) an employee's commission or conviction of, or entry of a plea of nolo contendere to, any felony or any act of fraud, embezzlement, dishonesty, moral turpitude, misappropriation or any other misconduct that has caused or is reasonably expected to result in material injury to our company or its affiliates; (5) an employee's unauthorized use or disclosure of any proprietary information or trade secrets of our company or any other party to whom he owes an obligation of nondisclosure as a result of his relationship with our company; (6) an employee's material breach of any of his obligations under any written agreement or covenant with our company; or (7) an employee's violation of a federal or state law or regulation applicable to our company which violation was or is reasonably likely to be injurious to our company.

              "Good Reason" means that the employee's continuous status as an employee was "constructively terminated" by our company if within 90 days after the occurrence of one of the following actions by our company (unless the employee consents in writing to such action(s)), and after providing us with a reasonable opportunity to cure such action(s), the employee resigns in writing from his employment with us: (l) a material reduction in the employee's base salary as in effect immediately before such reduction; or (2) the relocation by us of the employee's then-current work site that has the effect of increasing the employee's then-current commute by more than 50 miles (not including any

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regular business travel consistent with the business travel requirements of the employee's position with us).

              "Change of Control" means our company's sale of all or substantially of its assets or property, our company's exclusive license of all or substantially all of its intellectual property, the acquisition of our company by another entity in which we are a party and pursuant to which our stockholders immediately prior to such transaction hold less than 50% of the voting power of the surviving or resulting entity.

              Except as described above, there are currently no severance agreements or arrangements in place for Messrs. Plaehn, Anderson and Dungan.

Outstanding Equity Awards at Fiscal Year-End

              The following table presents certain information concerning equity awards held by our named executive officers as of December 31, 2012.

 
  Option Awards  
 
  Number of Securities
Underlying Unexercised
Options
   
   
   
 
 
  Option
Exercise
Price
  Vesting
Start Date
  Option
Expiration
Date
 
Name
  Exercisable   Unexercisable  

Martin Plaehn

    981,924     2,160,234 (1) $ 1.18     9/29/2011     9/28/2021  

    174,564     480,052 (2)   1.18     9/29/2011     9/28/2021  

Eric Anderson

        900,000 (3)   1.70     6/27/2012     6/29/2022  

Jeff Dungan

    250,000     (4)   0.48     8/14/2006     9/20/2016  

    25,000     (5)   0.69     12/11/2007     12/10/2017  

    25,000     (6)   0.94     12/19/2008     12/18/2018  

    36,458     13,542 (7)   0.94     1/1/2010     1/14/2020  

    129,166     70,834 (8)   1.44     5/30/2010     7/8/2020  

    23,958     26,042 (9)   1.18     1/1/2011     5/25/2021  

    6,250     18,750 (10)   1.22     12/21/2011     12/28/2021  

        100,000 (11)   1.76     9/28/2012     9/27/2022  

(1)
The shares underlying the option vest as follows: 25% of the shares underlying the option vested on September 29, 2012 and the remaining 75% of the shares vest in equal monthly installments over the following three years. If Mr. Plaehn's employment is terminated by our company without Cause (as defined in his offer letter) or by Mr. Plaehn for Good Reason (as defined in his offer letter) within 90 days prior to or 12 months after a Change of Control (as defined in his offer letter), 100% of the unvested shares underlying this option will immediately vest and become exercisable.

(2)
The shares underlying this option vest as follows: provided that certain annual milestones agreed upon by Mr. Plaehn and our board of directors are achieved, then 25% of the shares underlying the option vest on September 29, 2012 and the remaining 75% of the shares vest in equal monthly installments over the following three years. If Mr. Plaehn's employment is terminated by the Company without Cause or by Mr. Plaehn for Good Reason within 90 days prior to or 12 months after a Change of Control, the greater of: (1) 50% of the unvested shares underlying this option; and (2) 25% of the total number of shares of underlying this option shall immediately vest and become exercisable.

(3)
The shares underlying this option vest as follows: 25% of the shares underlying the option vest on June 27, 2013 and the remaining 75% of the shares vest in equal monthly installments over the following three years.

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(4)
The shares underlying this option vested as follows: 25% of the shares underlying the option vested on August 14, 2007 and the remaining 75% of the shares vested in equal monthly installments over the following three years.

(5)
The shares underlying this option vested as follows: 25% of the shares underlying the option vested on December 11, 2008 and the remaining 75% of the shares vested in equal monthly installments over the following three years.

(6)
The shares underlying this option vested as follows: 25% of the shares underlying the option vested on December 19, 2009 and the remaining 75% of the shares vested in equal monthly installments over the following three years.

(7)
The shares underlying this option vest as follows: 25% of the shares underlying the option vested on January 1, 2011 and the remaining 75% of the shares vest in equal monthly installments over the following three years.

(8)
The shares underlying this option vest as follows: 25% of the shares underlying the option vested on May 30, 2011 and the remaining 75% of the shares vest in equal monthly installments over the following three years.

(9)
The shares underlying this option vest as follows: 25% of the shares underlying the option vested on January 1, 2012 and the remaining 75% of the shares vest in equal monthly installments over the following three years.

(10)
The shares underlying this option vest as follows: 25% of the shares underlying the option vested on December 21, 2012 and the remaining 75% of the shares vest in equal monthly installments over the following three years.

(11)
The shares underlying this option vest as follows: 25% of the shares underlying the option vest on September 28, 2013 and the remaining 75% of the shares vest in equal monthly installments over the following three years.

              On June 11, 2013, Martin Plaehn, our President and Chief Executive Officer, was granted an option to purchase 500,000 shares of our common stock at an exercise price per share of $2.17. This option was granted pursuant to our 2003 Equity Incentive Plan and is scheduled to vest, subject to Mr. Plaehn's continued role as a service provider to us, as to 25% of the total shares on September 29, 2016, with 1/48th of the total shares vesting monthly thereafter.

Employee Benefit Plans

2013 Stock Option and Incentive Plan

              In June 2013, our board of directors, upon the recommendation of the compensation committee of the board of directors, adopted our 2013 Stock Option and Incentive Plan, or the 2013 Plan, which was subsequently approved by our stockholders. The 2013 Plan will replace the 2003 Equity Incentive Plan, or the 2003 Plan, as our board of directors has determined not to make additional awards under that plan following the consummation of our initial public offering. Our 2013 Plan provides flexibility to our compensation committee to use various equity-based incentive awards as compensation tools to motivate our workforce.

              We have initially reserved                        shares of our common stock for the issuance of awards under the 2013 Plan. The 2013 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2014, by 5% of the outstanding number of shares of our common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation committee. This

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number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.

              The shares we issue under the 2013 Plan will be authorized but unissued shares or shares that we reacquire. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without any issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2013 Plan and 2003 Plan are added back to the shares of common stock available for issuance under the 2013 Plan.

              The 2013 Plan is administered by our compensation committee. Our compensation committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2013 Plan. Persons eligible to participate in the 2013 Plan will be those full or part-time officers, employees, non-employee directors and other key persons (including consultants and prospective employees) as selected from time to time by our compensation committee in its discretion.

              The 2013 Plan permits the granting of both options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and options that do not so qualify. The option exercise price of each option will be determined by our compensation committee but may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each option will be fixed by our compensation committee and may not exceed 10 years from the date of grant. Our compensation committee will determine at what time or times each option may be exercised.

              Our compensation committee may award stock appreciation rights subject to such conditions and restrictions as we may determine. Stock appreciation rights entitle the recipient to shares of common stock, or cash, equal to the value of the appreciation in our stock price over the exercise price. The exercise price is the fair market value of the common stock on the date of grant.

              Our compensation committee may award restricted shares of common stock and restricted stock units to participants subject to such conditions and restrictions as we may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period. Our compensation committee may also grant shares of common stock that are free from any restrictions under the 2013 Plan. Unrestricted stock may be granted to participants in recognition of past services or other valid consideration and may be issued in lieu of cash compensation due to such participant.

              Our compensation committee may grant performance share awards to participants that entitle the recipient to receive shares of common stock upon the achievement of certain performance goals and such other conditions as our compensation committee shall determine.

              Our compensation committee may grant cash bonuses under the 2013 Plan to participants, subject to the achievement of certain performance goals.

              Our compensation committee may grant awards of restricted stock, restricted stock units, performance shares or cash-based awards under the 2013 Plan that are intended to qualify as "performance-based compensation" under Section 162(m) of the Code. Those awards would only vest or become payable upon the attainment of performance goals that are established by our compensation committee and related to one or more performance criteria. The performance criteria that would be used with respect to any such awards include: earnings before interest, taxes, depreciation and amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the market price of our common stock, economic value-added, funds from operations or similar measure, sales or revenue, acquisitions or strategic transactions, operating income (loss), cash

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flow (including, but not limited to, operating cash flow and free cash flow), return on capital, assets, equity, or investment, stockholder returns, return on sales, gross or net profit levels, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of stock, sales or market shares and number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. From and after the time that we become subject to Section 162(m) of the Code, the maximum award that is intended to qualify as "performance-based compensation" under Section 162(m) of the Code that may be made to any one employee during any one calendar year period is 10,000,000 shares of common stock with respect to a stock-based award and $5,000,000 with respect to a cash-based award.

              The 2013 Plan provides that in the case of, and subject to, the consummation of a "sale event" as defined in the 2013 Plan, all outstanding awards will be assumed, substituted or otherwise continued by the successor entity. To the extent that the successor entity does not assume, substitute or otherwise continue such awards, then (i) all stock options and stock appreciation rights will automatically become fully exercisable and the restrictions and conditions on all other awards with time-based conditions will automatically be deemed waived, and awards with conditions and restrictions relating to the attainment of performance goals may become vested and non-forfeitable in connection with a sale event in the compensation committee's discretion and (ii) upon the effectiveness of the sale event, all stock options and stock appreciation rights will automatically terminate. In the event of such termination, individuals holding options and stock appreciation rights will be permitted to exercise such options and stock appreciation rights prior to the sale event. In addition, in connection with a sale event, we may make or provide for a cash payment to participants holding options and stock appreciation rights equal to the difference between the per share cash consideration payable to stockholders in the sale event and the exercise price of the options or stock appreciation rights.

              Our board of directors may amend or discontinue the 2013 Plan and our compensation committee may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an award without the holder's consent. Certain amendments to the 2013 Plan require the approval of our stockholders.

              No awards may be granted under the 2013 Plan after the date that is 10 years from the date of stockholder approval. No awards under the 2013 Plan have been made prior to the date hereof.

2003 Equity Incentive Plan

              Our 2003 Equity Incentive Plan, or the 2003 Plan, was adopted by our board of directors and subsequently approved by our stockholders. We have reserved 33,480,595 shares of our common stock for issuance under the 2003 Plan. This number is subject to adjustment in the event of a stock split, stock dividend or other changes in our capitalization. Following the completion of this offering, any shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without any issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2003 Plan will be added to the shares of common stock available for issuance under the 2013 Plan.

              The 2003 Plan is administered by our board of directors. Our board of directors has the authority to delegate full power and authority to one or more committees of the board, to select the individuals to whom awards will be granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award, to provide substitute awards and to determine the specific terms and conditions of each award.

              The 2003 Plan permits us to make grants of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, shares of restricted stock or a direct award shares of stock to officers, employees, directors, consultants or other person providing us with services.

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              Upon a "Company Transaction" (as defined in the 2003 Plan) in which all awards are not assumed, substituted with awards issued by the successor entity, or substituted with cash consideration, the 2003 Plan and awards issued thereunder will be subject to accelerated vesting and, in the case of stock options, full exercisability, followed by the cancellation of such awards. For awards other than restricted stock, if the awards are assumed or substituted and the holder thereof is terminated without "cause" (as defined in the 2003 Plan) or resigns for "good reason" (as defined in the 2003 Plan) within six months of the sale event, then 50% of the unvested portion of such awards shall vest.

              All stock option awards that are granted to employees are covered by a stock option agreement and vest in accordance with the vesting schedule set forth in such stock option agreement. Our board of directors may accelerate the vesting schedule in its discretion. We have not engaged in any option repricing or other modification to any of the outstanding equity awards.

              Our board of directors has determined not to grant any further awards under the 2003 Plan after the completion of this offering. Following the completion of this initial public offering, we expect to make future awards under the 2013 Plan.

Retirement Plans

              We maintain a tax-qualified 401(k) retirement plan for all employees who satisfy certain eligibility requirements. Under our 401(k) plan, employees may elect to defer up to 100% of their eligible compensation subject to applicable annual limits set pursuant to the Internal Revenue Code of 1986, as amended, or the Code. We may provide a discretionary employee matching contribution and discretionary profit sharing contribution under the 401(k) plan. We intend for the 401(k) plan to qualify, depending on the employee's election, under Section 401(a) of the Code so that contributions by employees, and income earned on those contributions, are not taxable to employees until withdrawn from the 401(k) plan.

Limitation on Liability and Indemnification Matters

              Our amended and restated certificate of incorporation and bylaws that will become effective upon the completion of this offering contain provisions that limit the personal liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

    Any breach of the director's duty of loyalty to us or our stockholders;

    Any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

    Unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

    Any transaction from which the director derived an improper personal benefit.

              Our amended and restated certificate of incorporation and bylaws, each of which will become effective upon the completion of this offering, provide that we indemnify our directors and officers to the fullest extent permitted by Delaware law. Our amended and restated bylaws, that will become effective upon the completion of this offering, also provide that we shall advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity, regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined

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by the board of directors. With certain exceptions, these agreements provide for indemnification for related expenses including, among others, attorneys' fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors' and officers' liability insurance.

              The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and bylaws, that will become effective upon the completion of this offering, may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty of care. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

              In addition to the director and executive compensation arrangements discussed above in "Management" and "Executive Compensation," we have been a party to the following transactions since January 1, 2010, in which the amount involved exceeded or will exceed $120,000, and in which any director, executive officer or holder of more than 5% of any class of our voting stock, or any member of the immediate family of or entities affiliated with any of them, had or will have a material interest. We also describe below certain transactions and series of similar transactions since January 1, 2010 with our directors, executive officers, holders of more than 5% of any class of our voting securities, or any member of the immediate family of or any entities affiliated with any of the foregoing persons to which we are party.

              We have adopted a written policy, effective upon the completion of this offering, which provides that our executive officers, directors, holders of more than 5% of any class of our voting securities, and any member of the immediate family of and any entity affiliated with any of the foregoing persons, are not permitted to enter into a related party transaction with us without the prior consent of our audit committee, or other independent members of our board of directors in the case it is inappropriate for our audit committee to review such transaction due to a conflict of interest. Pursuant to such policy, any request for us to enter into a transaction with an executive officer, director, principal stockholder, or any of their immediate family members or affiliates, in which the amount involved exceeds $120,000 must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, our audit committee is to consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party's interest in the transaction. All of the transactions described below were entered into prior to the adoption of this policy.

Sales of Series H Preferred Stock

              In January and February 2011, we issued and sold an aggregate of 10,476,141 shares of our Series H Preferred Stock at a per share price of $1.91, for an aggregate consideration of approximately $20.0 million. We believe that the terms obtained and consideration received in connection with the Series H financing are comparable to terms available and the amounts we would have received in an arm's length transaction.

              The table below summarizes purchases of shares of our Series H Preferred Stock by our directors, executive officers, holders of more than 5% of any class of our voting securities, or any member of the immediate family of or any entities affiliated with any of the foregoing persons. Upon the issuance of our Series H Preferred Stock, Cisco Systems, Inc., or Cisco, became a beneficial owner of more than 5% of our Series H Preferred Stock. Each outstanding share of our Series H Preferred Stock will be converted into one share of our common stock upon the completion of this offering.

Purchasers
  Shares of
Series H
Preferred Stock
  Aggregate
Purchase Price
 

Cisco Systems, Inc. 

    7,857,106   $ 15,000,000  

Warrants

              In January and February 2011, we issued warrants to purchase an aggregate of 2,444,432 shares of our common stock at an exercise price of $1.91 per share to Cisco. For a detailed description of these warrants, see "Description of Capital Stock—Warrants".

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Transactions with Our Significant Stockholders

              In January 2011, we entered into an OEM-in hardware (with software) purchase and license agreement with Cisco, which was amended and restated in February 2011 and further amended in June 2012. Our agreement with Cisco expires in February 2014, after which such agreement automatically renews for one-year terms unless either party receives notice of non-renewal at least 120 days prior to the expiration of the then-current term. Such notice of non-renewal by either party initiates a notice period, or Notice Period, in which the parties have agreed to define a mutually operable transition plan, which may include a new agreement. In addition, (i) either party may terminate the agreement immediately upon the bankruptcy or insolvency of the other party, (ii) either party may terminate the agreement for cause upon written notice of a material breach and if the other party does not cure such breach within 30 days of such notice, (iii) Cisco may terminate the agreement upon a change of control of our company, or (iv) we may terminate the agreement in certain situations if Cisco invests in a company that competes with our business, subject to applicable notice periods. In June 2013, we triggered the Notice Period with Cisco which will provide sufficient time to define an agreement for future periods. Although the parties intend to enter into a new agreement that would revise and optimize the current Control4 and Cisco collaboration, innovation and channel capabilities, there can be no assurance that such a revised agreement will be reached.

              We have received revenues totaling approximately $477,538, $2,597,999 and $404,026 for the years ended December 31, 2011 and 2012 and the three months ended March 31, 2013, respectively, in connection with our commercial arrangements with Cisco. Our accounts receivable totaled approximately $51,106, $1,024,374 and $172,457 as of December 31, 2011 and 2012 and the three months ended March 31, 2013, respectively, in connection with our commercial arrangements with Cisco.

Investors' Rights Agreement

              We have entered into an Eighth Amended and Restated Investors' Rights Agreement, or the Investors' Rights Agreement, with certain of our stockholders, including Christopher B. Paisley, William B. West, one or more entities affiliated with each of Cisco Systems, Frazier Technology Ventures, Foundation Capital, Thomas Weisel Partners and Signal Peak Ventures, and certain other stockholders. The Investors' Rights Agreement provides these and certain other holders of our capital stock certain information rights, a right of purchase in respect of certain issuances of our securities, including in connection with this offering (pursuant to which up to              shares may be purchased by our existing stockholders under this right; provided however, the managing underwriters of this offering may reduce such number of shares as they deem necessary to complete this offering), and certain registration rights with respect to certain shares of stock held by them. The right of purchase and the information rights granted to such stockholders will terminate upon the consummation of this offering. The registration rights granted to such stockholders will terminate five years following the consummation of this offering, or earlier under certain circumstances in which such stockholders may sell the shares of stock held by them without registration in compliance with Rule 144 of the Securities Act of 1933, as amended. For more information regarding the registration rights granted under this agreement, see "Description of Capital Stock—Registration Rights."

Employment Agreements

              We have entered into agreements containing compensation, termination and change of control provisions, among others, with certain of our executive officers as described under "Executive Compensation—Employment Agreements and Change of Control Arrangements."

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Advisor Agreement

              We entered into an advisor agreement, effective February 28, 2013, with Thomas R. Kuhn, who resigned from our board of directors effective on February 28, 2013. The advisor agreement provides that Mr. Kuhn will provide us with certain strategic consulting and customer relation services through April 2014, or such earlier date if the advisor agreement is terminated pursuant to its terms. Mr. Kuhn's unvested shares subject to outstanding options will continue to vest pursuant to their terms during the period Mr. Kuhn continues to provide services to us pursuant to the advisor agreement.

Indemnification of Officers and Directors

              We have also entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. See "Executive Compensation—Limitations on Liability and Indemnification Matters."

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PRINCIPAL STOCKHOLDERS

              The following table sets forth information regarding beneficial ownership of our common stock as of March 31, 2013 and as adjusted to reflect the shares of common stock to be issued and sold in the offering assuming no exercise of the underwriters' option to purchase additional shares, by:

              We have determined beneficial ownership in accordance with SEC rules. The information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, the number of shares of common stock deemed outstanding includes shares issuable upon exercise of options and warrants held by the respective person or group which may be exercised or converted within 60 days after March 31, 2013. For purposes of calculating each person's or group's percentage ownership, stock options and warrants exercisable within 60 days after March 31, 2013 are included for that person or group but not the stock options or warrants of any other person or group. Certain options to purchase shares of our common stock included in the table below are early exercisable, and to the extent such shares are unvested as of a given date, such shares will remain subject to a right of repurchase held by us.

              Applicable percentage ownership is based on 92,566,014 shares of common stock outstanding as of March 31, 2013, assuming the conversion of all outstanding shares of our preferred stock on a one-for-one basis into 79,528,755 shares of our common stock. For purposes of the table below, we have assumed that                        shares of common stock will be outstanding upon completion of this offering, based upon an assumed initial public offering price of $            per share.

              Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power

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over the shares listed. Unless otherwise noted below, the address of each person listed on the table is c/o Control4 Corporation, 11734 S. Election Road, Salt Lake City, Utah 84020.

 
  Shares Beneficially Owned
Prior to the Offering
  Shares Beneficially Owned
Following the Offering
Name and Address of Beneficial Owner
  Shares   Percentage   Shares   Percentage

5% Stockholders:

                   

Entities affiliated with Foundation Capital (1)

    26,402,314     28.5 %      

Entities affiliated with Thomas Weisel Venture Partners (2)

    15,185,232     16.4        

Entities affiliated with Signal Peak Ventures (3)

    11,776,741     12.7        

Frazier Technology Ventures II, L.P. (4)

    11,378,483     12.3        

Cisco Systems, Inc. (5)

    10,301,538     10.8        

Named Executive Officers and Directors:

                   

Martin Plaehn (6)

    1,556,531     1.7        

Eric Anderson

               

Jeff Dungan (7)

    529,686     *        

Rob Born (8)

    15,185,232     16.4        

David C. Habiger (9)

    26,666     *        

Len Jordan (10)

    11,378,483     12.3        

Christopher B. Paisley (11)

    360,926     *        

Scott Petty (12)

    11,776,741     12.7        

Steven Vassallo (13)

    1,263,690     1.4        

William B. West (14)

    3,263,579     3.5        

All executive officers and directors as a group (14 persons) (15)

    47,644,205     48.2        

*
Represents beneficial ownership of less than 1%.

(1)
Consists of (i) 195,328 shares held of record by FC IV Active Advisors Fund, LLC ("FC Active Advisors"); (ii) 209,908 shares held of record by Foundation Capital IV Principals Fund, LLC ("Foundation IV Principals"); (iii) 24,733,388 shares held of record by Foundation Capital IV, L.P. ("Foundation IV"); (iv) 13,959 shares held of record by Foundation Capital VI Principals Fund L.L.C. ("Foundation VI Principals"); and (v) 1,249,731 shares held of record by Foundation Capital VI, L.P. ("Foundation VI"). Foundation Capital Management Co. IV, LLC ("FC4M") serves as the sole manager of Foundation IV, Foundation IV Principals and FC Active Advisors. William Elmore, Kathryn Gould, Paul Koontz, Mike Schuh, Paul Holland and Warren Weiss are managing members of FC4M. FC4M exercises sole voting and investment power over the shares held by Foundation IV, Foundation IV Principals and FC Active Advisors. As managing members of FC4M, Ms. Gould and Messrs. Elmore, Koontz, Schuh, Holland and Weiss may be deemed to share voting and investment power over the shares held by Foundation IV, Foundation IV Principals and FC Active Advisors. Each of the managing members of FC4M disclaims beneficial ownership of the securities held by Foundation IV, Foundation IV Principals and FC Active Advisors, except to the extent of his or her pecuniary interest therein. Foundation Capital Management Co. VI, LLC ("FC6M") serves as the sole manager of Foundation VI and Foundation VI Principals. William Elmore, Paul Koontz, Mike Schuh, Paul Holland, Richard Redelfs, Ashmeet Sidana, Charles Moldow, Steve Vassallo, one of our directors, and Warren Weiss are managing members of FC6M. FC6M exercises sole voting and investment power over the shares held by Foundation VI and Foundation VI Principals. As managing members of FC6M, Messrs. Elmore, Koontz, Schuh, Holland, Redelfs, Sidana, Moldow, Vassallo and Weiss may be deemed to share voting and investment power over the shares held by Foundation VI and Foundation VI Principals. Each

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      of the managing members of FC6M disclaims beneficial ownership of the reported securities, except to the extent of his pecuniary interest therein. The address for these entities is 250 Middlefield Road, Menlo Park, California 94025.

(2)
Consists of (i) 15,060,253 shares held of record by Thomas Weisel Venture Partners, L.P. ("TWVP") and (ii) 124,979 shares held of record by Thomas Weisel Venture Partners Employee Fund, L.P. ("TWVP Employee Fund"). Thomas Weisel Venture Partners LLC is the sole general partner of TWVP and Thomas Weisel Capital Management LLC is the sole general partner of TWVP Employee Fund. Rob Born, one of our directors, is the fund manager for TWVP and TWVP Employee Fund, and may be deemed to have voting and dispositive power of the shares held by TWVP and TWVP Employee Fund. The address for these entities is Thomas Weisel Venture Partners, One Montgomery Street, 37 th  Floor, San Francisco, California 94104.

(3)
Consists of (i) 330,430 shares held of record by vSpring III D, L.P. ("vSpring III D"); (ii) 1,179,462 shares held of record by vSpring III, L.P. ("vSpring III"); (iii) 6,536 shares held of record by vSpring Partners III, L.P. ("vSpring Partners"); and (iv) 10,260,313 shares held of record by vSpring SBIC, L.P. ("vSpring SBIC"). vSpring Management III D, L.L.C. ("vSpring Management III D") is the sole general partner of vSpring III D. vSpring Management III D exercises sole voting and investment power over the shares held by vSpring III D. Each of Scott Petty, one of our directors, Dinesh Patel, Ron Heinz and Brandon Tidwell is a managing member of vSpring Management III D and may be deemed to share voting and investment power over the shares held by vSpring III D. vSpring Management III, L.L.C. ("vSpring Management III") is the sole general partner of vSpring III and vSpring Partners. vSpring Management III exercises sole voting and investment power over the shares held by vSpring III and vSpring Partners. Each of Scott Petty, Dinesh Patel, Ron Heinz and Brandon Tidwell is a managing member of vSpring Management III and may be deemed to share voting and investment power over the shares held by vSpring III and vSpring Partners. vSpring SBIC Management, L.L.C. ("vSpring SBIC Management") is the sole general partner of vSpring SBIC. vSpring SBIC Management exercises sole voting and investment power over the shares held by vSpring SBIC. Each of Scott Petty and Dinesh Patel is a managing member of vSpring SBIC Management and may be deemed to share voting and investment power over the shares held by vSpring SBIC. The address for these entities is 2795 E. Cottonwood Parkway, Suite 360, Salt Lake City, Utah 84121.

(4)
All shares are held of record by Frazier Technology Ventures II, L.P. ("Frazier"). FTVM II, L.P. ("FTVM") is the sole general partner of Frazier, and Frazier Technology Management, L.L.C. ("Frazier Tech Management") is the sole general partner of FTVM. Frazier Tech Management exercises sole voting and investment power over the shares held by Frazier. Each of Scott Darling, Paul Bialek, Frazier Management LLC and Len Jordan, one of our directors, is a managing member of Frazier Tech Management and may be deemed to share voting and investment power of the shares held by Frazier. The address for Frazier is 601 Union Street, Suite 3200, Seattle, Washington 98101.

(5)
Consists of (i) 7,857,106 shares held of record by Cisco Systems, Inc. ("Cisco") and (ii) warrants to purchase 2,444,432 shares exercisable within 60 days of March 31, 2013 held of record by Cisco. Cisco has sole voting and dispositive power over these securities. The address for Cisco is 170 West Tasman Drive, San Jose, California 95134.

(6)
Consists of options to purchase 1,556,531 shares exercisable within 60 days of March 31, 2013.

(7)
Consists of options to purchase 529,686 shares exercisable within 60 days of March 31, 2013.

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(8)
Consists of the shares held of record by TWVP and TWVP Employee Fund as disclosed in footnote (2) above. Mr. Born is a fund manager for TWVP and TWVP Employee Fund, and may be deemed to share voting and dispositive power of the shares held by TWVP and TWVP Employee Fund.

(9)
Consists of options to purchase 26,666 shares exercisable within 60 days of March 31, 2013.

(10)
Consists of the shares held of record by Frazier as disclosed in footnote (4) above. Mr. Jordan is a managing member of Frazier Tech Management and may be deemed to share voting and dispositive power of the shares held by Frazier.

(11)
Consists of (i) 250,017 shares held of record by Mr. Paisley and (ii) options to purchase 110,909 shares exercisable within 60 days of March 31, 2013.

(12)
Consists of the shares held of record by vSpring III D, vSpring III, vSpring Partners and vSpring SBIC as disclosed in footnote (3) above. Mr. Petty is a managing member of vSpring Management III D, the sole general partner of vSpring III D, and may be deemed to share voting and investment power over the shares held by vSpring III D. Mr. Petty is a managing member of vSpring Management III, the sole general partner of vSpring III and vSpring Partners, and may be deemed to share voting and investment power over the shares held by vSpring III and vSpring Partners. Mr. Petty is a managing member of vSpring SBIC Management, the sole general partner of vSpring SBIC, and may be deemed to share voting and investment power over the shares held by vSpring SBIC.

(13)
Consists of the shares held of record by Foundation VI Principals and Foundation VI as disclosed in footnote (1) above. Mr. Vassallo is a managing member of FC6M, the sole general partner of Foundation VI and Foundation VI Principals, and may be deemed to have shared voting and investment power over the shares held by Foundation VI and Foundation VI Principals. Mr. Vassallo disclaims beneficial ownership of the securities held by Foundation VI and Foundation VI Principals, except to the extent of his pecuniary interest therein.

(14)
Consists of (i) 1,420,000 shares held of record by Mr. West and (ii) options to purchase 1,843,579 shares exercisable within 60 days of March 31, 2013.

(15)
Consists of (i) 41,274,163 shares beneficially owned by our current executive officers and directors and (ii) options to purchase 6,370,042 shares exercisable within 60 days of March 31, 2013.

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DESCRIPTION OF CAPITAL STOCK

General

              The following is a summary of the rights of our common stock and preferred stock and of certain provisions of our amended and restated certificate of incorporation and bylaws, as they will be in effect upon the completion of this offering. For more detailed information, please see our amended and restated certificate of incorporation and bylaws, which are filed as exhibits to the registration statement of which this prospectus is part.

              Immediately following the completion of this offering, our authorized capital stock will consist of 525,000,000 shares, all with a par value of $0.0001 per share, of which:

              The number of authorized shares of our common stock or preferred stock may from time to time be increased or decreased (but not below the number of shares of such class outstanding) by the affirmative vote of the holders of a majority in voting power of our outstanding shares of capital stock such that the number of authorized shares of a class may be increased without the affirmative vote of the holders of such class.

              As of March 31, 2013, we had outstanding 93,323,245 shares of common stock held of record by 118 stockholders, assuming (i) the conversion of all outstanding shares of our preferred stock on a one-for-one basis into 79,528,755 shares of common stock and (ii) the issuance of 757,231 shares of common stock, on an as-converted basis, upon the net exercise of warrants to purchase 3,394,300 shares of capital stock outstanding as of March 31, 2013. Pursuant to the terms of our amended and restated certificate of incorporation, our preferred stock will automatically convert into common stock effective upon the closing of this offering. In addition, as of March 31, 2013, 23,972,031 shares of our common stock were subject to outstanding options, 370,000 shares of our common stock were issuable upon the exercise of outstanding warrants to purchase common stock and 60,926 shares of our common stock, on an as-converted basis, were issuable upon the exercise of outstanding warrants to purchase preferred stock.

Common Stock

              The holders of our common stock are entitled to one vote per share on all matters to be voted on by our stockholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by our board of directors out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities, subject to the prior distribution rights of preferred stock then outstanding. Holders of common stock have no preemptive, conversion or subscription rights. There are no redemption or sinking fund provisions applicable to the common stock.

Preferred Stock

              Upon the closing of this offering, all currently outstanding shares of preferred stock will convert into shares of our common stock on a one-for-one basis, and there will be no shares of preferred stock outstanding.

              Though we currently have no plans to issue any shares of preferred stock, upon the closing of this offering and the filing of our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by our stockholders, to designate and issue up to 25,000,000 shares of preferred stock in one or more series. Our board of directors may also

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designate the rights, preferences and privileges of the holders of each such series of preferred stock, any or all of which may be greater than or senior to those granted to the holders of common stock. Though the actual effect of any such issuance on the rights of the holders of common stock will not be known until such time as our board of directors determines the specific rights of the holders of preferred stock, the potential effects of such an issuance include:

Warrants

              The following table sets forth information about outstanding warrants to purchase shares of our capital stock as of March 31, 2013.

Class of Stock
  Number of
Shares of
Stock Subject
to Warrant
  Exercise
Price per
Share
  Expiration Date  
Common Stock     2,095,228   $ 1.91     January 21, 2014  
Common Stock     349,204   $ 1.91     February 15, 2014  
Series G-1 Preferred Stock     949,868   $ 1.78     June 24, 2014  
Common Stock     370,000   $ 1.44     October 25, 2015  
Series C Preferred Stock     38,095   $ 1.06     December 29, 2015  
Series E Preferred Stock     22,831   $ 2.19     June 12, 2017  

              Upon the conversion of all of our preferred stock into common stock immediately prior to the completion of this offering, other than the warrants with expiration dates of January 21, 2014, February 15, 2014 and June 24, 2014, which will expire upon the completion of this offering, each warrant to purchase shares of our preferred stock will be exercisable for an equivalent number of shares of common stock and will remain exercisable until the expiration date of such warrant.

Exclusive Jurisdiction

              Unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to Control4 or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine. The enforceability of similar choice of forum provisions in other companies' certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any action, a court could find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in such action.

Registration Rights

              As of March 31, 2013, the holders of an aggregate of 83,880,898 shares of our common stock issued or issuable upon conversion of preferred stock are entitled to the following rights with respect to the registration of such shares for public resale under the Securities Act of 1933, as amended, or the

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Securities Act, pursuant to an Investors' Rights Agreement by and among us and certain of our stockholders. We refer to these shares collectively as "registrable securities."

              The registration of shares of common stock as a result of the following rights being exercised would enable the holders to trade these shares without restriction under the Securities Act when the applicable registration statement is declared effective. Ordinarily, we will be required to pay all expenses, other than underwriting discounts and commissions, related to any registration effected pursuant to the exercise of these registration rights.

              The registration rights terminate five years after completion of this offering, upon a Deemed Liquidation Event (as defined in our certificate of incorporation) or, with respect to the registration rights of an individual holder, when such holder's registrable securities represent 1% or less of our outstanding common stock and can be sold pursuant to Rule 144 of the Securities Act.

Demand Registration Rights

              If at any time after 180 days following this offering the holders of the registrable securities then outstanding request in writing that we effect a registration that has a reasonably anticipated aggregate price to the public of at least $5,000,000, we may be required to register their shares. At most, we are obligated to effect two registrations for the holders of registrable securities in response to these demand registration rights, subject to certain conditions. Depending on certain conditions, however, we may defer such registration for up to 120 days. If the holders requesting registration intend to distribute their shares by means of an underwriting, the managing underwriter of such offering will have the right to limit the number of shares to be underwritten for reasons related to the marketing of the shares.

Piggyback Registration Rights

              If at any time after this offering we propose to register any shares of our securities under the Securities Act, the holders of registrable securities will be entitled to notice of the registration and to include their shares of registrable securities in the registration, subject to certain exceptions relating to employee benefit plans and mergers and acquisitions. If our proposed registration involves an underwriting, the managing underwriter of such offering will have the right to limit the number of shares to be underwritten, subject to certain restrictions, for reasons related to the marketing of the shares.

Form S-3 Registration Rights

              If at any time after 180 days following this offering we become entitled under the Securities Act to register our shares on Form S-3 and the holders of registrable securities then outstanding request in writing that we register their shares for public resale on Form S-3 with a reasonably anticipated aggregate price to the public of at least $1,000,000, we will be required to use our best efforts to effect such registration; provided, however, that if such registration would be seriously detrimental to us or our stockholders, we may defer the registration for up to 120 days. We are only obligated to effect up to two registrations on Form S-3 in any 12-month period.

Voting Rights

              Under the provisions of our amended and restated certificate of incorporation to become effective upon completion of this offering, holders of our common stock are entitled to one vote for each share of common stock held by such holder on any matter submitted to a vote at a meeting of stockholders. Our post-offering amended and restated certificate of incorporation does not provide cumulative voting rights to holders of our common stock.

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Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

              Certain provisions of Delaware law and our restated certificate of incorporation and bylaws that will become effective upon completion of this offering contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids. These provisions are also designed in part to encourage anyone seeking to acquire control of us to first negotiate with our board of directors. We believe that the advantages gained by protecting our ability to negotiate with any unsolicited and potentially unfriendly acquirer outweigh the disadvantages of discouraging such proposals, including those priced above the then-current market value of our common stock, because, among other reasons, the negotiation of such proposals could improve their terms.

Certificate of Incorporation and Bylaws

              Our amended and restated certificate of incorporation and bylaws to become effective upon completion of this offering include provisions that:

Delaware Anti-Takeover Statute

              We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested

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stockholder for a period of three years following the date the person became an interested stockholder unless:

              Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation's outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may discourage business combinations or other attempts that might result in a premium over the market price for the shares of common stock held by our stockholders.

              The provisions of Delaware law and our restated certificate of incorporation and bylaws to become effective upon completion of this offering could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Transfer Agent and Registrar

              Upon the completion of this offering, the transfer agent and registrar for our common stock will be American Stock Transfer & Trust Company, LLC.

Listing

              We have applied to list our common stock for quotation on The NASDAQ Global Market under the trading symbol "CTRL".

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SHARES ELIGIBLE FOR FUTURE SALE

              Before this offering, there has not been a public market for shares of our common stock. Future sales of substantial amounts of shares of our common stock, including shares issued upon the exercise of outstanding options, in the public market after this offering, or the possibility of these sales occurring, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future.

              Upon the completion of this offering, a total of                        shares of common stock will be outstanding, assuming that there are no exercises of options after March 31, 2013. Of these shares, all                        shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters' option to purchase additional shares, will be freely tradable in the public market without restriction or further registration under the Securities Act, unless these shares are held by "affiliates," as that term is defined in Rule 144 under the Securities Act.

              The remaining                        shares of common stock will be "restricted securities," as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below.

              Subject to the lock up agreements described below and the provisions of Rules 144 and 701 under the Securities Act, these restricted securities will be available for sale in the public market as follows:

Date
  Number of
Shares
 

On the date of this prospectus

       

Between 90 and 180 days after the date of this prospectus

       

At various times beginning more than 180 days after the date of this prospectus

       

              In addition, of the 23,972,031 shares of our common stock that were subject to stock options outstanding as of March 31, 2013, options to purchase                                    shares of common stock were vested as of March 31, 2013 and will be eligible for sale 180 days following the effective date of this offering.

Lock-Up Agreements

              We and all of our directors and officers, as well as the other holders of substantially all shares of common stock outstanding immediately prior to this offering, have agreed that, without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:

whether any transaction described above is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise.

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              The restrictions described in the immediately preceding paragraph do not apply to the following, provided that (1) Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. receive a signed lock-up agreement for the balance of the lock-up period from each donee, trustee, distributee, or transferee, as the case may be, (2) any such transfer shall not involve a disposition for value, (3) the transfers are not required during the lock-up period to be reported with the Securities and Exchange Commission in accordance with Section 16 of the Securities Exchange Act of 1934, as amended, and (4) the equity holder does not otherwise voluntarily effect any public filing or report regarding such transfers during the lock-up period:

              Furthermore, an equity holder may (a) sell our shares purchased on the open market following this offering if and only if (i) such sales are not required during the lock-up period to be reported in any public report or filing with the Securities Exchange Commission, or otherwise and (ii) the equity holder does not otherwise voluntarily effect any public filing or report regarding such sales during the lock-up period, (b) exercise any rights to purchase equity securities, so long as the shares received upon such exercise shall remain subject to the terms of the lock-up agreement; and (c) sell shares in connection with a merger or sale of our company or our assets.

Rule 144

              In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.

              In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

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              Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

              Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701.

              As of March 31, 2013,                                    shares of our outstanding common stock had been issued in reliance on Rule 701 as a result of exercises of stock options and stock awards.

Stock Options

              We intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of our common stock subject to options outstanding or reserved for issuance under our stock plans and shares of our common stock issued upon the exercise of options by employees. We expect to file this registration statement as soon as practicable after this offering. In addition, we intend to file a registration statement on Form S-8 or such other form as may be required under the Securities Act for the resale of shares of our common stock issued upon the exercise of options that were not granted under Rule 701. We expect to file this registration statement as soon as permitted under the Securities Act. However, the shares registered on Form S-8 will be subject to volume limitations, manner of sale, notice and public information requirements of Rule 144 and will not be eligible for resale until expiration of the lock up agreements to which they are subject.

Registration Rights

              Upon completion of this offering, the holders of an aggregate of 83,880,898 shares of our common stock issued or issuable upon conversion of preferred stock will be entitled to various rights with respect to the registration of these shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See "Description of Capital Stock—Registration Rights" for additional information.

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MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES FOR NON-U.S. HOLDERS

              The following is a summary of the material U.S. federal income and estate tax considerations relating to the acquisition, ownership and disposition of common stock pursuant to this offering by non-U.S. holders. This summary deals only with common stock held as a capital asset (within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, (the "Code")) by such a holder and does not discuss the U.S. federal income and estate tax considerations applicable to a holder that is subject to special treatment under U.S. federal income and estate tax laws, including, but not limited to: a dealer in securities or currencies; a financial institution; a regulated investment company; a real estate investment trust; a tax-exempt organization; an insurance company; a person holding common stock as part of a hedging, integrated, conversion or straddle transaction or a person deemed to sell common stock under the constructive sale provisions of the Code; a trader in securities that has elected the mark-to-market method of accounting; a person liable for alternative minimum tax; an entity that is treated as a partnership or other pass-through entity for U.S. federal income tax purposes; a person that received such common stock in connection with services provided; a U.S. person whose "functional currency" is not the U.S. dollar; a "controlled foreign corporation;" a "passive foreign investment company;" or a U.S. expatriate.

              This summary is based upon provisions of the Code, applicable U.S. Treasury regulations promulgated thereunder, published rulings and judicial decisions, all as in effect as of the date hereof. Those authorities may be changed, perhaps retroactively, or may be subject to differing interpretations, which could result in U.S. federal income or estate tax consequences different from those discussed below. This summary does not address all aspects of U.S. federal income and estate tax, does not deal with all tax considerations that may be relevant to stockholders in light of their personal circumstances and does not address the Medicare tax imposed on certain investment income or any state, local, foreign, gift or alternative minimum tax considerations.

              For purposes of this discussion, a "U.S. holder" is a beneficial holder of common stock that is: an individual citizen or resident of the United States; a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; an estate the income of which is subject to U.S. federal income taxation regardless of its source; or a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

              For purposes of this discussion a "non-U.S. holder" is a beneficial holder of common stock that is neither a U.S. holder nor a partnership (or any other entity or arrangement that is treated as a partnership) for U.S. federal income tax purposes. However, neither the term U.S. holder nor the term non-U.S. holder includes any entity or other person that is subject to special treatment under the Code. If a partnership (or an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes) holds common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding common stock is urged to consult its own tax advisors.

               PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THEIR PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES IN LIGHT OFTHEIR SPECIFIC SITUATIONS, AS WELL AS THE TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR NON-U.S. TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS (INCLUDING THE U.S. FEDERAL GIFT TAX LAWS).

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Distributions on Our Common Stock

              Distributions with respect to common stock, if any, generally will constitute dividends for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Any portion of a distribution in excess of current or accumulated earnings and profits will be treated as a return of capital and will first be applied to reduce the holder's tax basis in its common stock, but not below zero. Any remaining amount will then be treated as gain from the sale or exchange of the common stock and will be treated as described under "—Disposition of our Common Stock" below.

              Distributions treated as dividends that are paid to a non-U.S. holder, if any, with respect to shares of our common stock will be subject to U.S. federal withholding tax at a rate of 30% (or lower applicable income tax treaty rate) of the gross amount of the dividends unless the dividends are effectively connected with the non-U.S. holder's conduct of a trade or business in the United States. If a non-U.S. holder is engaged in a trade or business in the United States and dividends with respect to the common stock are effectively connected with the conduct of that trade or business and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment maintained by the non-U.S. holder, then although the non-U.S. holder will generally be exempt from the 30% U.S. federal withholding tax, provided certain certification requirements are satisfied, the non-U.S. holder will be subject to U.S. federal income tax on those dividends on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. Any such effectively connected income received by a foreign corporation may, under certain circumstances, be subject to an additional branch profits tax equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits for the taxable year, as adjusted under the Code. To claim the exemption from withholding with respect to any such effectively connected income, the non-U.S. holder must generally furnish to us or our paying agent a properly executed IRS Form W-8ECI (or applicable successor form). A non-U.S. holder of shares of common stock who wishes to claim the benefit of an exemption or reduced rate of withholding tax under an applicable treaty must furnish to us or our paying agent a valid IRS Form W-8BEN (or applicable successor form) certifying such holder's qualification for the exemption or reduced rate. If a non-U.S. holder is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty, it may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service. Non-U.S. holders are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.

Disposition of Our Common Stock

              Non-U.S. holders may recognize gain upon the sale, exchange, redemption or other taxable disposition of common stock. Subject to the discussion below regarding backup withholding and foreign accounts, such gain generally will not be subject to U.S. federal income tax unless: (i) that gain is effectively connected with the non-U.S. holder's conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment maintained by the non-U.S. holder); (ii) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or (iii) we are or have been a "U.S. real property holding corporation" for U.S. federal income tax purposes at any time during the shorter of the five-year period preceding the date of disposition or the holder's holding period for our common stock, and certain other requirements are met. We believe that we are not and we do not anticipate becoming a "U.S. real property holding corporation" for U.S. federal income tax purposes.

              If a non-U.S. holder is an individual described in clause (i) of the preceding paragraph, the non-U.S. holder will generally be subject to tax on a net income basis at the regular graduated U.S. federal individual income tax rates in the same manner as if such holder were a resident of the United

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States, unless an applicable income tax treaty provides otherwise. If the non-U.S. holder is an individual described in clause (ii) of the preceding paragraph, the non-U.S. holder will generally be subject to a flat 30% tax on the gain, which may be offset by U.S. source capital losses even though the non-U.S. holder is not considered a resident of the United States, provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. If a non-U.S. holder is a foreign corporation that falls under clause (i) of the preceding paragraph, it will be subject to tax on a net income basis at the regular graduated U.S. federal corporate income tax rates in the same manner as if it were a resident of the United States and, in addition, the non-U.S. holder may be subject to the branch profits tax at a rate equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits.

Information Reporting and Backup Withholding Tax

              We report to our non-U.S. holders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. All distributions to holders of common stock are subject to any applicable withholding. Information reporting requirements apply even if no withholding was required because the distributions were effectively connected with the non-U.S. holder's conduct of a United States trade or business or withholding was reduced or eliminated by an applicable income tax treaty. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Under U.S. federal income tax law, interest, dividends and other reportable payments may, under certain circumstances, be subject to "backup withholding" at the then applicable rate. Backup withholding, however, generally will not apply to distributions to a non-U.S. holder of our common stock, provided the non-U.S. holder furnishes to us or our paying agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN or IRS Form W-8ECI, or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax and the appropriate information is timely supplied to the IRS.

Foreign Account Tax Compliance Act

              New rules in the Code generally will impose withholding taxes on certain types of payments made to "foreign financial institutions" (as specially defined under these rules), including when the foreign financial institution holds our common stock on behalf of a non-U.S. holder, and certain other non-U.S. entities if certification, information reporting and other specified requirements are not met. The legislation potentially imposes a 30% withholding tax on "withholdable payments" if they are paid to a foreign financial institution or to a foreign non-financial entity, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations and other specified requirements are satisfied or (ii) the foreign non-financial entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner and other specified requirements are satisfied. "Withholdable payment" generally means (i) any payment of interest, dividends, rents and certain other types of generally passive income if such payment is from sources within the United States, and (ii) any gross proceeds from the sale or other disposition of any property of a type that can produce interest or dividends from sources within the United States (including, for example, shares of our common stock). If the payee is a foreign financial institution, it generally will be required to enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements. If an investor does not provide us with the information necessary to comply with the legislation, it is possible that

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distributions to such investor that are attributable to withholdable payments, such as dividends, will be subject to the 30% withholding tax. Any withholding obligations with respect to dividends on our common stock, will not begin prior to January 1, 2014, and any withholding obligations with respect to gross proceeds from a sale or other disposition of our common stock will not begin prior to January 1, 2017. Prospective investors should consult their own tax advisers regarding this legislation.

Federal Estate Tax

              An individual who at the time of death is not a citizen or resident of the United States and who is treated as the owner of, or has made certain lifetime transfers of, an interest in our common stock will be required to include the value thereof in his or her taxable estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise. The test for whether an individual is a resident of the United States for federal estate tax purposes differs from the test used for U.S. federal income tax purposes. Some individuals, therefore, may be "Non-U.S. Holders" for U.S. federal income tax purposes, but not for U.S. federal estate tax purposes, and vice versa.

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UNDERWRITING

              Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the number of shares of common stock set forth opposite its name below.

                       Underwriter
  Number of
Shares
 

Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated

       

Raymond James & Associates, Inc. 

       

Canaccord Genuity Inc. 

       

Cowen and Company, LLC

       

Needham & Company, LLC

       
       

                      Total

       
       

              Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.

              We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

              The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commissions and Discounts

              The representatives have advised us that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $            per share. After the initial offering, the public offering price, concession or any other term of the offering may be changed.

              The following table shows the public offering price, underwriting discount and proceeds before expenses to us. The information assumes either no exercise or full exercise by the underwriters of their option to purchase additional shares.

 
  Per Share   Without Option   With Option  

Public offering price

  $     $     $    

Underwriting discount

  $     $     $    

Proceeds, before expenses, to us

  $     $     $    

              The expenses of the offering, not including the underwriting discount, are estimated at $            and are payable by us, which includes an amount not to exceed $25,000 that we have agreed to reimburse the underwriters for certain FINRA-related expenses incurred by them in connection with this offering.

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Option to Purchase Additional Shares

              We have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to                                     additional shares at the public offering price, less the underwriting discount. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriter's initial amount reflected in the above table.

No Sales of Similar Securities

              We, our executive officers and directors and our other existing security holders have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly

              This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.

NASDAQ Global Market Listing

              We expect the shares to be approved for listing on The NASDAQ Global Market, subject to notice of issuance, under the symbol "CTRL."

              Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations among us and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are

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              An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.

              The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.

Price Stabilization, Short Positions and Penalty Bids

              Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.

              In connection with the offering, the underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. "Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares described above. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option granted to them. "Naked" short sales are sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of the offering.

              The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

              Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on The NASDAQ Global Market, in the over-the-counter market or otherwise.

              Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Electronic Distribution

              In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail.

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Other Relationships

              Some of the underwriters and their affiliates may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They may in the future receive, customary fees and commissions for these transactions.

              In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Notice to Prospective Investors in the European Economic Area

              In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State"), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the "Relevant Implementation Date"), no offer of shares may be made to the public in that Relevant Member State other than:

              Each person in a Relevant Member State who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that (A) it is a "qualified investor" within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive, and (B) in the case of any shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, the shares acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than "qualified investors" as defined in the Prospectus Directive, or in circumstances in which the prior consent of the representatives has been given to the offer or resale. In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.

              The Company, the representatives and their affiliates will rely upon the truth and accuracy of the foregoing representation, acknowledgement and agreement.

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              This prospectus has been prepared on the basis that any offer of shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Relevant Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for the Company or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the Company nor the underwriters have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for the Company or the underwriters to publish a prospectus for such offer.

              For the purpose of the above provisions, the expression "an offer to the public" in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression "Prospectus Directive" means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.

Notice to Prospective Investors in the United Kingdom

              In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are "qualified investors" (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order") and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.

Notice to Prospective Investors in Switzerland

              The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

              Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes ("CISA"). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.

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Notice to Prospective Investors in the Dubai International Financial Centre

              This prospectus supplement relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority ("DFSA"). This prospectus supplement is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken steps to verify the information set forth herein and has no responsibility for the prospectus supplement. The shares to which this prospectus supplement relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus supplement you should consult an authorized financial advisor.

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LEGAL MATTERS

              The validity of the shares of common stock offered hereby will be passed upon for us by Goodwin Procter LLP, Menlo Park, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Cooley LLP, Palo Alto, California. Cooley LLP has in the past provided, and continues to provide, legal services to us.


EXPERTS

              The consolidated financial statements of Control4 Corporation at December 31, 2011 and 2012, and for each of the three years in the period ended December 31, 2012 appearing in this prospectus and registration statement, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon and appearing elsewhere herein, and are included in reliance on such report given on the authority of such firm as experts in accounting and auditing.


WHERE YOU CAN FIND MORE INFORMATION

              We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock we are offering. The registration statement, including the attached exhibits and schedules, contains additional relevant information about us and our common stock. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. The rules and regulations of the SEC allow us to omit from this prospectus certain information included in the registration statement.

              For further information about us and our common stock, you may inspect a copy of the registration statement and the exhibits and schedules to the registration statement without charge at the offices of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of the registration statement from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549 upon the payment of the prescribed fees.

              You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants like us that file electronically with the SEC. You can also inspect our registration statement on this website.

              Upon the closing of this offering, we will become subject to the reporting and information requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

  F-2

Consolidated Balance Sheets

 
F-3

Consolidated Statements of Operations

 
F-4

Consolidated Statements of Comprehensive Loss

 
F-5

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

 
F-6

Consolidated Statements of Cash Flows

 
F-7

Notes to Consolidated Financial Statements

 
F-8

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
Control4 Corporation

              We have audited the accompanying consolidated balance sheets of Control4 Corporation as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

              We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

              In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Control4 Corporation at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Salt Lake City, Utah
March 15, 2013

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CONTROL4 CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 
  December 31,    
  Pro Forma
as of
March 31,
2013
 
 
  March 31,
2013
 
 
  2011   2012  
 
   
   
  (unaudited)
  (unaudited)
 

Assets

                         

Current assets:

                         

Cash and cash equivalents

  $ 18,468   $ 18,695   $ 14,573   $    

Accounts receivable, net

    10,662     13,078     13,255        

Inventories

    9,497     12,515     12,538        

Prepaid expenses and other current assets

    1,519     1,871     2,183        
                   

Total current assets

    40,146     46,159     42,549        

Property and equipment, net

    2,127     2,666     3,566        

Intangible assets, net

    1,197     926     858        

Other assets

    64     887     2,482        
                   

Total assets

  $ 43,534   $ 50,638   $ 49,455        
                   

Liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)

                         

Current liabilities:

                         

Accounts payable

  $ 9,813   $ 14,435   $ 12,917        

Accrued liabilities

    4,454     6,571     6,625        

Deferred revenue

    552     542     1,035        

Current portion of notes payable

    971     1,321     1,425        
                   

Total current liabilities

    15,790     22,869     22,002        

Notes payable

    1,349     1,838     1,969        

Warrant liability

    347     601     576        

Other long-term liabilities

    2,241     1,620     1,799        
                   

Total liabilities

    19,727     26,928     26,346     25,770  

Commitments and contingencies

                         

Redeemable convertible preferred stock, $0.0001 par value; 83,163,408 shares authorized; 79,528,755 shares issued and outstanding at December 31, 2011 and 2012 and March 31, 2013 (unaudited); aggregate liquidation preference of $118,150 at December 31, 2011 and 2012 and March 31, 2013; no shares authorized, issued and outstanding, pro forma (unaudited)

    116,313     116,313     116,313      

Stockholders' equity (deficit):

                         

Preferred stock, $0.0001 par value, no shares authorized, issued and outstanding, actual; 25,000,000 shares authorized, no shares issued and outstanding, pro forma (unaudited)

                         

Common stock, $0.0001 par value; 117,836,592, 127,836,592 and 127,836,592 shares authorized; 11,677,127, 12,952,969 and 13,037,259 shares issued and outstanding at December 31, 2011 and 2012 and March 31, 2013 (unaudited), respectively; 500,000,000 shares authorized, 93,323,245 shares issued and outstanding, pro forma (unaudited)

    1     1     1     9  

Additional paid-in capital

    9,333     12,987     13,862     130,743  

Accumulated deficit

    (101,864 )   (105,587 )   (107,058 )   (107,058 )

Accumulated other comprehensive income (loss)

    24     (4 )   (9 )   (9 )
                   

Total stockholders' equity (deficit)

    (92,506 )   (92,603 )   (93,204 )   23,685  
                   

Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)

  $ 43,534   $ 50,638   $ 49,455   $ 49,455  
                   

See accompanying notes to consolidated financial statements.

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CONTROL4 CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 
  Years Ended December 31,   Three Months
Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 

Revenue

  $ 74,925   $ 93,376   $ 109,512   $ 22,628   $ 26,571  

Cost of revenue

    43,357     50,534     57,225     12,466     13,550  

Cost of revenue—inventory purchase commitment

            1,840          
                       

Gross margin

    31,568     42,842     50,447     10,162     13,021  

Operating expenses:

                               

Research and development

    15,922     19,211     20,310     4,813     6,066  

Sales and marketing

    22,491     17,546     20,182     5,038     5,605  

General and administrative

    8,876     9,805     10,150     2,532     2,828  

Litigation settlement

            2,869          
                       

Total operating expenses

    47,289     46,562     53,511     12,383     14,499  
                       

Loss from operations

    (15,721 )   (3,720 )   (3,064 )   (2,221 )   (1,478 )

Other income (expense):

                               

Interest income

    7     4     13     3     3  

Interest expense

    (411 )   (396 )   (277 )   (65 )   (78 )

Other income (expense)

    (140 )   227     (254 )   (400 )   26  
                       

Total other expense

    (544 )   (165 )   (518 )   (462 )   (49 )
                       

Loss before income taxes

    (16,265 )   (3,885 )   (3,582 )   (2,683 )   (1,527 )

Income tax (expense) benefit

            (141 )       56  
                       

Net loss

  $ (16,265 ) $ (3,885 ) $ (3,723 ) $ (2,683 ) $ (1,471 )
                       

Net loss per common share, basic and diluted

  $ (1.91 ) $ (0.39 ) $ (0.30 ) $ (0.23 ) $ (0.11 )
                       

Weighted-average number of shares, basic and diluted

    8,531     10,014     12,286     11,708     13,022  
                       

Pro forma net loss per common share, basic and diluted

              $ (0.04 )       $ (0.02 )
                             

Pro forma weighted-average number of common shares, basic and diluted

                92,575           93,308  
                             

   

See accompanying notes to consolidated financial statements.

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CONTROL4 CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 
  Years Ended December 31,   Three Months
Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 

Net loss

  $ (16,265 ) $ (3,885 ) $ (3,723 ) $ (2,683 ) $ (1,471 )

Other comprehensive income (loss):

                               

Unrealized gain (loss) on foreign currency exchange

    36     (10 )   (28 )   (42 )   (5 )
                       

Total other comprehensive income (loss)

    36     (10 )   (28 )   (42 )   (5 )
                       

Comprehensive loss

  $ (16,229 ) $ (3,895 ) $ (3,751 ) $ (2,725 ) $ (1,476 )
                       

   

See accompanying notes to consolidated financial statements.

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CONTROL4 CORPORATION

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands, except share data)

 
   
   
  Stockholders' Equity (Deficit)  
 
  Redeemable
Convertible
Preferred Stock
  Common Stock    
   
   
   
 
 
   
   
  Accumulated
Other
Comprehensive
(Loss) Income
  Total
Stockholders'
Equity
(Deficit)
 
 
  Number of
Shares
   
  Additional
Paid-In Capital
  Accumulated
Deficit
 
 
  Shares   Amount   Amount  

Balance at December 31, 2009

    69,052,614   $ 97,670     8,130,506   $ 1   $ 2,986   $ (81,714 ) $ (2 ) $ (78,729 )

Net loss

                        (16,265 )       (16,265 )

Other comprehensive income

                            36     36  

Stock-based compensation

                    1,469             1,469  

Issuance of common stock upon exercise of stock options              

            522,821         202             202  

Issuance of common stock warrants in exchange for acquired assets

                    313             313  
                                   

Balance at December 31, 2010

    69,052,614     97,670     8,653,327     1     4,970     (97,979 )   34     (92,974 )

Net loss

                        (3,885 )       (3,885 )

Other comprehensive loss

                            (10 )   (10 )

Issuance of Series H redeemable convertible preferred stock for cash in February 2011, net of issuance costs of $211

    10,476,141     18,643                          

Issuance of common stock warrants

                    1,146             1,146  

Stock-based compensation

                    1,988             1,988  

Issuance of common stock upon exercise of stock options              

            3,002,792         1,204             1,204  

Issuance of common stock in exchange for services

            21,008         25             25  
                                   

Balance at December 31, 2011

    79,528,755     116,313     11,677,127     1     9,333     (101,864 )   24     (92,506 )

Net loss

                        (3,723 )       (3,723 )

Other comprehensive loss

                            (28 )   (28 )

Stock-based compensation

                    2,869             2,869  

Issuance of common stock upon exercise of stock options              

            1,275,842         785             785  
                                   

Balance at December 31, 2012

    79,528,755     116,313     12,952,969     1     12,987     (105,587 )   (4 )   (92,603 )

Net loss (unaudited)

                        (1,471 )       (1,471 )

Other comprehensive loss (unaudited)

                            (5 )   (5 )

Stock-based compensation (unaudited)

                    838             838  

Issuance of common stock upon exercise of stock options (unaudited)

            84,290         37             37  
                                   

Balance at March 31, 2013 (unaudited)

    79,528,755   $ 116,313     13,037,259   $ 1   $ 13,862   $ (107,058 ) $ (9 ) $ (93,204 )
                                   

   

See accompanying notes to consolidated financial statements.

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CONTROL4 CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
  Years Ended December 31,   Three Months
Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 

Operating activities

                               

Net loss

  $ (16,265 ) $ (3,885 ) $ (3,723 ) $ (2,683 ) $ (1,471 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

                               

Depreciation expense

    1,593     1,615     1,714     407     512  

Amortization of intangible assets

    21     139     271     68     68  

Provision for doubtful accounts

    470     283     184     114     70  

Loss on inventory purchase commitment

            1,840          

Loss on disposal of property and equipment

            107          

Stock-based compensation

    1,469     2,013     2,869     731     838  

Warrant liability (income) expense

    140     (227 )   254     399     (25 )

Changes in assets and liabilities:

                               

Accounts receivable

    1,561     (2,645 )   (2,600 )   (54 )   (332 )

Inventories

    (4,705 )   2,323     (4,858 )   (492 )   (94 )

Prepaid expenses and other current assets           

    (212 )   396     (352 )   (1 )   (338 )

Other assets

    (41 )   155     (823 )   1     (1,595 )

Accounts payable

    2,464     (975 )   4,622     614     (1,319 )

Accrued liabilities

    589     882     2,117     (424 )   77  

Deferred revenue

    195     (95 )   (10 )   54     493  

Other long-term liabilities

    (357 )   (565 )   (621 )   (125 )   179  
                       

Net cash (used in) provided by operating activities

    (13,078 )   (586 )   991     (1,391 )   (2,937 )

Investing activities

                               

Purchases of property and equipment

    (2,025 )   (1,264 )   (2,360 )   (542 )   (1,431 )

Acquisition of intangible assets

    (319 )   (725 )            
                       

Net cash used in investing activities

    (2,344 )   (1,989 )   (2,360 )   (542 )   (1,431 )

Financing activities

                               

Net proceeds from issuance of redeemable convertible preferred stock and common stock warrants

        19,789              

Proceeds from exercise of options for common stock

    202     1,204     785         37  

Net (repayment) borrowing against revolving line of credit

    4,314     (6,314 )            

Proceeds from notes payable

    893     1,064     1,876     311     435  

Repayment of notes payable

    (1,367 )   (744 )   (1,037 )   (243 )   (200 )
                       

Net cash provided by financing activities

    4,042     14,999     1,624     68     272  

Effect of exchange rate changes on cash and cash equivalents

    36     (10 )   (28 )   (42 )   (26 )
                       

Net increase (decrease) in cash and cash equivalents

    (11,344 )   12,414     227     (1,907 )   (4,122 )

Cash and cash equivalents at beginning of period

    17,398     6,054     18,468     18,468     18,695  
                       

Cash and cash equivalents at end of period

  $ 6,054   $ 18,468   $ 18,695   $ 16,561   $ 14,573  
                       

Supplemental disclosure of cash flow information

                               

Cash paid for interest

  $ 416   $ 396   $ 278   $ 66   $ 63  

Cash paid for taxes

            26         50  

   

See accompanying notes to consolidated financial statements.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies

              Control4 Corporation ("Control4" or the "Company") is a leading provider of automation and control solutions for the connected home. We unlock the potential of connected devices, making entertainment systems easier to use, homes more comfortable, appliances more comfortable and energy efficient, and families more secure. The Company was incorporated in the state of Delaware on March 27, 2003.

Reclassifications

              Certain prior-year amounts have been reclassified in order to conform to the current-year presentation. These reclassifications related primarily to customer rebates which in prior periods were included in accrued liabilities and have now been presented net with accounts receivable as well as reclassification of depreciation expense into the applicable functional captions on the statements of operations. These reclassifications had no effect on previously reported net loss.

Unaudited Financial Information

              The accompanying interim consolidated balance sheet as of March 31, 2013, the consolidated statements of operations, comprehensive loss and cash flows for the three months ended March 31, 2012 and 2013, and the consolidated statement of redeemable convertible preferred stock and stockholders' equity (deficit) for the three months ended March 31, 2013 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, considered necessary to present fairly the Company's financial position as of March 31, 2013 and its results of operations and cash flows for the three months ended March 31, 2012 and 2013. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013, or any other future interim or annual period.

Unaudited Pro Forma Balance Sheet

              The unaudited pro forma balance sheet gives effect to the conversion of all outstanding shares of redeemable preferred stock into 79,528,755 shares of common stock, the net exercise of warrants to purchase capital stock into an aggregate of 757,231 shares of common stock and the reclassification of the associated warrant liability to additional paid in capital as if an initial public offering occurred on March 31, 2013 and assuming the valuation of the Company prior to such initial public offering is at least $225 million and the net proceeds to the Company from such initial public offering are not less than $35 million.

Basis of Presentation

              The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

Segment Reporting

              Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, the Chief Executive Officer, in making decisions regarding resource allocation and accessing performance. To date, the Company has viewed its operations and manages its business as one segment.

Use of Accounting Estimates

              The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates including those related to revenue recognition, sales returns, provisions for doubtful accounts, product warranty, inventory obsolescence, litigation, determination of fair value of stock options, deferred tax asset valuation allowances and income taxes. Actual results may differ from those estimates.

Revenue Recognition

              The Company sells its products through a network of independent dealers, regional and national retailers and distributors. These dealers, retailers and distributors generally sell the Company's products to the end consumer as part of a bundled sale, which typically includes other third-party products and related services, project design and installation services and on-going support.

              The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is reasonably assured. Product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred. For most of the Company's product sales, these criteria are met at the time the product is shipped. Payments received in advance of providing products are recorded as deferred revenue and recorded as revenue when the revenue recognition criteria are met and the earnings process is complete.

              The Company records estimated reductions to revenue for dealer, retailer and distributor incentives, primarily comprised of volume rebates, at the time of the initial sale. The estimated reductions to revenue for rebates are based on the sales terms and the Company's historical experience and trend analysis. The most common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives.

              Software license revenue represents fees earned from activating applications which allow end consumers to manage and control their automation systems using tablets, smartphones and other third-party devices. The Company's perpetual software licenses do not include acceptance provisions, rights to updates or post-contract customer support; the Company generally recognizes revenue at the time the software license is provided to the customer.

              The Company offers a subscription service that allows consumers to control and monitor their homes remotely and allows the Company's dealers to perform remote diagnostic services.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

Subscription revenue is deferred at the time of payment and recognized on a straight-line basis over the period the service is provided.

              Total revenue for subscription services and software represents less than 10 percent of total revenue for all periods presented.

              The Company recognizes revenue net of cost of revenue for third-party products sold through the Company's online ordering system. While the Company assumes credit risk on sales to its customers for third-party products, the Company does not determine the product selling price, does not retain associated inventory risks and is not the primary obligor to the end consumer.

              The Company's agreements with dealers and distributors generally do not include rights of return or acceptance provisions. Even though contractual agreements do not provide return privileges, there are circumstances in which the Company will accept returns. In addition, agreements with certain retail customers contain stock rotation and other rights of return. The Company maintains a reserve for such returns based on the Company's historical return experience.

              Shipping charges billed to customers are included in revenue and related shipping costs are included in cost of revenue.

Cost of Revenue

              Cost of revenue includes the following: the cost of inventory sold during the period, inventory write-down costs, payroll and other direct installation services costs, purchasing costs, royalty obligations, shipping expenses to customers and warehousing costs, which include inbound freight costs from manufacturers, rent and payroll and benefit costs.

Cash and Cash Equivalents

              The Company considers all highly liquid short-term investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents consist primarily of money market funds.

Allowance for Doubtful Accounts

              The Company extends credit to the majority of its customers, which consist primarily of small, local businesses. Issuance of credit is based on ongoing credit evaluations by the Company of customers' financial condition and generally requires no collateral. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts to reserve for potential uncollectible receivables. The allowance is based upon the creditworthiness of the Company's customers, the customers' historical payment experience, the age of the receivables and current market and economic conditions. Provisions for potentially uncollectible accounts are recorded in sales and marketing expenses. The Company writes off accounts receivable balances to the allowance for doubtful accounts when it becomes likely that they will not be collected.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

              The following table presents the changes in the allowance for doubtful accounts (in thousands):

 
  Years Ended
December 31,
   
 
 
  Three Months
Ended
March 31,
2013
 
 
  2010   2011   2012  

Balance at beginning of period

  $ 773   $ 619   $ 651   $ 643  

Provision

    470     283     184     70  

Deductions

    (624 )   (251 )   (192 )   (68 )
                   

Balance at end of period

  $ 619   $ 651   $ 643   $ 645  
                   

Concentrations of Risk

              Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. The Company deposits cash and cash equivalents with one high-credit-quality financial institution and maintains balances that exceed federally insured amounts. The Company has policies that limit its investments as to types of investments, maturity, liquidity, credit quality, concentration and diversification of issuers.

              The Company's accounts receivable are derived from revenue earned from customers primarily located in the United States and Canada. The Company's sales to customers located outside the United States are generally denominated in United States dollars, except for sales to customers located in the United Kingdom, which are denominated in pounds sterling. There were no individual account balances greater than 10% of total accounts receivable at December 31, 2011 and 2012 and March 31, 2013.

              No customer accounted for more than 10% of total revenue for the years ended December 31, 2010, 2011 and 2012 or for the three months ended March 31, 2012 and 2013.

              The Company relies on a limited number of suppliers for its contract manufacturing. A significant disruption in the operations of these manufacturers would impact the production of the Company's products for a substantial period of time, which could have a material adverse effect on the Company's business, financial condition and results of operations.

Geographic Information

              The Company's revenue includes amounts earned through sales to customers located outside of the United States. With the exception of Canada, no single foreign country accounted for more than 10% of total revenue during the years ended December 31, 2010, 2011 and 2012 or for the three

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Table of Contents


CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

months ended March 31, 2012 and 2013. The following table sets forth revenue from U.S., Canadian and all other international customers combined (in thousands):

 
  Years Ended December 31,   Three Months
Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 

Revenue—United States

  $ 53,566   $ 63,625   $ 69,957   $ 15,311   $ 17,702  

Revenue—Canada

    9,799     10,480     12,453     2,462     3,345  

Revenue—all other international sources

    11,560     19,271     27,102     4,855     5,524  
                       

Total revenue

  $ 74,925   $ 93,376   $ 109,512   $ 22,628   $ 26,571  
                       

International revenue (excluding Canada) as a percent of total revenue

    15%     21%     25%     21%     21%  

Inventories

              Inventories consist of hardware and related component parts and are stated at the lower of cost or market using the first-in, first-out method. The Company periodically assesses the recoverability of its inventory and reduces the carrying value of the inventory when items are determined to be obsolete, defective or in excess of forecasted sales requirements. Inventory write-downs for excess, defective and obsolete inventory are recorded as a cost of revenue and totaled $1.1 million, $1.3 million, $1.5 million, $0.4 million and $0.4 million for the years ended December 31, 2010, 2011 and 2012 and for the three months ended March 31, 2012 and 2013, respectively.

              In December 2012, the Company finalized termination of a sales contract and, as a result of the contract termination, recorded a $1.8 million expense associated with an anticipated loss on firm purchase commitments for components that would have been required to meet the Company's obligations under the terminated contract. The $1.8 million charge has been recorded as Cost of Revenue—Inventory Purchase Commitment in the accompanying consolidated statement of operations during the year ended December 31, 2012.

Property and Equipment

              Property and equipment are recorded at historical cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives:

Furniture and fixtures

  5 years

Manufacturing tooling and test equipment

  2-3 years

Lab, marketing and warehouse equipment

  3 years

Computer equipment and software

  3 years

Marketing equipment

  1-3 years

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

              Maintenance and repairs that do not extend the life of or improve the asset are expensed in the year incurred. Leasehold improvements are depreciated over the estimated useful life (usually 3-5 years) or the life of the associated lease, whichever is less.

Intangible Assets

              Intangible assets consist of acquired technology. The Company amortizes, to cost of revenue, definite-lived intangible assets on a straight-line basis over the life of the technology, which is estimated to be five years.

Impairment of Long-Lived Assets

              The carrying value of long-lived assets is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset's carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis.

Product Warranty

              The Company provides its customers a limited product warranty of two years, which requires the Company to repair or replace defective products during the warranty period at no cost to the customer. The Company estimates the costs that may be incurred to replace or repair defective products and records a reserve at the time revenue is recognized. Factors that affect the Company's warranty liability include the number of installed systems, the Company's historical experience and management's judgment regarding anticipated rates of product warranty returns. The Company assesses the adequacy of its recorded warranty liability each period and makes adjustments to the liability as necessary.

              The following table presents the changes in the product warranty liability (in thousands):

 
  Years Ended
December 31,
   
 
 
  Three Months
Ended
March 31,
2013
 
 
  2010   2011   2012  
 
   
   
   
  (unaudited)
 

Balance at beginning of period

  $ 775   $ 775   $ 1,030   $ 1,155  

Warranty costs accrued

    320     727     1,050     139  

Warranty claims

    (320 )   (472 )   (925 )   (140 )
                   

Balance at end of period

  $ 775   $ 1,030   $ 1,155   $ 1,154  
                   

Redeemable Convertible Preferred Stock Warrant

              Freestanding warrants and other similar instruments related to shares that are redeemable are accounted for in accordance with ASC 480, "Distinguishing Liabilities and Equity." Under ASC 480, freestanding warrants that relate to the Company's redeemable convertible preferred stock are

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

classified as a liability on the balance sheet. The warrant to purchase Series G-1 redeemable convertible preferred stock is subject to re-measurement at each balance sheet date and any change in fair value is recognized as a component of other income or expense. Fair value is measured using the Black-Scholes option pricing model. The Company will continue to adjust the liability for changes in fair value until the completion of its planned initial public offering, at which time the redeemable convertible preferred stock warrants will expire or be exercised and converted into common stock and, accordingly, the liability will be reclassified to equity.

Foreign Currency Translation

              The functional currency of the Company's subsidiaries in England, China and India are the pound sterling, the Chinese Yuan and the Indian Rupee, respectively. The subsidiary's assets and liabilities have been translated to U.S. dollars using the exchange rates in effect at the balance sheet date. Statements of operations amounts have been translated using the average exchange rate for each year. Resulting gains or losses from translating foreign currency financial statements are recorded as other comprehensive income (loss). Foreign currency transaction gains (losses) resulting from exchange rate fluctuations on transactions denominated in a currency other than the local currency are included in earnings.

Stock-Based Compensation

              The Company recognizes compensation expense for all stock-based awards issued to employees and directors based on estimated grant date fair values. The Company selected the Black-Scholes option-pricing model to determine the estimated fair value at the date of grant for stock options. The Company elected to amortize compensation expense using the straight-line attribution method, under which stock-based compensation expense is recognized on a straight-line basis over the period the employee performs the related services, generally the vesting period of four years, net of estimated forfeitures. The Company has estimated forfeiture rates based on its historical experience and will update the rates, as necessary, in subsequent periods if actual forfeitures differ from initial estimates.

              The Black-Scholes option-pricing model requires management assumptions regarding various factors that require extensive use of accounting judgment and financial estimates. The Company estimates the expected term for options using the simplified method, which utilizes the weighted average expected life of each tranche of the stock option, determined based on the sum of each tranche's vesting period plus one-half of the period from the vesting date of each tranche to the stock option's expiration, because the Company's options are considered "plain vanilla." The Company computed the expected volatility using multiple peer companies for a period approximating the expected term. The risk-free interest rate was determined using the implied yield on U.S. Treasury issues with a remaining term within the expected life of the award.

              The Company accounts for stock-based instruments and awards issued to non-employees at fair value using the Black-Scholes option-pricing model. Management believes that the fair value of the stock-based awards is more reliably measured than the fair value of the services received. The fair value of each non-employee award is re-measured each period until a commitment date is reached, which is generally the vesting date.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

Income Taxes

              The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the fiscal year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

              The Company operates in various tax jurisdictions and is subject to audit by various tax authorities. The Company provides for tax contingencies whenever it is deemed probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are based upon their technical merits, relative tax law and the specific facts and circumstances as of each reporting period. Changes in facts and circumstances could result in material changes to the amounts recorded for such tax contingencies.

              The Company recognizes uncertain income tax positions taken on income tax returns at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

              The Company's policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of its income tax provision.

Presentation of Certain Taxes

              The Company collects various taxes from customers and remits these amounts to the applicable taxing authorities. The Company's accounting policy is to exclude these taxes from revenue and cost of revenue.

Net Loss Per Share and Unaudited Pro Forma Net Loss Per Share

              Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Basic and diluted net loss per share of common stock is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share of common stock is the same as basic net loss per share of common stock, since the effects of potentially dilutive securities are anti-dilutive. Potentially dilutive common shares result from the assumed exercise of outstanding stock options and the assumed conversion of outstanding convertible preferred stock and warrants using the if-converted method.

              Pro forma basic and diluted net loss per common share have been computed to give effect to the conversion of the Company's convertible preferred stock and warrants into common stock (using the if-converted method) as though the conversion had occurred at the beginning of the period presented.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

              The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share and the shares of common stock used to compute pro forma net loss per common share (in thousands):

 
  Years Ended December 31,   Three Months
Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 

Numerator:

                               

Net loss

  $ (16,265 ) $ (3,885 ) $ (3,723 ) $ (2,683 ) $ (1,471 )
                       

Denominator:

                               

Weighted-average common shares outstanding, basic and diluted

    8,531     10,014     12,286     11,708     13,022  
                           

Assumed conversion of convertible preferred stock into shares of common stock

                79,529           79,529  

Assumed conversion of preferred warrants into shares of common stock

                760           757  
                             

Pro forma weighted-average number of common shares, basic and diluted

                92,575           93,308  
                             

              The following weighted-average common stock equivalents were anti-dilutive and therefore were excluded from the calculation of diluted net loss per share (in thousands):

 
  Years Ended December 31,   Three Months
Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 

Convertible preferred stock

    69,053     79,338     79,529     79,529     79,529  

Options to purchase common stock

    18,119     20,556     22,449     22,560     24,069  

Warrants to purchase common stock

    68     2,650     2,814     2,814     2,814  

Warrants to purchase preferred stock

    1,011     1,011     1,011     1,011     1,011  
                       

Total

    88,251     103,555     105,803     105,914     107,423  
                       

Fair Value of Financial Instruments

              The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of the accounts. The fair value of the notes payable approximates its carrying value based on the variable nature of interest rates and current market rates available to the Company. The fair value of the warrant liability is discussed in footnotes 3 and 7.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

Recent Accounting Pronouncements

              In June 2011, the FASB issued new guidance which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income ("OCI") by eliminating the option to present components of OCI as part of the statement of changes in stockholders' equity. The amendments in this standard require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued additional guidance, which indefinitely defers the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement where the components of net income and the components of OCI are presented. The amendments to these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components. This new guidance was effective for the Company beginning January 1, 2012 and was required to be applied retrospectively. The adoption of this guidance did not have an impact on the Company's results of operations, financial position, or cash flows as it relates only to financial statement presentation.

              In February 2013, the FASB issued ASU 2013-02, "Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The amended guidance requires an entity to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period. The guidance is effective prospectively for the reporting periods beginning after December 15, 2012. The Company does not anticipate the adoption of the amended guidance to have significant impact on its consolidated financial statements.

              In May 2011, the FASB issued new guidance for fair value measurements to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements, particularly for level 3 fair value measurements. The Company adopted this guidance prospectively on January 1, 2012 and noted no significant impact on the Company's results of operations, financial position, or cash flows.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

2. Balance Sheet Components

              Inventories consisted of the following (in thousands):

 
  December 31,    
 
 
  March 31,
2013
 
 
  2011   2012  
 
   
   
  (unaudited)
 

Finished goods

  $ 8,044   $ 12,306   $ 12,185  

Component parts

    1,453     209     353  
               

  $ 9,497   $ 12,515   $ 12,538  
               

              Property and equipment, net consisted of the following (in thousands):

 
  December 31,    
 
 
  March 31,
2013
 
 
  2011   2012  
 
   
   
  (unaudited)
 

Computer equipment and software

  $ 3,157   $ 3,518   $ 3,635  

Manufacturing tooling and test equipment

    2,203     2,731     3,095  

Furniture and fixtures

    1,705     1,801     1,985  

Lab and warehouse equipment

    1,631     1,974     2,197  

Marketing equipment

    503     419     419  

Leasehold improvements

    598     803     1,277  
               

    9,797     11,246     12,608  

Less: accumulated depreciation

    (7,670 )   (8,580 )   (9,042 )
               

  $ 2,127   $ 2,666   $ 3,566  
               

              Intangible assets, net consisted of the following (in thousands):

 
  December 31,    
 
 
  March 31,
2013
 
 
  2011   2012  
 
   
   
  (unaudited)
 

Acquired technology

  $ 1,357   $ 1,357   $ 1,357  

Less: accumulated amortization

    (160 )   (431 )   (499 )
               

  $ 1,197   $ 926   $ 858  
               

              Other assets consisted of the following (in thousands):

 
  December 31,    
 
 
  March 31,
2013
 
 
  2011   2012  
 
   
   
  (unaudited)
 

Deferred offering costs

  $   $   $ 1,522  

Prepaid licensing

        700     773  

Deposits

    64     187     187  
               

  $ 64   $ 887   $ 2,482  
               

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

2. Balance Sheet Components (Continued)

              Accrued liabilities consisted of the following (in thousands):

 
  December 31,    
 
 
  March 31,
2013
 
 
  2011   2012  
 
   
   
  (unaudited)
 

Current portion of settlement obligations (see Footnotes 5 and 9)

  $ 488   $ 2,229   $ 2,235  

Sales returns and warranty accrual

    1,924     2,045     2,122  

Compensation accruals

    1,254     1,495     1,131  

Other accrued liabilities

    788     802     1,137  
               

  $ 4,454   $ 6,571   $ 6,625  
               

3. Fair Value Measurements

              The Company's financial instruments that are measured at fair value on a recurring basis consist of money market funds and redeemable preferred stock warrants. The following three levels of inputs are used to measure the fair value of financial instruments:

Level 1:   Quoted prices in active markets for identical assets or liabilities. The Company classifies its money market funds as Level 1 instruments as they are traded in active markets with sufficient volume and frequency of transactions.

Level 2:

 

Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. The Company did not have any Level 2 instruments during the reported periods.

Level 3:

 

Unobservable inputs are used when little or no market data is available. The Company utilized a Black-Scholes option pricing model in order to determine the fair value of the redeemable preferred stock warrant, with such value determined on an as-converted basis. Certain inputs used in the model are unobservable. The fair values could change significantly based on future market conditions.

              The fair values of these financial assets and the redeemable preferred stock warrant were determined using the following inputs (in thousands):

 
  Fair Value Measurements at
December 31, 2011 using
 
 
  Level 1   Level 2   Level 3   Total  

Cash equivalents:

                         

Money market funds

  $ 12,539   $   $   $ 12,539  

Other liabilities:

                         

Redeemable preferred stock warrants

            347     347  

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

3. Fair Value Measurements (Continued)


 
  Fair Value Measurements at
December 31, 2012 using
 
 
  Level 1   Level 2   Level 3   Total  

Cash equivalents:

                         

Money market funds

  $ 15,554   $   $   $ 15,554  

Other liabilities:

                         

Redeemable preferred stock warrants

            601     601  

 
  Fair Value Measurements at
March 31, 2013 using
 
 
  Level 1   Level 2   Level 3   Total  
 
  (unaudited)
 

Cash equivalents:

                         

Money market funds

  $ 12,407   $   $   $ 12,407  

Other liabilities:

                         

Redeemable preferred stock warrants

            576     576  

              The following table summarizes the change in value of the convertible preferred stock warrant liability (in thousands):

 
  Years Ended December 31,    
 
 
  Three Months
Ended
March 31, 2013
 
 
  2011   2012  
 
   
   
  (unaudited)
 

Balance at the beginning of the period

  $ 574   $ 347   $ 601  

Change in fair value included in other (income) expense

    (227 )   254     (25 )
               

Balance at the end of the period

  $ 347   $ 601   $ 576  
               

4. Intangible Assets

              In 2011, the Company entered into a purchase agreement to acquire software technology to be used in certain software applications. The total purchase price was determined based on a revenue-sharing formula for software licenses sold with the acquired technology between December 2011 and November 2012. The purchase agreement includes a minimum purchase price of $725,000 and a maximum purchase price of $2.0 million. In 2011, the Company recorded a finite-lived intangible asset and corresponding obligation for the minimum purchase price of $725,000, based on estimated future license sales under the agreement. Based on sales during that period, the final purchase price was $725,000. The asset is being amortized and expensed to cost of revenue on a straight-line basis over the estimated life of the associated technology, which was determined to be five years.

              In 2010, the Company completed the acquisition of software technology to be used in certain software applications for a total purchase price that consisted of a cash payment of approximately $0.3 million and the issuance of a warrant to purchase 370,000 shares of the Company's common stock. The warrant has a five-year term, was immediately exercisable in full and has an exercise price of $1.44 per share.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

4. Intangible Assets (Continued)

              The fair value of the warrant, totaling approximately $0.3 million, was calculated based on the following assumptions:

Dividend yield

    0 %

Volatility

    71 %

Risk-free interest rate

    1.20 %

Remaining contractual term (in years)

    5.0  

              The total purchase price of approximately $0.6 million was recorded as a finite-lived intangible asset and is being amortized and expensed to cost of revenue on a straight-line basis over the estimated life of the associated technology which was determined to be five years.

              Amortization of finite-lived intangible assets as of December 31, 2012 is as follows for the next four years:

2013

  $ 271  

2014

    271  

2015

    250  

2016

    134  
       

  $ 926  
       

5. Long-Term Obligations

Loan and Security Agreement

              The Company has entered into a borrowing agreement and related amendments with Silicon Valley Bank (the "SVB Agreement"), which consists of a revolving credit facility of $13.0 million (subject to certain borrowing base restrictions) and term borrowings to fund purchases of property and equipment. Borrowings under the SVB Agreement are collateralized by the general assets of the Company. The credit facility has a variable rate of interest of prime (as published in the Wall Street Journal) plus 0.25%, which was 3.50% at March 31, 2013. In addition, the Company pays an annual commitment fee of $20,000 and a quarterly unused line fee of 0.375% based on the difference between the borrowing commitment of $13.0 million and the then-current balance. Term borrowings are payable in 42 equal monthly payments of principal plus interest and bear interest at prime plus 0.50%, which was 3.75% at March 31, 2013.

              Borrowing under the revolving credit facility is subject to certain collateral restrictions relating primarily to the Company's accounts receivable and inventory levels. As of March 31, 2013, total borrowing capacity was approximately $12.9 million. The Company had not borrowed against the revolving credit facility at December 31, 2011 or 2012 or March 31, 2013. The revolving credit facility has a maturity date of May 29, 2014.

              The SVB Agreement contains various restrictive and financial covenants and the Company was in compliance with each of these covenants as of December 31, 2011 and 2012 and March 31, 2013.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

5. Long-Term Obligations (Continued)

              Future principal payments on outstanding term borrowings as of December 31, 2012 are as follows (in thousands):

2013

  $ 1,321  

2014

    840  

2015

    588  

2016

    410  
       

  $ 3,159  
       

Settlement Obligation

              The Company has entered into various settlement agreements (see Footnote 9) relating to alleged patent infringements, which included future payments under non-interest bearing, unsecured notes payable. The carrying value of the notes payable have been discounted using implied interest rates between 3.75% and 4.5%.

              Future annual payments on the settlement obligations as of December 31, 2012 are shown in the table below (in thousands):

2013

  $ 2,400  

2014

    600  

2015

    600  

2016

    600  
       

    4,200  

Less amount representing interest

    (296 )
       

Present value of settlement obligations

    3,904  

Less current portion of settlement obligations

    (2,229 )
       

Long-term portion of settlement obligations

  $ 1,675  
       

              The long-term portion of the settlement obligations is included in Other Long-Term Liabilities in the accompanying consolidated balance sheets.

Interest Expense on Long-Term Obligations

              The Company incurred $411,000, $396,000, $277,000, $65,000 and $78,000 of interest during each of the years ended December 31, 2010, 2011, and 2012, and for the three months ended March 31, 2012 and 2013, respectively.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

6. Income Taxes

              The domestic and foreign components of net income (loss) before income tax expense consists of the following for the periods shown below (in thousands):

 
  Years Ended December 31,  
 
  2010   2011   2012  

Income (loss) before income taxes:

                   

Domestic

  $ (16,394 ) $ (4,697 ) $ (4,055 )

Foreign

    129     812     473  
               

Total loss before income taxes

  $ (16,265 ) $ (3,885 ) $ (3,582 )
               

              The provision (benefit) for income taxes consisted of the following components (in thousands):

 
  Years Ended December 31,  
 
  2010   2011   2012  

Current:

                   

Domestic

                   

Federal

  $   $   $ 15  

State

            57  

Foreign

            69  
               

Total current tax expense

            141  
               

Deferred:

                   

Domestic

                   

Federal

    (5,397 )   (1,773 )   (710 )

State

    (587 )   (280 )   (65 )

Foreign

    36     251     88  

Valuation allowance

    5,948     1,802     687  
               

Total deferred tax expense

             
               

Total income tax expense

  $   $   $ 141  
               

              A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate follows:

 
  Years Ended December 31,  
 
  2010   2011   2012  

Federal income tax rate

    (34.0 )%   (34.0 )%   (34.0 )%

State taxes, net of federal benefit

    (3.0 )   (4.1 )   1.1  

Stock-based compensation expense

    2.5     9.1     15.0  

Research and development credits

    (3.2 )   (16.0 )    

Change in valuation allowance

    36.8     46.4     17.3  

Other, net

    0.9     (1.4 )   4.5  
               

Effective income tax rate

    (0.0 )%   (0.0 )%   3.9   %
               

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

6. Income Taxes (Continued)

              Deferred tax assets and (liabilities) are comprised of the following (in thousands):

 
  December 31,  
 
  2011   2012  

Deferred Tax Assets:

             

Reserves and accruals

  $ 2,582   $ 3,396  

Inventories

    472     606  

Net operating loss carryforwards

    31,020     30,165  

Property, plant and equipment

    909     1,054  

Stock-based compensation

    419     783  

Research and development credits

    3,239     3,254  

Other

    134     204  
           

Total deferred tax assets

    38,775     39,462  

Valuation allowance

    (38,775 )   (39,462 )
           

Net deferred tax asset

  $   $  
           

              During the year ended December 31, 2012, the Company reversed the valuation allowance for deferred tax assets related to its subsidiary operating in England totaling $92,000. This subsidiary had a history of generating income and used its remaining net operating loss carryforwards in the year ended December 31, 2012.

              At December 31, 2011 and 2012, the Company had a full valuation allowance against the deferred tax assets of its domestic and other foreign operations as it believes it is more likely than not that these benefits will not be realized. Significant judgment is required in making this assessment, and it is very difficult to predict when, if ever, the assessment may conclude that the remaining portion of the deferred tax assets are realizable. The net valuation allowance increased by approximately $1.8 million and $0.7 million during the years ended December 31, 2011 and 2012, respectively.

              Net operating loss and tax credit carryforwards as of December 31, 2012 are as follows (in thousands):

 
  Amount   Expiration Years

Net operating losses, federal

  $ 83,612   2023-2031

Net operating losses, state

    83,101   2018-2031

Tax credit carryforwards, federal

    2,472   2023-2031

Tax credit carryforwards, state

    1,162   2018-2025

Net operating losses, foreign

    24   None

              Approximately $2.7 million of the net operating losses reported above represents unrecorded tax benefits for stock-based compensation, which will be recorded in additional paid in capital when realized. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the "IRC"), and similar state provisions. The Company has not performed a detailed analysis to determine whether an ownership change under Section 382 of the IRC has occurred

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

6. Income Taxes (Continued)

or will occur. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before the change.

              The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits, excluding interest and penalties (in thousands):

 
  Years Ended December 31,  
 
  2010   2011   2012  

Balance at the beginning of the period

  $ 1,477   $ 1,862   $ 2,318  

Current year additions

    385     456      
               

Balance at the end of the period

  $ 1,862   $ 2,318   $ 2,318  
               

              The Company does not believe there will be any material changes in its unrecognized tax benefits over the next 12 months. As of December 31, 2012, the amount of unrecognized tax benefits that would, if recognized, impact the Company's effective income tax rate is approximately $2.3 million.

              The Company files income tax returns in the United States, including various state and local jurisdictions. The Company's subsidiaries' file income tax returns in the United Kingdom. The Company is subject to examination in the United States, the United Kingdom and various state jurisdictions for periods since inception. As of December 31, 2012, the Company was not under examination by any tax authorities. Tax years beginning in 2008 are subject to examination by taxing United States tax authorities, although net operating loss and credit carryforwards from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used. Tax years beginning in 2009 are subject to examination by the taxing authorities in the United Kingdom.

              At December 31, 2012, the Company had undistributed foreign earnings of $107,000, which the Company intends to permanently reinvest in the foreign subsidiary. The Company anticipates that future overseas earnings will also be reinvested indefinitely. In accordance with the indefinite reversal criteria, the foreign currency gains recorded in other comprehensive income related to foreign currency translation have not been tax effected.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

7. Redeemable Convertible Preferred Stock and Stockholders' Deficit

Redeemable Convertible Preferred Stock

              Redeemable convertible preferred stock consisted of the following at December 31, 2011 and 2012 and March 31, 2013 (in thousands, except share data):

 
  Shares
Authorized
  Shares
Issued and
Outstanding
  Aggregate
Liquidation
Preference
 

Series A

    8,150,000     8,150,000   $ 4,075  

Series B

    18,124,230     18,124,230     14,735  

Series C

    14,215,791     14,177,696     15,000  

Series D

    7,789,215     7,789,215     15,890  

Series E

    5,045,662     5,022,831     11,000  

Series F

    5,988,024     5,988,024     20,000  

Series G

    8,677,338     8,677,338     15,450  

Series G-1

    2,073,148     1,123,280     2,000  

Series H

    13,100,000     10,476,141     20,000  
               

    83,163,408     79,528,755   $ 118,150  
               

              All redeemable convertible preferred stockholder agreements provide for the following:

    Voting with common stockholders in an amount equal to the number of common shares into which the preferred shares are convertible.

    Protective provisions that require the consent of holders of 50 percent of all Preferred Stockholders for certain transactions or events.

    Priority over any other class of outstanding capital stock of the Company with respect to dividend rights and liquidation, winding up or dissolution rights.

              The Series A, Series B, Series C, Series D, Series E, Series F, Series G, Series G-1 and Series H redeemable convertible preferred stockholders (collectively, the "Preferred Stockholders") are entitled to receive, when, as and if declared by the Company's Board of Directors (the "Board of Directors"), dividends at a rate of $0.04, $0.06504, $0.08464, $0.1632, $0.1752, $0.2672, $0.1424, $0.1424 and $0.1527 per share per year, respectively. To the extent that additional dividends are declared by the Board of Directors, those amounts would be distributed equally among the Preferred Stockholders and common stockholders. As of December 31, 2012, no dividends had been declared by the Board of Directors.

              In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Preferred Stockholders are entitled to receive a liquidation preference payment prior to any distribution of any assets or surplus funds of the Company to the common stockholders. The

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

7. Redeemable Convertible Preferred Stock and Stockholders' Deficit (Continued)

following table lists the payment priority and preference to the respective Preferred Stockholders in the event of a liquidation of the Company:

 
  Payment
Priority
  Per Share
Preference
 

Series H

    1   $ 1.9091  

Series G-1

    1     1.7805  

Series G

    2     1.7805  

Series F

    2     3.3400  

Series E

    3     2.1900  

Series D

    4     2.0400  

Series C

    5     1.0580  

Series B

    6     0.8130  

Series A

    6     0.5000  

              Each share of Preferred Stock may be converted, at the option of the holder, into common stock at a conversion ratio determined by dividing the original issuance price per share, as defined, by the effective conversion price for such share then outstanding. As of December 31, 2012, the effective conversion price per share for Series A, Series B, Series C, Series D, Series E, Series F, Series G, Series G-1 and Series H redeemable convertible preferred stock was $0.50, $0.813, $1.058, $2.04, $2.19, $3.34, $1.7805, $1.7805 and $1.9091, respectively. The effective conversion price per share is subject to certain anti-dilution provisions. The Preferred Stock will automatically convert to common stock upon the consent of holders of a majority of the shares of Preferred Stock outstanding or the closing of an initial public offering of common stock that reflects a pre-money valuation of at least $225 million and results in net proceeds to the Company of not less than $35 million.

              The Company is obligated, upon election of a majority of the holders of Preferred Stock at any time on or after December 12, 2015, to redeem the Series A, Series B, Series C, Series D, Series E, Series F, Series G, Series G-1 and Series H redeemable convertible preferred stock at $0.50, $0.813, $1.058, $2.04, $2.19, $3.34, $1.7805, $1.7805 and $1.9091 per share, respectively, plus declared but unpaid dividends. If the Preferred Stockholders elect to redeem the preferred stock, the Series G-1 preferred shares will be redeemed 40 days following the redemption election date (the "Original Redemption Date"). Thereafter, the redemption of the remaining preferred shares will occur in three annual installments starting on the Original Redemption Date.

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Table of Contents


CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

7. Redeemable Convertible Preferred Stock and Stockholders' Deficit (Continued)

Warrants to Purchase Stock and Preferred Stock Warrant Liability

              Warrants to purchase common and preferred stock at December 31, 2012 and March 31, 2013 are summarized in the following table:

 
  Number of
Shares Subject
to Warrant
  Exercise Price  

Warrants to purchase common shares

    370,000   $ 1.4400  

Warrants to purchase common shares

    2,444,432     1.9091  

Warrants to purchase Series C redeemable convertible preferred stock

    38,095     1.0580  

Warrants to purchase Series E redeemable convertible preferred stock

    22,831     2.1900  

Warrants to purchase Series G-1 redeemable convertible preferred stock

    949,868     1.7805  
             

    3,825,226        
             

              In 2011, the Company issued warrants to purchase 2,444,432 shares of common stock to one Series H investor. The warrants became immediately exercisable upon the closing of the Series H financing and have a term of three years. The total proceeds of $20 million from the Series H financing were allocated between the Series H redeemable preferred stock and the common stock warrants based on their relative fair market value. The fair value of the warrants was calculated using the Black-Scholes option pricing model based on the following assumptions:

Dividend yield

    0 %

Expected volatility

    82 %

Risk-free interest rate

    1.05-1.39 %

Remaining contractual term (in years)

    3.0  

              In 2009, the Series G-1 investors received warrants to purchase 949,868 shares of Series G-1 redeemable convertible preferred stock at a price of $1.7805 per share. The warrants became immediately exercisable upon the closing of the Series G-1 financing and the fair value of $0.4 million was recorded as a liability with the offsetting charge to expense. Because the holders of the preferred stock may elect to redeem the shares for cash, the Company's outstanding preferred stock warrants are classified as liabilities and are revalued at the end of each reporting period using the Black-Scholes option pricing valuation model. Changes in fair value are reflected in the Company's statements of operations as other income or expense. In the event of an initial public offering, the warrant to purchase Series G-1 redeemable convertible preferred stock must be either exercised or the warrant will expire upon the closing of the initial public offering. Upon exercise of the warrant, the purchased Series G-1 redeemable convertible preferred stock are convertible into shares of common stock. Since the strike price for the warrant equals the liquidation preference for the Series G-1 redeemable convertible preferred stock, it would only be optimal for the holder to exercise the warrant when the Company's enterprise value is high enough that it would be advantageous for the holders of the preferred stock to convert. As a result, the fair market value of the Company's common stock has been

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Table of Contents


CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

7. Redeemable Convertible Preferred Stock and Stockholders' Deficit (Continued)

used to value the warrant liability using the Black-Scholes option pricing model. The fair value of the warrants was calculated using the income approach and is based on the following assumptions:

 
  December 31,    
 
 
  March 31,
2013
 
 
  2010   2011   2012  

Dividend yield

    0 %   0 %   0 %   0 %

Expected volatility

    87 %   60 %   54 %   44 %

Risk-free interest rate

    1.02 %   0.36 %   0.16 %   0.14 %

Remaining contractual term (in years)

    3.5     2.5     1.5     1.2  

Stock Options

              In 2003, the Board of Directors adopted the 2003 Equity Incentive Plan (the 2003 Plan), which provides for the granting of nonqualified and incentive stock options, stock appreciation rights, stock awards and restricted stock. Under the 2003 Plan, the Company may grant nonqualified and incentive stock options to directors, employees and non-employees providing services to the Company. The Board of Directors, on an option-by-option basis, determines the number of shares, terms and exercise period. Options granted generally have a ten-year life and vest over a period of four years. The exercise price of options on the date of grant is equivalent to the estimated fair value of the stock as determined by the Board of Directors based upon information available to it at the time of grant. Because there has been no public market for the common stock, the Company's Board of Directors has determined the fair value of the Company's common stock based on a variety of factors, including periodic valuations of the Company's common stock, arm's-length sales of the Company's common stock, the Company's financial position, historical financial performance, projected financial performance, valuations of publicly traded peer companies and the illiquid nature of the Company's common stock. As of March 31, 2013, an aggregate of 33,480,595 shares are authorized for issuance under the 2003 Plan. The terms of the 2003 Plan allow for defined increases to the number of authorized shares available for grant.

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CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

7. Redeemable Convertible Preferred Stock and Stockholders' Deficit (Continued)

              A summary of stock option activity under the Plan for the years ended December 31, 2010, 2011 and 2012 and for the three months ended March 31, 2013 is presented below:

 
  Shares Subject
to Options
Outstanding
  Weighted
Average
Grant Date
Fair Value
  Weighted
Average
Exercise Price
  Weighted
Average
Remaining
Contractual
Life (Years)

Balance at December 31, 2009

    14,038,824   $ 0.30   $ 0.57   7.1

Options granted

    5,283,843     0.62     1.00    

Options exercised

    (502,821 )   0.23     0.39    

Options expired

    (130,611 )   0.37     0.70    

Options forfeited

    (1,147,372 )   0.56     0.93    
                 

Balance at December 31, 2010

    17,541,863     0.38     0.68   6.9

Options granted

    10,338,775     0.76     1.19    

Options exercised

    (3,002,792 )   0.23     0.40    

Options expired

    (971,199 )   0.46     0.83    

Options forfeited

    (1,270,272 )   0.62     1.02    
                 

Balance at December 31, 2011

    22,636,375     0.56     0.92   7.6

Options granted

    3,719,700     1.02     1.82    

Options exercised

    (1,275,842 )   0.37     0.62    

Options expired

    (73,621 )   0.57     0.94    

Options forfeited

    (827,732 )   0.70     1.10    
                 

Balance at December 31, 2012

    24,178,880     0.64     1.07   7.2

Options granted

               

Options exercised

    (84,290 )   0.21     0.42    

Options expired

    (11,979 )   0.75     1.18    

Options forfeited

    (110,580 )   0.84     1.40    
                 

Balance at March 31, 2013

    23,972,031   $ 0.64   $ 1.07   6.9
                 

Exercisable options at December 31, 2012

    13,729,450   $ 0.48   $ 0.82   5.8

Vested during the year ended December 31, 2012

    4,285,236   $ 0.71   $ 1.14    

Vested and expected to vest at December 31, 2012

    22,256,440   $ 0.62   $ 1.04    

Non-vested options at December 31, 2012

    10,449,430   $ 0.84   $ 1.40    

Exercisable options at March 31, 2013

   
14,496,476
 
$

0.50
 
$

0.84
 

5.7

Vested during the three months ended March 31, 2013

    863,295   $ 0.76   $ 1.21    

Vested and expected to vest at March 31, 2013

    22,183,544   $ 0.63   $ 1.04    

Non-vested options at March 31, 2013

    9,475,555   $ 0.85   $ 1.42    

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Table of Contents


CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

7. Redeemable Convertible Preferred Stock and Stockholders' Deficit (Continued)

              The following table summarizes information about stock options outstanding and exercisable at March 31, 2013:

 
  Options Outstanding   Options Exercisable  
Range of Exercise Prices
  Weighted
Average
Exercise
Price
  Number of
Underlying
Shares
  Weighted-
Average
Remaining
Contractual Life
(in years)
  Number of
Underlying
Shares
  Weighted-
Average
Remaining
Contractual Life
(in years)
 

0.0500 - 0.2500

  $ 0.11     1,021,273     1.7     1,021,273     1.7  

0.2600 - 0.5000

    0.42     2,496,536     3.2     2,496,536     3.2  

0.5100 - 0.7500

    0.62     1,775,113     4.3     1,775,113     4.3  

0.7600 - 1.0000

    0.94     5,104,516     6.0     4,672,957     5.9  

1.0100 - 1.2500

    1.19     9,305,355     8.5     3,953,348     8.4  

1.2600 - 1.5000

    1.44     618,538     7.3     443,203     7.3  

1.5100 - 1.7500

    1.70     1,270,000     9.2     84,994     9.2  

1.7600 - 2.0000

    1.88     2,380,700     9.7     49,052     9.6  
                             

          23,972,031           14,496,476        
                             

              The following table summarizes the aggregate intrinsic-value of options exercised, outstanding and exercisable (in millions):

 
  Years Ended
December 31,
   
 
 
  Three Months
Ended
March 31, 2013
 
 
  2010   2011   2012  
 
   
   
   
  (unaudited)
 

Options Exercised

  $ 0.30   $ 2.40   $ 1.31   $ 0.14  

Options Outstanding

  $ 9.17   $ 9.11   $ 23.48   $ 26.38  

Options Exercisable

  $ 7.66   $ 7.10   $ 16.80   $ 19.26  

              The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

 
  Years Ended
December 31,
   
 
 
  2010   2011   2012    
 

Expected volatility

    70-71 %   71-73 %   59-63 %      

Expected dividends

    %   %   %      

Expected term (in years)

    5.2-6.1     5.0-6.1     5.0-6.1        

Risk-free rate

    2.2-3.0 %   1.1-2.5 %   0.7-1.0 %      

Forfeiture rate

    8.1 %   11.6 %   7.9 %      

              Expected volatility is based on the average volatility of similar public companies. The expected term was calculated based on the average of the vesting period and contractual term. The risk-free interest rate was determined using the implied yield on U.S. Treasury issues with a remaining term within the expected life of the award. The Company uses historical data to determine forfeiture rates.

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Table of Contents


CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

7. Redeemable Convertible Preferred Stock and Stockholders' Deficit (Continued)

              Total stock-based compensation expense has been classified as follows in the accompanying statements of operations (in thousands):

 
  Years Ended
December 31,
  Three Months
Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 

Cost of revenue

  $ 28   $ 49   $ 78   $ 17   $ 16  

Research and development

    249     492     704     130     236  

Sales and marketing

    546     523     580     144     184  

General and administrative

    646     949     1,507     440     402  
                       

  $ 1,469   $ 2,013   $ 2,869   $ 731   $ 838  
                       

              At March 31, 2013, there was $6.2 million of total unrecognized compensation cost related to non-vested stock option awards that will be recognized over a weighted-average period of 2.8 years.

Reserved Shares

              At March 31, 2013, the Company had reserved shares of its common stock for future issuance as follows:

Stock options under the 2003 Plan:

       

Options outstanding

    23,972,031  

Reserved for future grants

    2,799,389  

Convertible preferred stock:

       

Issued and outstanding (as-if-converted basis)

    79,528,755  

Warrants to purchase common and preferred stock

    3,825,226  
       

    110,125,401  
       

8. Related Party Transactions

              The Company has entered into sales agreements with certain of its investors. The following table sets forth revenue from product sales to companies affiliated with these investors (in thousands):

 
  Years Ended
December 31,
  Three Months
Ended
March 31,
 
 
  2010   2011   2012   2012   2013  
 
   
   
   
  (unaudited)
 

Company 1

  $ 620   $ 995   $ 2,142   $ 226   $ 558  

Company 2

            1,807         119  

Company 3

    1,174     2,134     1,290     350     126  

Company 4

        478     791     167     285  
                       

  $ 1,794   $ 3,607   $ 6,030   $ 743   $ 1,088  
                       

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Table of Contents


CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

8. Related Party Transactions (Continued)

              As of December 31, 2011 and 2012 and March 31, 2013, the Company had accounts receivable from these companies totaling $0.6 million, $1.5 million and $0.8 million, respectively.

9. Commitments and Contingencies

Operating Leases

              The Company leases office and warehouse space under operating leases that expire between 2013 and 2018. The terms of the leases include periods of free rent, options for the Company to extend the leases (three to five years) and increasing rental rates over time. The Company recognizes rental expense under these operating leases on a straight-line basis over the lives of the leases and has accrued for rental expense recorded but not paid.

              Rental expense was approximately $0.9 million, $1.0 million and $1.1 million for the years ended December 31, 2010, 2011 and 2012, respectively.

              In March 2012, the Company entered into a 66-month lease modification on its corporate office lease, which was set to expire on December 31, 2012. Future minimum rental payments required under non-cancelable operating leases with initial or remaining terms in excess of one year consist of the following as of December 31, 2012 (in thousands):

2013

  $ 794  

2014

    1,238  

2015

    1,250  

2016

    1,109  

2017

    992  

Thereafter

    489  
       

  $ 5,872  
       

Purchase Commitments

              The Company had non-cancellable purchase commitments for the purchase of inventory, which extend through August 2013 totaling approximately $19.5 million at December 31, 2012.

Employment Agreements

              The Company has signed employment agreements with certain executive officers who are entitled to receive certain benefits if their employment is terminated by the Company, including severance payments, accelerated vesting of stock options and continuation of certain insurance benefits.

Legal Matters

              The Company is subject to various lawsuits and other claims that arise from time to time in the ordinary course of business. These actions are based on alleged patent infringement and other matters. The Company intends to defend itself vigorously against any such actions. The Company establishes reserves for specific liabilities in connection with legal actions that it deems to be probable and estimable.

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Table of Contents


CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

9. Commitments and Contingencies (Continued)

              In December 2012, the Company entered into a settlement agreement relating to alleged patent infringements, which included future royalty payments on certain products and the payment of a lump sum amount totaling $2.9 million. The lump sum amount included a payment of $1.1 million which was made in December 2012 and future payments that are non-interest bearing and unsecured. The Company has recorded a liability of $1.7 million to reflect the carrying value of the future payments that have been discounted using an implied interest rate of 3.75%. The future payments are included in current liabilities as the licensor has the ability to request an accelerated but discounted payment at June 30, 2013. The lump sum amount was attributed to previous sales of products alleged to have infringed on the patents and to prepaid future sales of certain products. As a result, $700,000 has been recorded in other assets as of December 31, 2012.

              In December 2012, the Company finalized termination of a sales contract and agreed to pay a $750,000 early termination penalty. As a result of the contract termination, the Company also recorded a $1.8 million expense associated with an anticipated loss on firm purchase commitments for components that would have been required to meet the Company's obligations under the terminated contract. The $750,000 penalty and the $1.8 million charge have been recorded as Litigation Settlement and Cost of Revenue—Inventory Purchase Commitment, respectively, in the accompanying consolidated statement of operations during the year ended December 31, 2012.

              In management's opinion, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, could have a material effect on the Company's financial condition, operations or cash flows.

10. Subsequent Events

              The Company has evaluated subsequent events through March 15, 2013, the date on which the financial statements were available to be issued.

11. Subsequent Events (Unaudited)

              For our interim consolidated financial statement as of March 31, 2013, and for the three months then ended, we have evaluated subsequent events through July 1, 2013, which is the date the financial statements were available to be issued.

              In April 2013, the Company's Board of Directors approved an amendment to the Company's certificate of incorporation to authorize 500,000,000 shares of common stock and 25,000,000 shares of undesignated preferred stock effective on the closing of its planned initial public offering.

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Table of Contents


CONTROL4 CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(INFORMATION AS OF MARCH 31, 2013 AND FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2013 IS UNAUDITED)

11. Subsequent Events (Unaudited) (Continued)

              Subsequent to March 31, 2013, the Company granted options to employees and consultants to purchase shares of common stock as summarized in the following table:

 
  Number of
Options
Granted
  Exercise
Price per
Share
  Common
Stock Fair
Value at
Grant Date
 

April 25, 2013

    449,500   $ 2.17   $ 2.17  

June 11, 2013

    815,000   $ 2.17   $ 2.17  

June 23, 2013

    762,500   $ 2.17   $ 2.17  
                   

    2,027,000              
                   

              On June 17, 2013, the Company entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the "New SVB Agreement") which amends and restates the Loan and Security Agreement, as amended, by and between Silicon Valley Bank and the Company. The New SVB Agreement extends the maturity date of the revolving credit facility to May 29, 2015 and changes the interest rate to either the published Wall Street Journal prime rate or LIBOR plus 2.50%, as selected by the Company. In addition, the New SVB Agreement provides for an additional $2.75 million in term borrowings to fund purchases of property and equipment.

              On June 21, 2013, the Company entered into a purchase agreement to acquire the assets, which consist primarily of software technology, and assume certain liabilities of a software technology company. As consideration for the acquisition, the Company will pay approximately $100,000 in cash and issue options to acquire shares of common stock of the Company. The acquisition will be accounted for as a business combination and therefore, the purchase price will be allocated to the assets acquired and liabilities assumed, based on estimated fair values. The Company anticipates that the fair value of the total purchase consideration will be less than $500,000. The determination of the final purchase price is subject to potential adjustment, based on the finalization of the value of the equity options. Additionally, the allocation of the purchase price may change based upon the finalization of the fair value of the identified acquired intangible assets.

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              Through and including,                         , 2013 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

                        Shares

LOGO

Common Stock



PROSPECTUS



BofA Merrill Lynch       Raymond James

Canaccord Genuity

 

Cowen and Company

 

Needham & Company

                        , 2013

   


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PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution.

              Estimated expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the sale of the common stock being registered under this registration statement are as follows:

SEC registration fee

  $ 8,184  

FINRA filing fee

    9,500  

NASDAQ Listing fee

    *  

Printing and engraving expenses

    *  

Legal fees and expenses

    *  

Accounting fees and expenses

    *  

Blue Sky fees and expenses (including legal fees)

    *  

Transfer agent and registrar fees and expenses

    *  

Miscellaneous

    *  
       

Total

  $ *  
       

*
To be filed by amendment.

Item 14.    Indemnification of Directors and Officers.

              On completion of this offering, the Registrant's amended and restated certificate of incorporation will contain provisions that eliminate, to the maximum extent permitted by the General Corporation Law of the State of Delaware, the personal liability of the Registrant's directors and executive officers for monetary damages for breach of their fiduciary duties as directors or officers. The Registrant's amended and restated certificate of incorporation and bylaws will provide that the Registrant must indemnify its directors and executive officers and may indemnify its employees and other agents to the fullest extent permitted by the General Corporation Law of the State of Delaware.

              Sections 145 and 102(b)(7) of the General Corporation Law of the State of Delaware provide that a corporation may indemnify any person made a party to an action by reason of the fact that he or she was a director, executive officer, employee or agent of the corporation or is or was serving at the request of a corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, except that, in the case of an action by or in right of the corporation, no indemnification may generally be made in respect of any claim as to which such person is adjudged to be liable to the corporation.

              The Registrant has entered into indemnification agreements with its directors and executive officers, in addition to the indemnification provided for in its amended and restated certificate of incorporation and bylaws, and intends to enter into indemnification agreements with any new directors and executive officers in the future.

              The Registrant has purchased and intend to maintain insurance on behalf of each person who is or was a director or officer of the Registrant against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to certain exclusions.

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              The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification by the underwriters of the Registrant and its executive officers and directors, and by the Registrant of the underwriters, for certain liabilities, including liabilities arising under the Securities Act.

              See also the undertakings set out in response to Item 17 herein.

Item 15.    Recent Sales of Unregistered Securities.

              During the last three years, we sold the following unregistered securities:

      (1)
      From June 25, 2010 through June 24, 2013, we sold and issued to our employees, consultants or former service providers an aggregate of 4,616,654 shares of common stock pursuant to option exercises under the 2003 Equity Incentive Plan at prices ranging from $0.05 to $1.70 per share for an aggregate purchase price of $2,159,960.97.

      (2)
      From June 25, 2010 through June 24, 2013, we granted options under our 2003 Equity Incentive Plan to purchase an aggregate of 16,704,013 shares of common stock to our employees, directors and consultants, having exercise prices ranging from $1.18 to $2.17 per share for an aggregate exercise price of $24,345,776.22.

      (3)
      In May 2011, we issued to a consultant an aggregate of 21,008 shares of common stock at a purchase price of $1.18 per share for an aggregate purchase price of $24,789.44. The consultant paid for the purchase price of such shares of common stock with services rendered in connection with identifying certain employee candidates for us.

      (4)
      In January and February 2011, we sold and issued 10,476,141 shares of Series H preferred stock to 3 accredited investors, at $1.91 per share, for a total consideration of $20.0 million.

              None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the registrant believes that each transaction was exempt from the registration requirements of the Securities Act in reliance on the following exemptions:

    with respect to the transactions described in paragraphs (1) and (2), Rule 701 promulgated under the Securities Act as transactions pursuant to a compensatory benefit plan approved by the registrant's board of directors or Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering;

    with respect to the transactions described in paragraph (3), Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering; and

    with respect to the transactions described in paragraph (4), Section 4(2) of the Securities Act, or Rule 506 of Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. Each recipient of the securities in these transactions represented his or her intention to acquire the securities for investment only and not with a view to, or for resale in connection with, any distribution thereof, and appropriate legends were affixed to the share certificates issued in each such transaction. In each case, the recipient received adequate information about the Registrant or had adequate access, through his or her relationship with the registrant, to information about the Registrant.

Item 16.    Exhibits and Financial Statement Schedules.

(a)         Exhibits:

              See Exhibit Index immediately following the signature pages.

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(b)         Financial Statement Schedules.

              All other schedules have been omitted because the information required to be presented in them is not applicable or is shown in the consolidated financial statements or related notes.

Item 17.    Undertakings.

              The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

              Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

              The undersigned Registrant hereby undertakes that:

      (1)
      For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

      (2)
      For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

      (3)
      That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

      (i)
      Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;

      (ii)
      Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;

      (iii)
      The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and

      (iv)
      Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.

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SIGNATURES

                Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Salt Lake City, State of Utah, on July 1, 2013.

    CONTROL4 CORPORATION

 

 

By:

 

/s/ MARTIN PLAEHN

Martin Plaehn
President and Chief Executive Officer


POWER OF ATTORNEY

                KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Martin Plaehn and Dan Strong, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Registration Statement and any or all amendments (including post-effective amendments) thereto and any new registration statement with respect to the offering contemplated thereby filed pursuant to Rule 462(b) of the Securities Act, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

                Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on July 1, 2013:

Signature
 
Title
/s/ MARTIN PLAEHN

Martin Plaehn
  Director, President and Chief Executive Officer
(Principal Executive Officer)

/s/ DAN STRONG

Dan Strong

 

Chief Financial Officer
(Principal Financial and Accounting Officer)

/s/ WILLIAM B. WEST

William B. West

 

Chairman of the Board of Directors

/s/ ROB BORN

Rob Born

 

Director

/s/ DAVID C. HABIGER

David C. Habiger

 

Director

/s/ LEN JORDAN

Len Jordan

 

Director

/s/ CHRISTOPHER B. PAISLEY

Christopher B. Paisley

 

Director

/s/ SCOTT PETTY

Scott Petty

 

Director

/s/ STEVEN VASSALLO

Steven Vassallo

 

Director

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EXHIBIT INDEX

Exhibit
Number
  Exhibit Title
  1.1   Form of Underwriting Agreement.
  3.1   Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect.
  3.2   Form of Amended and Restated Certificate of Incorporation of the Registrant, to be effective upon closing of the offering.
  3.3   Bylaws of the Registrant, as currently in effect.
  3.4   Form of Amended and Restated Bylaws of the Registrant, to be effective upon closing of the offering.
  4.1 * Specimen Common Stock Certificate of the Registrant.
  4.2   Eighth Amended and Restated Investors' Rights Agreement, dated January 21, 2011.
  4.3   Warrant to Purchase Shares of the Common Stock of the Registrant issued to Control UI, LLC, dated October 25, 2010.
  4.4   Warrant to Purchase Stock of the Registrant issued to Silicon Valley Bank, dated December 29, 2005.
  4.5   Warrant to Purchase Stock of the Registrant issued to Silicon Valley Bank, dated June 13, 2007.
  5.1 * Opinion of Goodwin Procter LLP.
  10.1 # Form of Director and Executive Officer Indemnification Agreement.
  10.2 # 2003 Equity Incentive Plan and forms of option agreements thereunder.
  10.3 # 2013 Stock Option and Incentive Plan and forms of option agreements thereunder to be in effect upon the closing of this offering.
  10.4 # Offer Letter to Martin Plaehn, dated August 20, 2011.
  10.5 # Employment Agreement, dated July 28, 2003 and as amended on June 17, 2004 and August 3, 2011, between the Registrant and William B. West.
  10.6 # Employment Agreement, dated on or about January 4, 2008, between the Registrant and Dan Strong.
  10.7 # Offer Letter to Jeff Dungan, dated August 1, 2006.
  10.8 # Offer Letter to Eric Anderson, dated June 19, 2012.
  10.9 * Letter of Agreement, dated May 14, 2005, between the Registrant and Sanmina-SCI Corporation.
  10.10   OEM Supply Agreement: OEM Design, dated December 3, 2010, between the Registrant and Lite-On Electronic Company Ltd.
  10.11   Amended and Restated Loan and Security Agreement, dated June 17, 2013, between the Registrant and Silicon Valley Bank.
  10.12   Lease dated June 29, 2004 by and between the Registrant and WDCI, Inc., as amended on May 24, 2006, February 25, 2011 and November 7, 2011.
  10.13 # Advisor Agreement, effective as of February 28, 2013, by and between the registrant and Tom Kuhn.
  21.1   List of Subsidiaries of the Registrant.
  23.1   Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
  23.2 * Consent of Goodwin Procter LLP (included in Exhibit 5.1).
  24.1   Power of Attorney (see page II-4 to this registration statement on Form S-1).

*
To be filed by amendment.

#
Indicates a management contract or compensatory plan.



Exhibit 1.1

 

 

 

Control4 Corporation

 

[                ] Shares of Common Stock

 

UNDERWRITING AGREEMENT

 

Dated:                       , 2013

 

 

 



 

Control4 Corporation

 

[                            ] Shares of Common Stock

 

UNDERWRITING AGREEMENT

 

· , 2013

 

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

Raymond James & Associates, Inc.

 

as Representatives of the several Underwriters

 

c/o

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

One Bryant Park
New York, New York 10036

 

c/o

Raymond James & Associates, Inc.

One Embarcadero Center, Suite 650

San Francisco, CA 94111

 

Ladies and Gentlemen:

 

Control4 Corporation (the “Company”) confirms its agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), Raymond James & Associates, Inc. (“Raymond James”) 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 and Raymond James are acting as representatives (in such capacity, the “Representatives”), with respect to (i) the 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 $0.0001 per share, of the Company (“Common Stock”) set forth in Schedule A hereto and (ii) 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.  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 herein called, collectively, the “Securities.”

 

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 has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1 (No. 333- · ), including the related preliminary prospectus or prospectuses, covering the registration of the sale of the Securities under the Securities Act of 1933, as amended (the “1933 Act”).  Promptly after execution and delivery of this Agreement, the Company will

 



 

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 Rule 424(b) (“Rule 424(b)”) of the 1933 Act Regulations.  The information included in 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 pursuant to Rule 430A(b) is herein called the “Rule 430A Information.”  Such registration statement, including the amendments thereto, the exhibits thereto and any schedules thereto, at the time it became effective, and including the Rule 430A Information, is herein called the “Registration Statement.”  Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein called the “Rule 462(b) Registration Statement” and, after such filing, the term “Registration Statement” shall include the Rule 462(b) Registration Statement.  Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “preliminary prospectus.”  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.”  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 or any successor system (“EDGAR”).

 

As used in this Agreement:

 

“1934 Act” means the Securities Exchange Act of 1934, as amended.

 

“1934 Act Regulations” means the rules and regulations of the Commission under the 1934 Act.

 

“Applicable Time” means [    ]:00 P.M., New York City time, on [                    ] or such other time as agreed by the Company and the Representatives.

 

“General Disclosure Package” means any Issuer General Use Free Writing Prospectuses issued at or prior to the Applicable Time, the most recent preliminary prospectus that is distributed to investors prior to the Applicable Time and the information included on Schedule B-1 hereto, all considered together.

 

“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the 1933 Act Regulations (“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the 1933 Act Regulations (“Rule 405”)) relating to the Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Securities or of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).

 

“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “ bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule B-2 hereto.

 

2



 

“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.

 

“Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the 1933 Act.

 

“Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the 1933 Act.

 

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, the Applicable Time, the Closing Time (as defined below) and any Date of Delivery (as defined below), and agrees with each Underwriter, as follows:

 

(i)            Registration Statement and Prospectuses .  Each of the Registration Statement and any amendment thereto has become effective under the 1933 Act.  No stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission.  The Company has complied with each request (if any) from the Commission for additional information.

 

Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations.  Each preliminary prospectus, the Prospectus and any amendment or supplement thereto, at the time each was filed with the Commission, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations.  Each preliminary prospectus delivered to the Underwriters for use in connection with this offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

(ii)           Accurate Disclosure .  Neither the Registration Statement nor any amendment thereto, at its effective time, at the Closing Time or at any Date of Delivery, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.  As of the Applicable Time, none of (A) the General Disclosure Package (B) any individual Issuer Limited Use Free Writing Prospectus, when considered together with the General Disclosure Package and (C) any individual Written Testing-the-Waters Communication, when considered together with the General Disclosure Package, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit 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.  Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Time or at any Date of Delivery, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit 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.

 

3



 

The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement (or any amendment thereto), the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Merrill Lynch and Raymond James expressly for use therein.  For purposes of this Agreement, the only information so furnished shall be the information in the first paragraph under the heading “Underwriting—Commissions and Discounts,” the information in the second, third and fourth paragraphs under the heading “Underwriting—Price Stabilization, Short Positions and Penalty Bids” and the information under the heading “Underwriting—Electronic Distribution” in each case contained in the Prospectus (collectively, the “Underwriter Information”).

 

(iii)          Issuer Free Writing Prospectuses .  No Issuer Free Writing Prospectus conflicts or will conflict with the information contained in the Registration Statement or the Prospectus, and any preliminary or other prospectus deemed to be a part thereof that has not been superseded or modified.  The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) such that no filing of any “road show” (as defined in Rule 433(h)) is required in connection with the offering of the Securities.

 

(iv)          Testing-the-Waters Materials .  The Company (A) has not engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Representatives with entities that are qualified institutional buyers within the meaning of Rule 144A under the 1933 Act or institutions that are accredited investors within the meaning of Rule 501 under the 1933 Act and (B) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications.  The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications.  The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule B-3 hereto.

 

(v)           Company Not Ineligible Issuer .  At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the 1933 Act Regulations) of the Securities and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.

 

(vi)          Emerging Growth Company Status.   From the time of the initial confidential submission of the Registration Statement to the Commission through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”).

 

(vii)         Independent Accountants .  To the Company’s knowledge, the accountants who certified the financial statements and supporting schedules included in the Registration Statement, the General Disclosure Package and the Prospectus are independent public accountants with respect to the Company as required by the 1933 Act, the 1933 Act Regulations and the Public Accounting Oversight Board.

 

4



 

(viii)        Financial Statements; Non-GAAP Financial Measures   The financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus, together with the related schedules and notes, present fairly in all material respects the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders’ equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved.  The supporting schedules included in the Registration Statement, if any, present fairly in all material respects in accordance with GAAP the information required to be stated therein.  The selected financial data and the summary financial information included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly in all material respects the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included therein. All disclosures contained in the Registration Statement, the General Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply in all material respects with Regulation G of the 1934 Act and Item 10 of Regulation S-K of the 1933 Act, to the extent applicable. Except as included therein, no historical or pro forma financial statements or supporting schedules are required to be included or incorporated by reference in the Registration Statement, the General Disclosure Package or the Prospectus under the 1933 Act or the 1933 Act Regulations.

 

(ix)          No Material Adverse Change in Business .  Except as otherwise stated therein, since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, 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 or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, 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.

 

(x)           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 Registration Statement, the General Disclosure Package and 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 result in a Material Adverse Effect.

 

(xi)          Good Standing of Subsidiaries .  Each “significant subsidiary” of the Company (as such term is defined in Rule 1-02 of Regulation S-X) (each, a “Subsidiary” and, collectively, the “Subsidiaries”) has been duly organized and is validly existing in good standing (to the extent such concept exists) under the laws of the jurisdiction of its incorporation or organization, has corporate or similar power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and is duly qualified to transact business and is in good standing (to the extent such concept exists) in each 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 to so

 

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qualify or to be in good standing would not result in a Material Adverse Effect.  Except as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, all of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity.  None of the outstanding shares of capital stock of any Subsidiary were issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary.  The only subsidiaries of the Company are (A) the subsidiaries listed on Exhibit 21 to the Registration Statement and (B) certain other subsidiaries which, considered in the aggregate as a single subsidiary, do not constitute a “significant subsidiary” as defined in Rule 1-02 of Regulation S-X.

 

(xii)         Capitalization .  The authorized, issued and outstanding shares of capital stock of the Company are as set forth in the Registration Statement, the General Disclosure Package and the Prospectus in the column entitled “Actual” under the caption “Capitalization” (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Registration Statement, the General Disclosure Package and the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Registration Statement, the General Disclosure Package and the Prospectus).  The outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable.  None of the outstanding shares of capital stock of the Company were issued in violation of the preemptive or other similar rights of any securityholder of the Company.

 

(xiii)        Authorization of Agreement .  This Agreement has been duly authorized, executed and delivered by the Company.

 

(xiv)        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 and fully paid and non-assessable; and the issuance of the Securities pursuant to this Agreement is not subject to the preemptive or other similar rights of any securityholder of the Company or any such preemptive or other similar rights have been waived.  The Common Stock conforms in all material respects to all statements relating thereto contained in the Registration Statement, the General Disclosure Package and the Prospectus and such description conforms in all material respects to the rights set forth in the instruments defining the same.  No holder of Securities will be subject to personal liability by reason of being such a holder.  The Company has no debt securities or preferred stock that is rated by any “nationally recognized statistical rating agency” (as that term is defined by the Commission for purposes of Rule 436(g)(2) under the 1933 Act).

 

(xv)         Registration Rights .  There are no persons with registration rights or other similar rights to have any securities registered for sale pursuant to the Registration Statement or otherwise registered for sale or sold by the Company under the 1933 Act pursuant to this Agreement, other than those rights that have been disclosed in the Registration Statement, the General Disclosure Package and the Prospectus and have been waived.

 

(xvi)        Absence of Violations, Defaults and Conflicts .  Neither the Company nor any of its subsidiaries is (A) in violation of its charter, by-laws or similar organizational document, (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

 

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or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound or to which any of the properties or assets of the Company or any subsidiary is subject (collectively, “Agreements and Instruments”), except for such defaults that would not, singly or in the aggregate, result in a Material Adverse Effect, or (C) in violation of any law, statute, rule, regulation, judgment, order, writ or decree of any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency having jurisdiction over the Company or any of its subsidiaries or any of their respective properties, assets or operations (each, a “Governmental Entity”), except for such violations that would not, singly or in the aggregate, result in a Material Adverse Effect.  The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement, the General Disclosure Package and the Prospectus (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described therein under the caption “Use of Proceeds”) and compliance by the Company with its obligations hereunder 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) under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or any subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches, defaults or Repayment Events or liens, charges or encumbrances that would not, singly or in the aggregate, result in a Material Adverse Effect), nor will such action result in any violation of any law, statute, rule, regulation, judgment, order, writ or decree of any Governmental Entity that would have a Material Adverse Effect or the provisions of the charter, by-laws or similar organizational document of the Company or any of its subsidiaries.  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 or any of its subsidiaries.

 

(xvii)       Absence of Labor Dispute .  No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent.

 

(xviii)      Absence of Proceedings .  Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, there is no action, suit, proceeding, inquiry or investigation before or brought by any Governmental Entity now pending or, to the knowledge of the Company, threatened, against or affecting the Company or any of its subsidiaries, which would reasonably be expected to result in a Material Adverse Effect, or which would reasonably be expected to materially and adversely affect their respective properties or assets or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder; and the aggregate of all pending legal or governmental proceedings to which the Company or any such subsidiary is a party or of which any of their respective properties or assets is the subject which are not described in the Registration Statement, the General Disclosure Package and the Prospectus, including ordinary routine litigation incidental to the business, would not reasonably be expected to result in a Material Adverse Effect.

 

(xix)        Accuracy of Exhibits .  There are no contracts or documents which are required to be described in the Registration Statement, the General Disclosure Package or the Prospectus or to be filed as exhibits to the Registration Statement which have not been so described and filed as required.

 

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(xx)         Absence of Further Requirements .  No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any Governmental Entity 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 hereunder 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, the 1933 Act Regulations, the rules of the NASDAQ Stock Market LLC, state securities laws or the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and (B) for such other filings with, or authorizations, approvals, consents, licenses, orders, registrations, qualifications or decrees of, any Governmental Entity the absence of which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

(xxi)        Possession of Licenses and Permits .  The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, “Governmental Licenses”) issued by the appropriate Governmental Entities necessary to conduct the business now operated by them, except where the failure so to possess would not, singly or in the aggregate, result in a Material Adverse Effect.  The Company and its subsidiaries are in compliance with the terms and conditions of all Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, result in 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, singly or in the aggregate, result in a Material Adverse Effect.  Neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect.

 

(xxii)       Title to Property .  The Company and its subsidiaries do not own any real property.  The Company and its subsidiaries have good and marketable title to all personal properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (A) are described in the Registration Statement, the General Disclosure Package and the Prospectus or (B) would not, singly or in the aggregate, if title were so encumbered, result in a Material Adverse Effect; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Registration Statement, the General Disclosure Package or the Prospectus, are in full force and effect, and neither the Company nor any such subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease except to the extent that any impingement of the Company’s rights thereto would not result in a Material Adverse Effect.

 

(xxiii)      Possession of Intellectual Property .  The Company and its subsidiaries own or possess, or can acquire on reasonable 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 or other intellectual property (collectively, “Intellectual Property”) necessary to carry on the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or

 

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any of its subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect.

 

(xxiv)     Environmental Laws .  Except as described in the Registration Statement, the General Disclosure Package and the Prospectus or would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is 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, asbestos-containing materials or mold (collectively, “Hazardous Materials”) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, “Environmental Laws”), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or, to the Company’s knowledge, 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 or any of its subsidiaries and (D) to the Company’s knowledge, there are no events or circumstances that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or Governmental Entity, against or affecting the Company or any of its subsidiaries relating to Hazardous Materials or any Environmental Laws.

 

(xxv)      Accounting Controls.   The Company and each of its subsidiaries have taken all necessary actions to ensure that, in the time period required, the Company and its subsidiaries will comply with Rule 13-a15 and 15d-15 under the 1934 Act Regulations and a system of internal accounting controls sufficient to provide reasonable assurances that: (A) transactions are executed in accordance with management’s general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management’s general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, since the end of the Company’s most recent audited fiscal year, there has been (1) no material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (2) no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

(xxvi)     Compliance with the Sarbanes-Oxley Act.   The Company has taken all necessary actions to ensure that, upon the effectiveness of the Registration Statement, it will be in compliance with all provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof (the “Sarbanes-Oxley Act”) that are then in effect and with which the Company is required to comply as of the effectiveness of the Registration Statement, and is actively taking steps to enable it to be in compliance with other provisions of the Sarbanes-Oxley Act not currently in effect, upon the effectiveness of such

 

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provisions, or which will become applicable to the Company at all times after the effectiveness of the Registration Statement.

 

(xxvii)    Payment of Taxes .  All United States federal income tax returns of the Company and its subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except assessments against which appeals have been or will be promptly taken and as to which adequate reserves have been provided. The United States federal income tax returns of the Company through the fiscal year ended December 31, 2011 have been filed and no assessment in connection therewith has been made against the Company. The Company and its subsidiaries have filed all other tax returns that are required to have been filed by them pursuant to applicable foreign, state, local or other law except insofar as the failure to file such returns would not result in a Material Adverse Effect, and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company and its subsidiaries, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been established by the Company. The charges, accruals and reserves on the books of the Company in respect of any income and corporation tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income tax for any years not finally determined, except to the extent of any inadequacy that would not result in a Material Adverse Effect.

 

(xxviii)   Insurance .  The Company and its subsidiaries carry or are entitled to the benefits of insurance, with reputable insurers, in such amounts and covering such risks as is generally maintained by companies of established repute and of comparable size engaged in the same or similar business, and all such insurance is in full force and effect.  The Company has no reason to believe that it or any of its subsidiaries will not be able (A) to renew if desired its existing insurance coverage as and when such policies expire or (B) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Effect.  Neither of the Company nor any of its subsidiaries has been denied any insurance coverage that it has sought or for which it has applied.

 

(xxix)     Investment Company Act .  The Company is not required, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Registration Statement, the General Disclosure Package and the Prospectus will not be required, to register as an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”).

 

(xxx)      Absence of Manipulation .  Neither the Company nor, to the Company’s knowledge, any affiliate of the Company has taken, nor will the Company or any of its subsidiaries take, directly or indirectly, any action which is designed, or would reasonably be expected, to cause or result in, or which constitutes, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or to result in a violation of Regulation M under the 1934 Act.

 

(xxxi)     Foreign Corrupt Practices Act .  None of the Company, any of its subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person acting on behalf of the Company or any of its subsidiaries is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “FCPA”), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or

 

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authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA and the Company and, to the knowledge of the Company, its affiliates have conducted their businesses in compliance with the FCPA and have instituted and maintain policies and procedures designed to comply, and which are reasonably expected to continue to comply, therewith.

 

(xxxii)    Money Laundering Laws .  The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any Governmental Entity involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.

 

(xxxiii)   OFAC .  None of the Company, any of its subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee, affiliate or representative of the Company or any of its subsidiaries is an individual or entity (“Person”) currently the subject or target of any sanctions administered or enforced by the United States Government, including, without limitation, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the United Nations Security Council (“UNSC”), the European Union, Her Majesty’s Treasury (“HMT”), or other relevant sanctions authority (collectively, “Sanctions”), nor is the Company located, organized or resident in a country or territory that is the subject of Sanctions; and the Company will not directly or indirectly use the proceeds of the sale of the Securities, or lend, contribute or otherwise make available such proceeds to any subsidiaries, joint venture partners or other Person, to fund any activities of or business with any Person, or in any country or territory, that, at the time of such funding, is the subject of Sanctions or in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions.

 

(xxxiv)   Lending Relationship Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company (i) does not have any material lending or other relationship with any bank or lending affiliate of any Underwriter and (ii) does not intend to use any of the proceeds from the sale of the Securities to repay any outstanding debt owed to any affiliate of any Underwriter.

 

(xxxv)    Statistical and Market-Related Data .  Any statistical and market-related data included in the Registration Statement, the General Disclosure Package or the Prospectus are based on or derived from sources that the Company believes, after reasonable inquiry, to be reliable and accurate and, to the extent required, the Company has obtained the written consent to the use of such data from such sources.

 

(b)           Officer’s Certificates .  Any certificate signed by any officer of the Company or any of its subsidiaries 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.

 

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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 A, that number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, subject, in each case, to such adjustments among the Underwriters as Merrill Lynch in its sole discretion shall make to eliminate any sales or purchases of fractional shares.

 

(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 up to an additional [                    ] shares of Common Stock, at the price per share set forth in Schedule A, less 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.  The option hereby granted may be exercised for 30 days after the date hereof and may be exercised in whole or in part at any time from time to time upon written 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 (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.  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 Merrill Lynch and Raymond James in their sole 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 Cooley LLP, 3175 Hanover Street, Palo Alto, California, or at such other place as shall be agreed upon by the Representatives and the Company, at 9:00 A.M. (New York City time) on the third (fourth, if the pricing occurs after 4:30 P.M. (New York City time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten 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 “Closing Time”).

 

In addition, 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 above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery 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, which it has agreed to purchase.  Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option

 

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Securities, if any, to be purchased by any Underwriter whose funds have not been received by the 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.

 

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, and will promptly notify the Representatives, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (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, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any preliminary prospectus or the 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 or of any examination pursuant to Section 8(d) or 8(e) of the 1933 Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities.  The Company will effect all filings required under Rule 424(b), in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and will take such steps as it deems necessary to ascertain promptly 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 use its reasonable efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.

 

(b)           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 contemplated in this Agreement and in the Registration Statement, the General Disclosure Package and the Prospectus.  If at any time when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172 of the 1933 Act Regulations (“Rule 172”), would be) 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 (i) amend the Registration Statement in order that the Registration Statement will not include 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, (ii) amend or supplement the General Disclosure Package or the Prospectus in order that the General Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement 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 it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the General Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly (A) give the Representatives notice of such event; provided that the Representatives shall be deemed to have received notice without any required action by the Company if such determination was made by counsel for the Underwriters, (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the General Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representatives with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or

 

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supplement to which the Representatives or counsel for the Underwriters shall object.  The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request.

 

(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 each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters.  The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical 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 Prospectuses .  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 of such copies for purposes permitted by the 1933 Act.  The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 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 to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

(e)           Blue Sky Qualifications .  The Company will use its reasonable best 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 the Representatives may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Securities; 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.

 

(f)            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 earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.

 

(g)           Use of Proceeds .  The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Registration Statement, the General Disclosure Package and the Prospectus under “Use of Proceeds.”

 

(h)           Listing .  The Company will use its reasonable best efforts to effect and maintain the listing of the Common Stock (including the Securities) on the Nasdaq Global Market.

 

(i)            Restriction on Sale of Securities .  During a period of 180 days from the date of the Prospectus, the Company will not, without the prior written consent of Merrill Lynch and Raymond James, (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 shares 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

 

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whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise.  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 Registration Statement, the General Disclosure Package and the Prospectus, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company referred to in the Registration Statement, the General Disclosure Package and the Prospectus, (D) any shares of Common Stock issued pursuant to any non-employee director stock plan or dividend reinvestment plan referred to in the Registration Statement, the General Disclosure Package and the Prospectus, (E) securities issued by the Company in connection with the acquisition by the Company or any of its subsidiaries of the securities, business, property or other assets of another person or entity or pursuant to any plan assumed by the Company in connection with such acquisition, (F) securities issued by the Company in connection with joint ventures, commercial relationships or other strategic transactions, or (G) the filing of a registration statement on Form S-8; provided however, that securities issued by the Company pursuant to clauses (E) and (F) shall be subject to the restrictions set forth in this Section 3(i); provided, further, that that securities issued by the Company pursuant to clauses (E) and (F) may not exceed, in the aggregate, 10% of the Company’s shares of capital stock outstanding immediately following the completion of the transactions contemplated by this Agreement.

 

(j)            If Merrill Lynch and Raymond James, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up agreement described in Section 5(i) hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.

 

(k)           Reporting Requirements .  The Company, during the period when a Prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and 1934 Act Regulations.  Additionally, the Company shall report the use of proceeds from the issuance of the Shares as may be required under Rule 463 under the 1933 Act.

 

(l)            Issuer Free Writing Prospectuses .  The Company agrees that, unless it obtains the prior written consent of the Representatives, it will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representatives will be deemed to have consented to the Issuer Free Writing Prospectuses listed on Schedule B-2 hereto and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representatives.  The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representatives as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping.  If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement, any preliminary prospectus or the Prospectus or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the

 

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circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.

 

(m)          Testing-the-Waters Materials .  If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.

 

(n)           Emerging Growth Company Status . The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Securities within the meaning of the 1933 Act and (ii) completion of the 180-day restricted period referred to in Section 3(i) hereof.

 

SECTION 4.         Payment of Expenses .

 

(a)           Expenses .  The Company will pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of copies of each preliminary prospectus, each Issuer Free Writing Prospectus and the Prospectus and any amendments or supplements thereto and any costs associated with electronic delivery of any of the foregoing by the Underwriters to investors, (iii) 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, (iv) the fees and disbursements of the Company’s counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(e) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto if such fees and expenses are required to be incurred, provided that the amount payable by the Company pursuant to this clause (v) shall not exceed $10,000, (vi) the fees and expenses of any transfer agent or registrar for the Securities, (vii) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the Securities, including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations, travel and lodging expenses of the representatives and officers of the Company and any such consultants (provided that the travel, lodging and any car travel expenses of representatives of the Underwriters shall be paid for by the Underwriters), and the cost of aircraft and other transportation chartered in connection with the road show (provided that 50% of the cost of any aircraft chartered in connection with the road show shall be paid by the Underwriters and the 50% of the cost of any aircraft chartered in connection with the road show shall be paid by the Company), (viii) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by FINRA of the terms of the sale of the Securities, provided that the amount payable by the Company pursuant to this clause (viii) shall not exceed $25,000, (ix) the fees and expenses incurred in connection with the listing of the Securities on the Nasdaq Global Market and (x) the costs and expenses (including, without limitation, any damages or

 

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other amounts payable in connection with legal or contractual liability) associated with the reforming of any contracts for sale of the Securities made by the Underwriters caused by a breach of the representation contained in the third sentence of Section 1(a)(ii).  If this Agreement is terminated by the Representatives in accordance with the provisions of Section 10 hereof, the Company shall reimburse the non-defaulting Underwriters for all of their reasonable documented out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.

 

(b)           Termination of Agreement .  If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5, Section 9(a)(i) or (iii) or Section 11 hereof, the Company shall reimburse the Underwriters for all of their reasonable documented out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.

 

SECTION 5.         Conditions of Underwriters’ Obligations .  The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained herein or in certificates of any officer of the Company or any of its subsidiaries delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions:

 

(a)           Effectiveness of Registration Statement; Rule 430A Information .  The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and, at the Closing Time, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission; and the Company has complied with each request (if any) from the Commission for additional information.  A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) without reliance on Rule 424(b)(8) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.

 

(b)           Opinion of Counsel for Company .  At the Closing Time, the Representatives shall have received an opinion, dated the Closing Time, of Goodwin Procter LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit A hereto and to such further effect as counsel to the Underwriters may reasonably request.

 

(c)           Opinion of Counsel for Underwriters .  At the Closing Time, the Representatives shall have received the favorable opinion, dated the Closing Time, of Cooley LLP, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters with respect to such matters as the Representatives may require.  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 General Corporation Law of the State of Delaware and the federal securities laws of the United States, 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 and other representatives of the Company and its subsidiaries and certificates of public officials.

 

(d)           Officers’ Certificate .  At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries

 

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considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the Chief Executive Officer or the President of the Company and of the chief financial or chief accounting officer of the Company, dated the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties of the Company in this Agreement are true and correct with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied as set forth herein at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement under the 1933 Act has been issued, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to their knowledge, contemplated.

 

(e)           Accountant’s Comfort Letter .  At the time of the execution of this Agreement, the Representatives shall have received from Ernst & Young LLP a letter, dated such date, in form and substance 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, the General Disclosure Package and the Prospectus.

 

(f)            Bring-down Comfort Letter .  At the Closing Time, the Representatives shall have received from Ernst & Young LLP a letter, dated as of the Closing Time, to the effect that they reaffirm 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 Listing .  At the Closing Time, the Securities shall have been approved for listing on the Nasdaq Global Market, subject only to official notice of issuance.

 

(h)         No Objection .  FINRA has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements relating to the offering of the Securities.

 

(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 C hereto.

 

(j)            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 and any of its subsidiaries hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received:

 

(i)            Officers’ Certificate .  A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(d) hereof remains true and correct as of such Date of Delivery.

 

(ii)           Opinion of Counsel for Company .  If requested by the Representatives, an opinion of Goodwin Procter LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be

 

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purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof.

 

(iii)          Opinion of Counsel for Underwriters .  If requested by the Representatives, the favorable opinion of Cooley LLP, 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(c) hereof.

 

(iv)          Bring-down Comfort Letter If requested by the Representatives, a letter from Ernst & Young LLP, in form and substance 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(e) hereof, except that the “specified date” in the letter furnished pursuant to this paragraph shall be a date not more than three business days prior to such Date of Delivery

 

(v)           Additional Documents .  At the Closing Time and at each Date of Delivery (if any) counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably 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 shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters.

 

(k)           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, 8, 15, 16 and 17 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, its affiliates (as such term is defined in Rule 501(b) under the 1933 Act (each, an “Affiliate”)), its selling agents 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, 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 (A) in any preliminary prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication,  the General Disclosure Package or the Prospectus (or any amendment or supplement thereto), or (B) in any materials or information provided to investors by, or with the prior written approval of, the Company in connection with the marketing of the offering of the Stock (“Marketing Materials”), including any roadshow or investor presentations made to investors by the Company

 

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(whether in person or electronically), or the omission or alleged omission in any preliminary prospectus, Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, Prospectus or in any Marketing Materials 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, to the extent of the aggregate amount paid in settlement of any litigation, 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; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company;

 

(iii)          against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch and Raymond James), 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, to the extent that any such expense is not paid under (i) or (ii) 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 the Registration Statement (or any amendment thereto), including the Rule 430A Information, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with the Underwriter Information.

 

(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 in subsection (a) 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, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with the Underwriter Information.

 

(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) above, counsel to the indemnified parties shall be selected by Merrill Lynch and Raymond James, subject to the Company’s approval, which shall not be unreasonably withheld or delayed, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company, subject to the Representatives’ approval, which shall not be unreasonably withheld or delayed.  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 the reasonable 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

 

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or circumstances.  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 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, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) 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.

 

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 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 from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company, on the one hand, and the total underwriting discount received by the Underwriters, on the other hand, in each case as set forth on the cover of the Prospectus, bear to the aggregate initial public offering price of the Securities as set forth on the cover of the Prospectus.

 

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.

 

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

 

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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 underwriting commissions received by such Underwriter in connection with the Shares underwritten by it and distributed to the public.

 

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 and each Underwriter’s Affiliates and selling agents 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 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 .  All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company and (ii) delivery of and payment for the Securities.

 

SECTION 9.         Termination of Agreement .

 

(a)           Termination .  The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, in the judgment of the Representatives, since the time of execution of this Agreement or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, 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 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 judgment of the Representatives, impracticable or inadvisable to proceed with the completion of the offering or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the Nasdaq Global Market, or (iv) if trading generally on the New York Stock Exchange or in the Nasdaq Global 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 order of the Commission, FINRA or any other governmental authority, or (v) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (vi) if a banking moratorium has been declared by either Federal or New York authorities.

 

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(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, 8, 15, 16 and 17 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 for one or more of the non-defaulting Underwriters, or any other underwriters, 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 the Company shall be entitled to a further period of 24-hours within which to procure other persons satisfactory to the Representative to purchase Defaulted Securities upon such terms.  After giving effect to any arrangement for the purchase of the Defaulted Securities by the Representative and the Company as provided in the preceding sentence:

 

(i)            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

 

(ii)           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 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 which 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 (i) the Representatives or (ii) the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement, the General Disclosure Package or the 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.       Default by the Company . If the Company shall fail at the Closing Time or a Date of Delivery, as the case may be, to sell the number of Securities that it is obligated to sell hereunder, then this Agreement shall terminate without any liability on the part of any nondefaulting party; provided, however, that the provisions of Sections 1, 4, 6, 7, 8, 15, 16 and 17 shall remain in full force and effect.  No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default.

 

SECTION 12.       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.  Notices to the Underwriters shall be directed to Merrill Lynch at One Bryant Park,

 

23



 

New York, New York 10036, attention of Syndicate Department (facsimile: (646) 855-3073), with a copy to ECM Legal (facsimile: (212) 230-8730); notices to the Company shall be directed to it at 11734 S. Election Road, Salt Lake City, Utah 84020, attention of General Counsel.

 

SECTION 13.       No Advisory or Fiduciary Relationship .  The Company acknowledges and agrees that (a) the purchase and sale of the Securities pursuant to this Agreement, including the determination of the initial public offering price of the Securities and any related discounts and commissions, is an arm’s-length commercial transaction between the Company, on the one hand, and the several Underwriters, on the other hand, (b) in connection with the offering of the Securities and the process leading thereto, each Underwriter is and has been acting solely as a principal and is not the agent or fiduciary of the Company, any of its subsidiaries, or their respective stockholders, creditors, employees or any other party, (c) no Underwriter has assumed or will assume an advisory or fiduciary responsibility in favor of the Company with respect to the offering of the Securities or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company or any of its subsidiaries on other matters) and no Underwriter has any obligation to the Company with respect to the offering of the Securities except the obligations expressly set forth in this Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company, and (e) the Underwriters have not provided any legal, accounting, regulatory or tax advice with respect to the offering of the Securities and the Company has consulted its own respective legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.

 

SECTION 14.       Parties .  This Agreement shall each inure to the benefit of and be binding upon the Underwriters and the Company and their controlling persons, officer and directors and their respective successors, heirs and legal representatives, as applicable.  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 15.       Trial by Jury .  The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

 

SECTION 16.       GOVERNING LAW .  THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK WITHOUT REGARD TO ITS CHOICE OF LAW PROVISIONS.

 

SECTION 17.       Consent to Jurisdiction; Waiver of Immunity . Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby (“Related Proceedings”) shall be instituted in (i) the federal courts of the United States of America located in the City and County of New York, Borough of Manhattan or (ii) the courts of the State of New York located in the City and County of New York, Borough of Manhattan (collectively, the “Specified Courts”), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a “Related Judgment”), as to which such jurisdiction is

 

24



 

non-exclusive) of such courts in any such suit, action or proceeding.  Service of any process, summons, notice or document by mail to such party’s address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court.  The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum.

 

SECTION 18.       TIME . TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

 

SECTION 19.       Counterparts .  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.

 

SECTION 20.       Effect of Headings .  The Section headings herein are for convenience only and shall not affect the construction hereof.

 

25



 

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 among the Underwriters, and the Company in accordance with its terms.

 

 

 

Very truly yours,

 

 

 

Control4 Corporation

 

 

 

 

 

By

 

 

 

Title:

 

CONFIRMED AND ACCEPTED,
                as of the date first above written:

 

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

 

RAYMOND JAMES & ASSOCIATES, INC.

 

 

By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

 

 

By

 

 

 

Authorized Signatory

 

 

By: RAYMOND JAMES & ASSOCIATES, INC.

 

 

By

 

 

 

Authorized Signatory

 

 

For themselves and as Representatives of the other Underwriters named in Schedule A hereto.

 

26



 

SCHEDULE A

 

The initial public offering price per share for the Securities shall be $ · .

 

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, subject to adjustment in accordance with Section 2(b) for dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities.

 

 

 

Number of
Initial Securities

 

Name of Underwriter

 

 

 

 

 

 

 

Merrill Lynch, Pierce, Fenner & Smith
Incorporated

 

 

 

Raymond James & Associates, Inc.

 

 

 

Canaccord Genuity Inc. 

 

 

 

Cowen and Company, LLC.

 

 

 

Needham & Company, LLC.

 

 

 

 

 

 

 

Total

 

 

 

 

Sch A-1


 

SCHEDULE B-1

 

Pricing Terms

 

1.              The Company is selling · shares of Common Stock.

 

2.              The Company has granted an option to the Underwriters, severally and not jointly, to purchase up to an additional · shares of Common Stock.

 

3.              The initial public offering price per share for the Securities shall be $ · .

 

Sch B-1 - 1



 

SCHEDULE B-2

 

Free Writing Prospectuses

 

[None.]

 

Sch B-2 - 1



 

SCHEDULE B-3

 

Written Testing-the-Waters Communication

 

[None.]

 

Sch B-3 - 1



 

SCHEDULE C

 

List of Persons and Entities Subject to Lock-up

 

Name

Acomb, Stanford

Acton, David

Adams, Nathan

Aladjoff, Ivan

Allen, Ben

Allen, Jared

Alvord, Cortney

Anderson, Eric

Anderson, Nate

Andrews, Christopher

Armstrong, Scott

Arnold, Jim

Ashcroft, Alan

Avetta, James

Baker, David

Baker, Jeremy

Baker, Kevin

Baldwin, Brad

Banta, Alan

Barrus, David

Benack, Jaclyn

Bennett, Larry

Bernal, Balarama

Best Buy Co., Inc.

Bishop, Darren

Bishop, Greg

Bjelde, Donald

 

Sch C - 1



 

Name

Bluemel, Thomas

Bolton, Matthew

Born, Rob

Borrowman, Ryan

Bowman, Timothy

Bray, Robert

Brown, Jonathan

Bruhn, Robert

Bryan, David

Burgoyne, Nathan

Bytheway, David

Cabrera, Carlos

Cabriales, Carlos

Cannon, Richard

Capell, Raymond

Cargile, JD

Cargile, Sara A.

Carnell, Christian

Carney, Shanan

Carpenter, Michael

Cashen, Susan

Chappidi, Lakshmi

Chase, Jodi

Chase, Jordan

Chaston, Tara

Chesley, Tyler

Christensen, Marc

Cisco Systems, Inc.

Clapp, Glenn

Clark, William

 

Sch C - 2



 

Name

Clyde, Steven

Colburn, Kevin

Colburn, Michele

Collier, Michael P.

Conder, Craig

Connett, Joel

Cosenza, Peter

Coulter, Ernie

Cox, Curtis

Dailey, Michael

Danoyan, Alexander

Delgado, Marie

Demke, Caleb

Denney, Michael

Derry, David

Deru, Kimberly

Doubek, Joe

Drew, Kelly

Duff, Jennifer

Dungan, Jeff

Dutson, Ryan

Dykhuizen, Alison

Eagar, John

Ellis, Joshua

Epeneter, John

Erbe, Lowell

Erickson, Jacob

Erickson, Ryan

Fallows, Tim

Fay, David

 

Sch C - 3



 

Name

Fisher, Christopher

Flick, Nitai S.

Flint, Kevin

Floresca, Frederick

Fogg, Brian

Fowler, John

Frazier Technology Ventures II, L.P.

Freston, David

Frost, Jeremy

Fuller, Carole

Fuller, Robert

Gallegos, Chad

Garretson, Kevin

Girardier, Jason

Gomez, Luis

Gomm, Tom

Goodman, Katherine

Goodwin, Nicole

Gouff, Noel

Greenwood, Eldon

Griffith, David

Grow, John

Gull, Aaron

Habiger, David

Hale, Blake

Halloran, Michael

Haney, Keith

Hanks, Jesse

Harmer, Lisa

Harmon, Joe

 

Sch C - 4


 

Name

Harmon, Stephen

Hart, Daniel

Hart, Paul

Hatch, Matthew

Hawkins, Jamie

Hellewell, Wendell

Hemingway, Lauren

Heninger, Thane

Heninger, Troy

Hess, Darin

Hesson, Kevin

Heugly, Eric

Higbee, Carrie

Hinrichsen, Heinee

Holt, Kelly

Holtby, Troy

Horsley, Rodney

Horton, Jeremy

Howell, Gregory

Hudson, Charles

Huebner, Troy

Hughes, Joseph

Hulick, Mark

Ingham, Mark

Jackson, Shaun

Jarvis, Charles

Jeffery, Scott

Jensen, Monty

Johnson, Brandon

Johnson, Kristin

 

Sch C - 5



 

Name

Johnson, Zara

Jones, Kieran

Jones, Suzanne

Jordan, Len

Josephson, James

Kearns, Steven

Kim, Casey

King, Sidney

Kinkade, Kevin

Kirby, Pauline

Kirk, Tracy

Kirsten, Cindy

Klekas, Michael

Knavel, Ryan

Knolle, Randy

Koutsky, Bryan

Kuhn, Tom

Larsen, Audrey

Larsen, Marti

Larsen, Ty

Lawrence, Brian

Leung, Jordan

Lewis, Jason

Liganor, Paul

Lind, David

Lindenlaub, Quyen

Liu, Chingyao

Livingston, Ross

Longaker, Amy

Lutz, Willis

 

Sch C - 6



 

Name

Mackay, Rachel

Madsen, Brent

Mahoney, Ben

Major, John

Makkena, Sujatha

Mar, John

Martin, James

Martin, Jason

Mathis, Terry

McAllister, Michael

McBride, Dustin

McGeever, Jim

McNamara, Michael

Mears, Spencer

Mecklenburg, Robert

Mercato Partners

Mella, Gordon

Midgley, Roger

Mierkey, Brian

Miller, Todd

Milligan, Thomas

Molen, Brett

Moore, Joseph

Muenzenberger, Daniel

Murphy, Roy

Nagel, Paul

Munford, AJ

Neale, Hamish

Neilson, Natalee

Nelson, Christiana

 

Sch C - 7



 

Name

Nelson, Jon

Nelson, Michael

Nettles, Jason

Nguyen, Richard

Nielson, Alison

Nielson, Cheri

Nitzen, Leana

Norman, Jim

Novakovich, Mark S.

Noyce, Beverly

Ohlwiler, Mark

Osborn, Jaime

Oviatt, David

Owens, Fred

Painter, Jenni

Paisley, Chris

Parker, Andrew

Parker, Kim

Partridge, Ryan

Patten, James

Peasley, Sam

Peel, Nathan

Pendleton, David

Perez, Miguel

Perry, Clinton

Petty, Douglas

Petty, Scott

Pfeifer, Jeremy

Phelps, Parry

Pittard, Robert

 

Sch C - 8



 

Name

Plaehn, Martin

Plaehn, Michael

Primavera, Matthew

Prue, Lonn

Quinney, Eric

Radford, Coleman

Raghunathan, Archana

Raimer, Jason

Raymond, Jaclyn

Reams, Amy

Reay, Alan

Reed, Tyler

Renslow, Melvin

Renzema, David

Rice, Matthew

Riddle, Greg

Romney, Nathan

Rosado, Nicholas

Rose, Brian

Rowell, Russell

Rowland, Todd

Russell, James

Rutz, Paul

Salzman, Scott Don

Sanchez, Ricky

Sand, Matthew

Sandberg, Jeff

SAP Ventures

Sawyer, Michael

Schonle, Bill

 

Sch C - 9



 

Name

Schritter, Shannon

Schulz, Thomas

Severson, Monique

Seyler, Terry

Shake, Francis

Shaw, Christopher

Shetty, Roshan

Signal Peak Ventures

Skidmore, David

Slaughenhaupt, Dale

Smith, Allen

Smith, Allyson

Smith, Eric W.

Smith, Gregory

Soto, Victor

Spens, Tim

Spoerri, Christie

Stephenson, Michael

Stephenson, Scott

Strong, Dan

Tang, Cheng

Taylor, Timothy

Thomas, Marion

Thomas Weisel Venture Partners

Tiffany, John

Timm, Richard

Tuke, Cassidy

Tyson, Misti

Van Cleave, Blake

Van Uitert, Andrew

 

Sch C - 10



 

Name

Van Uitert, Scot

Vaughn, Kordon

Vernon, Bruce

Wade, Sandra

Walker, Benjamin

Wallengren, Eric

Watts, Crystal

Weight, Gordon

Wenet, Garey

West, Jennifer

West, William B.

Wheeler, Thomas M.

Whipple, Jacob

Whitman, Marc

Whitney, Colby

Williams, Eric

Williams, Paul

Winters, Nicole

Woebel, Eric

Woodall, Stephanie

Woods, Mike

Wright, Greg

Wright, Troy

Yanagihara-Brooks, Mark

Yogya, Stephen

Zekas, Dean

Zimmerman, Brent

Zollinger, Scott

 

Sch C - 11


 

Exhibit A

 

FORM OF OPINION OF COMPANY’S COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)

 

[                          ], 2013

 

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

Raymond James & Associates, Inc.

As Representatives of the

Several Underwriters

 

c/o

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

One Bryant Park

New York, New York 10036

 

c/o

Raymond James & Associates, Inc.

One Embarcadero Center, Suite 650

San Francisco, California 94111

 

Re:  Control4 Corporation

 

Ladies and Gentlemen:

 

We have acted as counsel for Control4 Corporation, a Delaware corporation (the “Company”) in connection with the sale to the Underwriters (as defined below) by the Company of [                  ] shares (the “Primary Shares”) of common stock, $0.0001 par value per share (the “Common Stock”), of the Company.  We are furnishing this opinion letter to you pursuant to Section 5(b) of the Underwriting Agreement, dated as of [                    ], 2013 (the “Underwriting Agreement”), among the Company and the Underwriters listed on Schedule A to the Underwriting Agreement, for whom you are acting as Representatives (the “Underwriters”).

 

The Company’s Registration Statement on Form S-1 (File No. 333-[              ]) filed by the Company with the Securities and Exchange Commission (the “Commission”) on [                    ], 2013, as amended, in the form in which it became effective on [                          ], including the information deemed to be included in it at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the “Securities Act”), is referred to in this opinion letter as the “Registration Statement,” and the prospectus included in it, as filed pursuant to Rule 424(b) under the Securities Act on [                  ], 2013, is referred to in this opinion letter as the “Prospectus.”

 

We have reviewed the agreements filed as an exhibit to the Registration Statement (the “Listed Agreements”) and made such investigation of law as we have deemed appropriate to give the opinions set forth below.  We have relied, without independent verification, on certificates of public officials and, as to matters of fact material to the opinions set forth below, on representations made in the Underwriting Agreement, and certificates and other inquiries of officers of the Company.

 

A-1



 

Our opinion regarding valid existence and good standing in numbered paragraph 1 is based solely on a certificate of the Delaware Secretary of State and, in the case of valid existence, a review of the Company’s certificate of incorporation (the “Certificate of Incorporation”) and an officer’s certificate confirming that the Company has taken no action looking to its dissolution.  Our opinions in numbered paragraph 4 below regarding the due qualification and good standing of the Company as a foreign corporation are based solely on certificates of the Secretaries of State or other appropriate officials of the respective jurisdictions identified on Schedule A to this opinion letter in which the Company is qualified as a foreign corporation.  We express no opinion as to the tax good standing of the Company in any jurisdiction.

 

In connection with our opinion in numbered paragraph 9 below, we have relied exclusively on the letter, dated [                  ], 2013, from [                  , of The NASDAQ Stock Market, Inc. to [NAME], [TITLE] of the Company, a copy of which has been made available to your counsel.

 

For purposes of our opinion in numbered paragraph 8(c), we have interpreted the terms of the contracts addressed by that opinion as they would be understood in California.

 

The opinions set forth below are limited to California law, the Delaware General Corporation Law and the federal law of the United States.  Without limiting the generality of the foregoing, we express no opinion with respect to (i) state securities or “Blue Sky” laws, or (ii) state or federal antifraud laws.

 

Based upon the foregoing, and subject to the additional qualifications set forth below, we are of the opinion that:

 

1.                                       The Company is validly existing as a corporation and in good standing under Delaware law.

 

2.                                       The Company has the corporate power to own its properties and conduct its business as described in the Prospectus and to execute and deliver, and to perform its obligations under, the Underwriting Agreement.

 

3.                                       The Company is duly qualified to do business and is in good standing as a foreign corporation in the jurisdictions set forth opposite its name on Exhibit A hereto.

 

4.                                       The issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued, and are fully paid and non-assessable.

 

5.                                       Any required filing of the Prospectus pursuant to Rule 424(b) under the Securities Act has been made in the manner and within the time period required by such Rule.

 

6.                                       The Underwriting Agreement has been duly authorized, executed and delivered by the Company.

 

7.                                       The Primary Shares have been duly authorized and, when issued delivered and paid for in accordance with the Underwriting Agreement, will be validly issued, fully paid and nonassessable.  The issuance and sale of the Primary Shares is not subject to any preemptive right under the Delaware General Corporation Law or the Company’s Certificate of Incorporation or the Bylaws of the Company (the “Bylaws”), or similar contractual rights under any of the Listed Agreements, except for any such preemptive or contractual rights that have been waived.

 

8.                                       The execution and delivery  by the Company of the Underwriting Agreement  and its issuance and sale of the Primary Shares do not: (a) require any consent, approval, license or exemption by, order or authorization of, or filing, recording or registration by the Company with any Delaware governmental authority pursuant to the Delaware General Corporation Law or any California or federal

 

A-2



 

governmental authority, except those that have been obtained or made under the Securities Act, (b) violate the Certificate of Incorporation or the Bylaws, the Delaware General Corporation Law or any California or federal statute, rule or regulation, or (c) result in a breach of, or constitute a default under, any of the Listed Agreements.

 

9.                                       The Primary Shares to be delivered in accordance with the provisions of the Underwriting Agreement have been approved for listing, subject to notice of issuance, on the NASDAQ Global Market.

 

10.                                The statements in the Prospectus under the captions “Description of Common Stock”, insofar as such statements contain descriptions of statutes, rules or regulations, or the terms of agreements or the terms of the Company’s Certificate of Incorporation or Bylaws, are correct in all material respects.

 

11.                                The Company is not, and after giving effect to the issuance of the Primary Shares and the application of the proceeds as described in the Prospectus, will not be, an “investment company,” as that term is defined in the Investment Company Act of 1940, as amended.

 

This opinion letter and the opinions it contains shall be interpreted in accordance with the Legal Opinion Principles issued by the Committee on Legal Opinions of the American Bar Association’s Business Law Section as published in 53 Business Lawyer 831 (May 1998).

 

This opinion letter is being furnished by us solely for the benefit of the several Underwriters as underwriters in connection with the issuance to the Underwriters of the Primary Shares, and neither it nor the opinions it contains may be relied on for any other purpose or by anyone else.

 

 

Very truly yours,

 

 

GOODWIN PROCTER LLP

 

A-3



 

EXHIBIT A

 

Jurisdiction(s) in which the Company is Qualified as a Foreign Corporation

 

California

Utah

 

A-4



 

[                          ], 2013

 

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

Raymond James & Associates, Inc.

As Representatives of the

Several Underwriters

c/o

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

One Bryant Park

New York, New York 10036

 

c/o

Raymond James & Associates, Inc.

One Embarcadero Center, Suite 650

San Francisco, California 94111

 

Re:  Control4 Corporation

 

Ladies and Gentlemen:

 

Reference is made to the registration under the Securities Act of 1933, as amended (the “Securities Act”) of the offering and sale of  [                            ] shares of common stock, $0.0001 par value per share (the “Common Stock”), of Control4 Corporation (the “Company”) pursuant to a registration statement on Form S-1 (No. 333-[              ]) (the “Registration Statement”) that was declared effective under the Securities Act on [                    ], 2013.  When the Registration Statement was declared effective by the Securities and Exchange Commission (the “Commission”), the form of prospectus included in it omitted certain information in reliance upon Rule 430A under the Securities Act.  That information is contained in the prospectus as filed pursuant to Rule 424(b)(4) of the Securities Act on [                    ], 2013, which is deemed to be a part of the Registration Statement as of the time it was declared effective (the “Prospectus”).  The Prospectus also updates or supplements certain information contained in the Registration Statement.  Reference is also made to the preliminary prospectus included in the Registration Statement immediately prior to [8:30] p.m. (Eastern time) on [                      ], 2013, (the “Applicable Time”), as supplemented by the documents (if any) listed on Appendix A hereto and the information contained in Appendix B hereto (collectively, the “Pricing Disclosure Package”).  We are furnishing this letter to you pursuant to Section 5(b) of the Underwriting Agreement, dated as of [                    ], 2013 (the “Underwriting Agreement”), among the Company and the several underwriters listed on Schedule A to the Underwriting Agreement, for whom you are acting as Representatives (the “Underwriters”), in connection with the sale to the Underwriters by the Company of [                ] shares of Common Stock (the “Shares”).

 

As counsel to the Company, we reviewed the Registration Statement, the Prospectus and the Pricing Disclosure Package, and participated in discussions with your representatives, those of counsel for the several Underwriters, and those of the Company and its independent public accountants, at which the contents of the Registration Statement, the Prospectus and the Pricing Disclosure Package were discussed.

 

A-5



 

Between the Applicable Time and the time of the delivery of this letter, we participated in further discussions with your representatives, those of counsel for the Underwriters, and those of the Company and its independent public accountants, and we reviewed certain certificates of officers of the Company and public officials and letters from the Company’s independent public accountants delivered to you today.

 

The purpose of our engagement was not to establish or to confirm factual matters set forth in the Registration Statement, the Prospectus and the Pricing Disclosure Package, and we have not undertaken any obligation to verify independently any of the factual matters set forth in the Registration Statement, the Prospectus and the Pricing Disclosure Package.  Moreover, many of the determinations required to be made in the preparation of the Registration Statement, the Prospectus and the Pricing Disclosure Package involve matters of a non-legal nature.

 

Subject to the foregoing, we confirm to you that, on the basis of the information that we gained in the course of performing the services referred to above, nothing came to our attention that caused us to believe that: (a) the Registration Statement, as of its effective date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (b) the Pricing Disclosure Package, at the Applicable Time, contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein in light of the circumstances under which they were made, not misleading, or (c) the Prospectus, as of its date and as of the date and time of delivery of this letter, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however , that we do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus, and we do not express any belief as to the financial statements and related notes or financial statement schedules, or other financial, statistical or accounting data or information contained in or omitted from the Registration Statement, the Pricing Disclosure Package or the Prospectus.  In the first sentence of this paragraph, “attention” refers to the conscious awareness of each of the lawyers in our firm who actively participated in the preparation of the Registration Statement, the Pricing Disclosure Package and the Prospectus; and “believe” refers to the actual, subjective, good faith belief of each of those lawyers.  In addition, we express no opinion or belief as to the conveyance of the Pricing Disclosure Package or the information contained therein to investors.

 

We inform you that the Registration Statement became effective under the Securities Act on [              ], 2013 and, based solely on our review of the Commission’s “Stop Orders” web page (http://sec.gov/litigation/stoporders.shtml), that no stop order suspending the effectiveness of the Registration Statement has been issued under the Securities Act.

 

We are not representing the Company in any pending litigation in which it is a named defendant that challenges the validity or enforceability of, or seeks to enjoin the performance of, the Underwriting Agreement.

 

Further, we confirm to you that the Registration Statement, as of its effective date, and the Prospectus, as of its date, appeared to us on their face to respond in all material respects to the requirements of the form on which the Registration Statement was filed, except that the foregoing statement does not address any requirement relating to financial statements or related notes or financial statement schedules, or other financial or accounting data or information contained in or omitted from the Registration Statement or Prospectus.

 

A-6



 

This letter is being furnished by us solely for the benefit of the several Underwriters as underwriters in connection with the sale to you of the Shares pursuant to the Underwriting Agreement, and it may not be relied on for any other purpose by you or anyone else.

 

 

 

Very truly yours,

 

 

 

 

 

GOODWIN PROCTER LLP

 

A-7


 

Appendix A

 

[None.]

 

A-8



 

Appendix B

 

Issuer :  Control4 Corporation (NASDAQ: CTRL) (the “Company”)

 

Shares Offered by the Company :

 

Shares Offered by the Company included in Underwriters’ Option to Purchase Additional Shares :

 

Price to Public :

 

Underwriting Discount :

 

Proceeds to the Company before expenses and before exercise of Underwriters’ Option to Purchase Additional Shares :

 

Trade Date :

 

Settlement Date :

 

A-9



 

Exhibit B

 

                                      , 2013

 

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

Raymond James & Associates, Inc.

as Representatives of the several
Underwriters to be named in the
within-mentioned Underwriting Agreement

 

c/o

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

One Bryant Park
New York, New York 10036

 

c/o

Raymond James & Associates, Inc.

One Embarcadero Center, Suite 650

San Francisco, CA 94111

 

Re:          Proposed Public Offering by Control4 Corporation

 

Dear Sirs:

 

The undersigned, a stockholder  of Control4 Corporation (the “Company”), understands that Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) and Raymond James & Associates, Inc. (“Raymond James”) propose to enter into an Underwriting Agreement (the “Underwriting Agreement”) with the Company and the Selling Stockholders providing for the public offering of shares (the “Securities”) of the Company’s common stock, par value $0.0001 per share (the “Common Stock”).  In recognition of the benefit that such an offering will confer upon the undersigned as a stockholder of the Company, 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 Underwriting Agreement that, during the period beginning on the date hereof and ending on the date that is 180 days from the date of the Underwriting Agreement (the “Lock-Up Period”), the undersigned will not, without the prior written consent of Merrill Lynch and Raymond James, 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 Company’s Common Stock or any securities convertible into or 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 (collectively, the “Lock-Up Securities”), or exercise any right with respect to the registration of any of the Lock-Up Securities, or file or cause to be filed any registration statement in connection therewith, under the Securities Act of 1933, as amended (the “Securities Act”), 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 Lock-Up Securities, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise. If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed Securities the undersigned may purchase in the offering.

 

B-1



 

If the undersigned is an officer or director of the Company, (1) Merrill Lynch and Raymond James agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of the Common Stock, Merrill Lynch and Raymond James will notify the Company of the impending release or waiver, and (2) the Company will agree in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver.  Any release or waiver granted by Merrill Lynch and Raymond James hereunder to any such officer or director shall only be effective two business days after the publication date of such press release.  The provisions of this paragraph will not apply if (i) the release or waiver is effected solely to permit a transfer not for consideration and (ii) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.

 

Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer the Lock-Up Securities during the Lock-Up Period without the prior written consent of Merrill Lynch and Raymond James, provided that (1) Merrill Lynch and Raymond James receive a signed lock-up agreement for the balance of the Lock-Up Period from each donee, trustee, distributee, or transferee, as the case may be, (2) any such transfer shall not involve a disposition for value, (3) in the case of clauses (i) — (iv), such transfers are not required during the Lock-Up Period to be reported with the Securities and Exchange Commission (“SEC”) on Form 4 in accordance with Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (4) the undersigned does not otherwise voluntarily effect any public filing or report regarding such transfers during the Lock-Up Period:

 

(i)                                      as a bona fide gift or gifts; or

 

(ii)                                   to any immediate family member of the undersigned or any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned (for purposes of this lock-up agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin); or

 

(iii)                                as a distribution to limited partners, stockholders, members or other equity holders of the undersigned;

 

(iv)                               to the undersigned’s affiliates or to any investment fund or other entity controlled or managed by, or under common control or managed by, the undersigned;

 

(v)                                  by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement; or

 

(vi)                               by will or intestate succession upon the death of the undersigned.

 

Furthermore, during the Lock-Up Period, the undersigned may (a) sell shares of Common Stock purchased by the undersigned on the open market following the offering if and only if (i) such sales are not required during the Lock-Up Period to be reported in any public report or filing with the Securities Exchange Commission, or otherwise and (ii) the undersigned does not otherwise voluntarily effect any public filing or report regarding such sales during the Lock-Up Period, (b) exercise any rights to purchase (including by means of a cashless exercise), exchange or convert any stock options granted pursuant to the Company’s equity incentive plans or warrants or any other such securities convertible into or exchangeable or exercisable for Common Stock, so long as the shares of Common Stock received upon such exercise, exchange or conversion shall remain subject to the terms of this lock-up agreement; and (c) sell Lock-Up Securities in connection with a merger or sale of the Company or its assets regardless of how such a transaction is structured (it being further understood that this lock-up agreement shall not

 

B-2



 

restrict the undersigned from entering into any agreement or arrangement in connection therewith, including an agreement to vote in favor of any such transaction or take any other action in connection with any such transaction).

 

Notwithstanding anything herein to the contrary, nothing herein shall prevent the undersigned from establishing a 10b5-1 trading plan that complies with Rule 10b5-1 under the Exchange Act (“10b5-1 trading plan”) or from amending an existing 10b5-1 trading plan so long as there are no sales of Lock-Up Securities under such plans during the Lock-Up Period; and provided that, the establishment of a 10b-5 trading plan or the amendment of a 10b5-1 trading plan shall only be permitted if (i) the establishment or amendment of such plan is not required to be reported in any public report or filing with the Securities Exchange Commission, or otherwise and (ii) the undersigned does not otherwise voluntarily effect any public filing or report regarding the establishment or amendment of such plan.

 

Notwithstanding anything herein to the contrary, nothing herein shall prevent the undersigned from selling shares of Common Stock to the underwriters pursuant to the Underwriting Agreement.

 

The undersigned agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the Lock-Up Securities except in compliance with the foregoing restrictions.

 

This lock-up agreement shall automatically terminate, and the undersigned shall be released from its obligations hereunder, upon the earliest to occur, if any, of (i) the Company advises Merrill Lynch and Raymond James in writing, that it has determined not to proceed with the offering, (ii) the Company files an application to withdraw the registration statement related to the offering, (iii) the Underwriting Agreement is executed but is terminated prior to the closing of the offering (other than the provisions thereof which survive termination) prior to payment for and delivery of the shares of Common Stock to be sold thereunder, or (iv) December 31, 2013, in the event that the Underwriting Agreement has not been executed by such date.

 

[signature page follows]

 

B-3



 

 

Very truly yours,

 

 

 

 

 

Signature:

 

 

 

 

 

Print Name:

 

 

B-4



 

Exhibit C

 

FORM OF PRESS RELEASE

TO BE ISSUED PURSUANT TO SECTION 3(j)

 

Control4 Corporation
[Date]

 

Control4 Corporation (the “Company”) announced today that BofA Merrill Lynch and Raymond James, the lead book-running managers in the Company’s recent public sale of [                  ] shares of common stock, are [waiving] [releasing] a lock-up restriction with respect to                shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the Company.  The [waiver] [release] will take effect on      ,              20     , and the shares may be sold on or after such date.

 

This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.

 

C-1




Exhibit 3.1

 

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

CONTROL4 CORPORATION,

a Delaware Corporation

 

The undersigned docs hereby certify on behalf of Control4 Corporation (the “ Corporation ”), a corporation organized and existing under the Delaware General Corporation Law, at follows:

 

FIRST:  That the undersigned is the duly elected and acting Chief Executive Officer of the Corporation.

 

SECOND:  That the Certificate of Incorporation of the Corporation was originally; filed with the Secretary of State of the State or Delaware on March 27, 2003 under the name “Control4 Corporation.”

 

THIRD:  That pursuant to Sections 242 and 245 of the General Corporation Law, of the State of Delaware, the Certificate of Incorporation of the Corporation, as amended to the date of the filing of this certificate, is hereby amended and restated in its entirety as set forth in Exhibit A hereto.

 

FOURTH:  That the Amended and Restated Certificate of Incorporation of this Corporation as set forth in Exhibit A hereto has been duly adopted and approval by the Board of Directors and stockholders of this Corporation in accordance with the applicable provisions of Sections 141, 228, 242 and 245 of the Delaware General Corporation law.

 

The undersigned hereby further declares and certifies under penalty of perjury that the facts set forth in the foregoing certificate ore true and correct to the knowledge of the undersigned, and that this certificate is the act and deed of the undersigned.

 

Executed in Draper, Utah on this 20th day of January, 2011.

 

 

By:

/s/ William B. West

 

 

William B. West

 

 

Chief Executive Officer

 



 

EXHIBIT A

 

ARTICLE I

 

The name of this corporation is Control4 Corporation (the “ Corporation ”).

 

ARTICLE II

 

The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, 19808.  The name of its registered agent at that address is Corporation Service Company.

 

ARTICLE III

 

The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law.

 

ARTICLE IV

 

(A)                                Classes of Capital Stock

 

This Corporation is authorized to issue 201,000,000 shares of capital stock in the aggregate.  The capital stock of this Corporation shall be divided into two classes, designated “ Common Stock ” and “ Preferred Stock .”  The number of shares of Common Stock the Corporation is authorized to issue is 117,836,592.  The number of shares of Preferred Stock the Corporation is authorized to issue is 83,163,408, 8,150,000 of which shall be designated as Series A Preferred Stock (“ Series A Preferred ”), 18,124,230 of which shall be designated Series B Preferred Stock (“ Series B Preferred ”), 14,215,791 of which shall be designated Series C Preferred Stock (“ Series C Preferred ), 7,789,215 of which shall be designated Series D Preferred Stock (“ Series D Preferred ”), 5,045,662 of which shall be designated Series E Preferred Stock (“ Series E Preferred ”), 5,988,024 of which shall be designated Series F Preferred Stock (“ Series F Preferred ”), 8,677,338 of which shall be designated Series G Preferred Stock (“ Series G Preferred ”), 2,073,148 of which shall be designated Series G-l Preferred Stock (“ Series G-l Preferred ”), and 13,100,000 of which shall be designated Series H Preferred Stock (“ Series H Preferred ”).  The Common Stock and Preferred Stock shall each have a par value of $0.0001 per share.  The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of the Preferred Stock.  Subject to Section 5 of Division (B) below, the number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding or reserved for the exercise of options or warrants or conversion of the Preferred Stock) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon, voting as a single class (and not as a separate individual class of solely holders of Common Stock, excluding those holders of equity securities who may be entitled to vote thereon as provided in this Certificate of Incorporation), as provided by Section 242(b)(2) of the Delaware General Corporation Law.

 



 

(B)                                Rights, Preferences, Privileges and Restrictions of Preferred Stock

 

The relative rights, preferences, privileges and restrictions granted to or imposed upon the respective series of Preferred Stock or the holders thereof are as follows:

 

1.                                       Dividends .

 

(a)                                  The holders of Preferred Stock shall be entitled to receive dividends at the rate of $0.04, $0.06504, $0.08464, $0.1632, $0.1752, $0.2672, $0.1424, $0.1424 and $0.1527 per share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred, Series G Preferred, Series G -l Preferred and Series H Preferred, respectively (as adjusted for any stock dividends, combinations, stock splits, reclassifications and the like with respect to such shares) per annum, payable out of funds legally available therefor and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, Additional Shares of Common Stock of the Corporation, provided that an adjustment to the respective Conversion Price (as defined below) of such other securities or rights has been made in accordance with Section 3(d)(ii) below).  Such dividends shall be payable when, as, and if declared by the Board of Directors, acting in its sole discretion.  The right to receive dividends shall not be cumulative, and no right shall accrue to holders of any shares by reason of the fact that dividends on such shares are not declared and paid in any prior year.  No dividend shall be paid or declared and set aside in any period with respect to the Common Stock unless and until dividends have been paid or declared and set aside for payment in such year with respect to every outstanding series of Preferred Stock in an amount for each such series of Preferred Stock equal to the annual dividend rates stated above.

 

(b)                                  After payment of dividends at the annual rates set forth above, any additional dividends declared shall be distributed among all holders of Preferred Stock and Common Stock in proportion to the number of shares of Common Stock that would be held by each such holder if all shares of Preferred Stock were converted into Common Stock pursuant to Section 3 hereof.

 

(c)                                   If at the time any shares of Preferred Stock are converted into Common Stock there are any accrued but unpaid dividends on such shares, then the Corporation at its option shall either pay the unpaid dividends or issue additional shares of Common Stock in the amount of the unpaid dividends at the applicable fair market value for such shares then in effect.

 

2.                                       Liquidation .  In the event of any liquidation, dissolution or winding up of the Corporation (including without limitation any “Deemed Liquidation” as defined below), either voluntary or involuntary, distributions to stockholders of the Corporation shall be made in the following manner:

 

(a)                                  The holders of the Series H Preferred and the Series G-l Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Series G Preferred, the Series F Preferred, the Series B Preferred, the Series D Preferred, the Series C Preferred, the Series B Preferred, the

 

2



 

Series A Preferred or Common Stock, the amount of $1.9091 per share of Series H Preferred and $1.7805 per share of Series G-l Preferred, respectively (as adjusted for any stock dividends, combinations, stock splits, reclassification or the like with respect to such shares), plus all accrued or declared but unpaid dividends on such shares.  If the assets and funds available for distribution to the holders of the Series H Preferred and the Series G-1 Preferred shall be insufficient to pay the stated preferential amounts in full, then the entire assets and funds of the Corporation legally available for distribution shall be distributed to the holders of the Series H Preferred and Series G-l Preferred in proportion to the preferential amount each such holder is otherwise entitled to receive.

 

(b)                                  After payment in full of the amount due the holders of Series H Preferred and Series G-l Preferred under Article IV, Section B(2)(a) above, the holders of the Series F Preferred and Series G Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Series E Preferred, Series D Preferred, the Series C Preferred, the Series B Preferred, Series A Preferred or Common Stock, the amount of $3.34 per share of Series F Preferred and $1.7805 per share of Series G Preferred, respectively (as adjusted for any stock dividends, combinations, stock splits, reclassification and the like with respect to such shares), phis all accrued or declared but unpaid dividends on such shares.  If the assets and funds available for distribution to the holders of the Series F Preferred and Series G Preferred shall be insufficient to pay the stated preferential amounts in full, then the entire assets and funds of the Corporation legally available for distribution to the holders of the Series F Preferred and Series G Preferred shall be distributed to the holders of the Series F Preferred and the Series G Preferred in proportion to the preferential amount each such holder is otherwise entitled to receive.

 

(c)                                   After payment in full of the amount due the holders of Series F Preferred and Series G Preferred under Article IV, Section B(2)(b) above, the holders of the Series E Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Series D Preferred, the Series C Preferred, the Series B Preferred, Series A Preferred or Common Stock, the amount of $2.19 per share of Series E Preferred (as adjusted for any stock dividends, combinations, stock splits, reclassification and the like with respect to such shares), plus all accrued or declared but unpaid dividends on such shares.  If the assets and funds available for distribution to the holders of the Series E Preferred shall be insufficient to pay the stated preferential amounts in full, then the entire assets and funds of the Corporation legally available for distribution to the holders of the Series E Preferred shall be distributed to the holders of the Series E Preferred in proportion to the preferential amount each such holder is otherwise entitled to receive.

 

(d)                                  After payment in full of the amount due the holders of Series E Preferred under Article IV, Section B(2)(c) above, the holders of the Series D Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Series C Preferred, the Series B Preferred, Series A Preferred or Common Stock, the amount of $2.04 per share of Series D Preferred (as adjusted for any stock dividends, combinations, stock splits, reclassification and the like with respect to such shares), plus all accrued or declared but unpaid dividends on such shares.  If the assets and funds available for distribution to the holders of the Series D Preferred shall be insufficient to pay the stated preferential amounts in full, then the entire assets and funds of the Corporation legally

 

3



 

available for distribution to the holders of the Series D Preferred shall be distributed to the holders of the Series D Preferred in proportion to the preferential amount each such holder is otherwise entitled to receive.

 

(e)                                   After payment in full of the amount due the holders of Series D Preferred under Article IV, Section B(2)(d) above, the holders of the Series C Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Series B Preferred, Series A Preferred or Common Stock, the amount of $1.058 per share of Series C Preferred (as adjusted for any stock dividends, combinations, stock splits, reclassification and the like with respect to such shares), plus all accrued or declared but unpaid dividends on such shares.  If the assets and funds available for distribution to the holders of the Series C Preferred shall be insufficient to pay the stated preferential amounts in full, then the entire assets and funds of the Corporation legally available for distribution to the holders of the Series C Preferred shall be distributed to the holders of the Series C Preferred in proportion to the preferential amount each such holder is otherwise entitled to receive.

 

(f)                                    After payment in full of the amount due the holders of Series C Preferred under Article IV, Section B(2)(e) above, the holders of the Series A Preferred, and Series B Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock, the amount of $0.50 and $0.813 per share of Series A Preferred and Series B Preferred, respectively (as adjusted for any stock dividends, combinations, stock splits, reclassification and the like with respect to such shares), plus all accrued or declared but unpaid dividends on such shares.  If the assets and funds available for distribution to the holders of the Series A Preferred and the Series B Preferred shall be insufficient to pay the stated preferential amounts in full, then the entire assets and funds of the Corporation legally available for distribution to the holders of the Series A Preferred and Series B Preferred shall be distributed to the holders of the Series A Preferred and the Series B Preferred in proportion to the preferential amount each such holder is otherwise entitled to receive.

 

(g)                                   After payment in full of the amount due the holders of Series A Preferred and Series B Preferred under Article IV, Section B(2)(f) above, all remaining assets of the Corporation legally available for distribution shall be distributed ratably among the holders of the Common Stock.

 

(h)                                  Notwithstanding anything in this Section 2 to the contrary, if a holder of Preferred Stock would receive a greater liquidation amount than such holder is entitled to receive pursuant to Section 2(a), Section 2(b), Section 2(c), Section 2(d), Section 2(e), and Section 2(f) hereof by converting shares of Preferred Stock held by such holder into shares of Common Stock, then such holder shall not receive any amounts pursuant to Section 2(a), Section 2(b), Section 2(c), Section 2(d), Section 2(e), and Section 2(f) but shall be treated for purposes of this Section 2 as though such holder had converted into shares of Common Stock, whether or not such holder elects to so convert.

 

(i)                                      For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to include (i) the Corporation’s sale of all or substantially

 

4



 

all of its assets or property; (ii) the Corporation’s exclusive license of all or substantially all of its intellectual property; and (iii) the acquisition of the Corporation by another entity (other than a reincorporation for the sole purpose of changing the Corporation’s domicile) by means of merger or consolidation (a “ Merger Transaction ”) in which the Corporation is a constituent party and pursuant to which the stockholders of the Corporation immediately prior to such transaction hold less than fifty percent (50%) of the voting power of the surviving or resulting corporation, provided that any holdings of the acquiring entity held by a stockholder of the Corporation shall not be aggregated with such stockholder’s holdings of the surviving or resulting entity as a result of such stockholder’s holdings in the Corporation for purposes of calculating such voting power (any such event, a “ Deemed Liquidation ”).   Notwithstanding the foregoing, the holders of a majority of the then outstanding Preferred Stock, voting together as a single class, may waive the classification of any transaction, as a liquidation, dissolution or winding up of the Corporation, including any Deemed Liquidation, and thereby waive the effects of this Section 2 with respect to such transaction; provided, however, that the holders of a majority of the then outstanding Series G-1 Preferred, voting together as a separate class, may elect to have the Series G-l Preferred redeemed at the Series G-l Original Issue Price (as defined below) prior to the consummation of any such transaction and the Corporation shall so redeem all Series G-l Preferred in one installment prior to or concurrently with the consummation of any such transaction; provided, further, that the holders of a sixty-six and two-thirds percent (66- 2 / 3 %) of the then outstanding Series H Preferred, voting together as a separate class, may elect to have the Series H Preferred redeemed at the Series H Original Issue Price (as defined below) prior to the consummation of any such transaction and the Corporation shall so redeem all Series H Preferred in one installment prior to or concurrently with the consummation of any such transaction.  For the sake of clarification, an equity financing transaction in which the Corporation is the surviving entity or a merger effected for the purpose of changing the Corporation’s legal domicile shall not be considered a Deemed Liquidation hereunder.

 

(j)                                     The Corporation shall not have the power to effect a Merger Transaction unless the agreement or plan of merger or consolidation for such transaction provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in a manner consistent with this Section 2.

 

(k)                                  The value of any securities to be delivered to the stockholders pursuant to this Section 2 shall be determined as follows:

 

(i)                                      If listed on a national securities exchange or the or the NASDAQ Stock Market, the value shall be based on the formula specified in the definitive agreements for the Deemed Liquidation or if no such formula exists, then the value of such securities shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty day period ending three days prior to the closing;

 

(ii)                                   If actively traded over the counter, the value shall be based on the formula specified in the definitive agreements for the Deemed Liquidation or if no such formula exists, then the value of such securities shall be deemed to be the average of the closing bid prices over the thirty day period ending three days prior to the closing; and

 

5



 

(iii)                                If there is no active public market, the value shall be the fair market value thereof as determined in good faith by the Corporation’s Board of Directors, including the approval of at least a majority of the Corporation’s authorized Directors.

 

(l)                                      Notwithstanding Section 1 above and this Section 2, upon the approval of the Board of Directors, the Corporation may at any time, out of funds legally available for such purpose, repurchase shares of Common Stock issued to or held by officers, directors, employees or other service providers upon termination of their employment or services pursuant to agreements providing the Corporation such a right of repurchase at a price per share no greater than cost, whether or not all declared or accrued dividends have been paid or set aside for payment and whether or not all Preferred Stock required to be redeemed by the Corporation has been redeemed or funds set aside for such purpose.

 

2.5                                Redemption .

 

(m)                              Upon the election in writing by the holders of a majority of the outstanding shares of Preferred Stock (the “ Redemption Election ”) at any time on or after the date that is 40 days before January 21, 2016, the Corporation shall redeem the then outstanding Preferred Stock in three equal annual installments (each a “ Redemption Date ”), from any funds legally available for such purpose beginning on the date that is 40 days after the date of the Redemption Election (the “ Original Redemption Date ”).   The redemption of the Preferred Stock shall occur in three annual installments, with the first such installment occurring on the Original Redemption Date, the second on the first anniversary thereof, and the third on the second anniversary thereof (each such date hereinafter referred to as a “ Redemption Date ”).   Any redemption effected pursuant to this Section 2.5 shall be made on a pro rate basis among the holders of the Preferred Stock based upon the total Redemption Price (as defined below) applicable to each holder’s shares of Preferred Stock.  The number of shares to be redeemed from each holder of Preferred Stock on each Redemption Date shall equal the total number of shares of Preferred Stock held by such holder on the date of the Redemption Notice (as defined below), divided by the number of Redemption Dates remaining as of the date of the Redemption Notice, minus the number of shares of Preferred Stock that such holder converts into Common Stock after the date of the Redemption Notice and prior to such Redemption Date.  The Corporation shall effect redemption on the applicable Redemption Dates by paying cash in an aggregate amount equal to $0.50, $0.813, $1.058, $2.04, $2.19, $3.34, $1.7805, $1.7805 and $1.9091 per share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred, Series G Preferred, Series G-l Preferred and Series H Preferred, respectively (as adjusted for any stock dividends, combinations, stock splits, reclassification or the like with respect to such shares) plus all accrued or declared but unpaid dividends on such shares (the “ Redemption Prices ”).

 

(n)                                  If the funds of the Corporation legally available for redemption of shares of Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Preferred Stock to be redeemed on such date, those funds that are legally available (the “ Legally Available Funds ”) will be used to redeem the maximum number of such shares from the holders of Preferred Stock ratably in proportion to the aggregate Redemption Price that would be payable to each holder if all shares required to be redeemed were being redeemed (such number, the “ Legally Redeemable Shares ”).   The shares of Preferred Stock not redeemed shall

 

6



 

remain outstanding and entitled to all the rights and preferences provided herein, including the rights of conversion set forth herein.  If any time thereafter additional funds become legally available for the redemption, such Legally Available Funds will immediately be used to redeem the balance of the shares which the Corporation has become obliged to redeem on any Redemption Date but which it has not redeemed.

 

(o)                                  At least 30 days but no more than 40 days prior to each Redemption Date, the Corporation shall mail a redemption notice (the “ Redemption Notice ”), first class postage prepaid, to each holder of record of Preferred Stock as of the close of business two business days preceding the mailing date, at the address last shown on the records of the Corporation for such holder.  The Redemption Notice shall specify the number of shares to be redeemed from such holder, the applicable Redemption Date, the Remaining Redemption Dates, the Redemption Price and the place at which payment may be obtained, and shall call upon such holder to surrender to the Corporation, in the manner and at the place designated, the certificate or certificates representing the shares to be redeemed.  Except as provided in Section 2.5(b), on or after the Redemption Date, each holder of Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such shares (or a reasonably acceptable affidavit and indemnity undertaking in the case of a lost, stolen or destroyed certificate), in the manner and at the place designated in the Redemption Notice.  Each surrendered certificate shall be cancelled, and the Redemption Price for such shares shall then be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof.  If less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares.  As soon as practicable after receipt of the surrendered certificate or certificates (and in no event more than 20 days following the applicable Redemption Date) the Corporation shall issue and deliver to or upon the written order of such holder, at such office or other place designated by the holder, a check for cash with respect to the shares so redeemed and, if applicable, the new certificate representing the unredeemed shares.  Nothing herein shall be deemed to prevent a holder of Preferred Stock from converting all or part of such holder’s shares into Common Stock in accordance with the terms of Section 3 hereof at any time prior to a Redemption Date covering such shares, and the provisions of this Section 2.5 shall not apply to any shares so converted.

 

(p)                                  From and after the Redemption Date, unless there has been a default in payment of the Redemption Price, the shares of Preferred Stock designated for redemption (other man as set out in the last sentence of 2.5(c)) in the Redemption Notice shall cease to be outstanding and shall no longer be transferred on the books of the Corporation, and all rights of the holders with respect to such shares shall cease, except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates.

 

(q)                                  On or prior to each Redemption Date, the Corporation shall deposit, to the extent that the Corporation has Legally Available Funds, the aggregate Redemption Price of all shares of Preferred Stock designated for redemption on such Redemption Date which shares are not yet redeemed or converted and are Legally Redeemable Shares, with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust corporation to publish the notice of redemption thereof and pay the Redemption Price for such

 

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shares to their respective holders on or after the applicable Redemption Date, upon receipt of notification from the Corporation that such holder has surrendered such holder’s share certificate (or a reasonably acceptable affidavit and indemnity undertaking in the case of a lost, stolen or destroyed certificate) to the Corporation pursuant to Section 2.5(c) above.  As of the date of such deposit (even if prior to a Redemption Date), the deposit shall constitute full payment of the Legally Redeemable Shares to their holders, and from and after the date of the deposit the Legally Redeemable Shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except the rights to receive from the bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefor, and the right to convert such shares as provided herein.  Such instructions shall also provide that any monies deposited by the Corporation pursuant to this Section 2.5(e) for the redemption of shares thereafter converted into shares of the Corporation’s Common Stock prior to the Redemption Date shall be returned to the Corporation forthwith upon such conversion.

 

3.                                       Conversion .

 

(a)                                  Right to Convert .  Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (x) the Original Issue Price for that series of Preferred Stock by (y) the then effective Conversion Price for that series of Preferred Stock (such result, the “ Conversion Rate ”).  The “ Original Issue Price for each Series of Preferred Stock shall be as follows:  the Series A Original Issue Price shall be $0.50; the Series B Original Issue Price shall be $0.813; the Series C Original Issue Price shall be $1.058; the Series D Original Issue Price shall be $2.04; the Series E Original Issue Price shall be $2.19; the Series F Original Issue Price shall be $3.34; the Series G Original Issue Price shall be $1.7805; the Series G-l Original Issue Price shall be $1.7805; and the Series H Original Issue Price shall be $1.9091.  The “ Conversion Price for each Series of Preferred Stock shall be as follows:  the initial Series A Conversion Price shall be $0.50; the initial Series B Conversion Price shall be $0.813; the initial Series C Conversion Price shall be $1.058; the initial Series D Conversion Price shall be $2.04; the initial Series E Conversion Price shall be $2.19; the initial Series F Conversion Price shall be $3.34; the initial Series G Conversion Price shall be $1.7805; the initial Series G-l Conversion Price shall be $1.7805; and the initial Series H Conversion Price shall be $1.9091.  The Conversion Prices are subject to adjustment as provided in this Section 3.

 

(b)                                  Automatic Conversion .  Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Rate for such series (i) on the date specified with the approval, by affirmative vote, written consent, or agreement, of the holders of a majority of the outstanding Preferred Stock voting together as a single class, provided, however, that, in the event any such conversion is effected in connection with a Deemed Liquidation, the holders of the then outstanding Series G-l Preferred and Series H Preferred will be entitled to the greater of (A) the amount of proceeds actually received by such holders upon consummation of the Deemed Liquidation and (B) the amount of proceeds such holders would have received but for the conversion of the Preferred Stock (with such proceeds

 

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payable in accordance with the provisions of Sections 2(a) above), or (ii) upon the closing of the initial public offering of Common Stock for the account of the Corporation to the public at a pre-money valuation of the Corporation of at least $225,000,000 and with proceeds to the Corporation of not less than $35,000,000 (net of underwriter commissions and offering expenses).  A public offering in which all of the Preferred Stock is automatically converted into Common Stock pursuant to this Section 3(b) shall be a “ Qualified IPO” .

 

(c)                                   Mechanics of Conversion .  No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock.  In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price for such series of Preferred Stock.  Conversion of Preferred Stock at the option of the holder thereof shall be effected by delivery, to the office of the Corporation or to any transfer agent for such shares, of duly endorsed certificates for the shares being converted (or a reasonably acceptable affidavit and indemnity undertaking in the case of a lost, stolen or destroyed certificate) and of written notice to the Corporation that the holder elects to convert such shares.  Conversion shall be deemed to occur immediately prior to the close of business on the date (i) the shares and notice are delivered or (ii) as specified in Section 3(b)(i) above.  Automatic conversion of the Preferred Stock pursuant to this section shall be effective without any further action on the part of the holders of such shares and shall be effective whether or not the certificates for such shares are surrendered to the Corporation or its transfer agent.  Holders entitled to receive Common Stock upon conversion of Preferred Stock shall be treated for all purposes as the record holders of such shares of Common Stock on the date conversion is deemed to occur.  The Corporation shall not be obligated to issue certificates evidencing shares of Common Stock issuable upon conversion of Preferred Stock unless either (i) the certificates evidencing such shares being converted are delivered to the Corporation or its transfer agent as provided above, or (ii) the holder (A) notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and (B) executes an agreement, and at the Corporation’s election provides a surety bond or other security, reasonably satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates.  The Corporation shall, as soon as practicable after the delivery of such certificates, or the agreement to indemnify in the case of a lost certificate, issue and deliver at such office to the holder of the shares of Preferred Stock being converted, a certificate or certificates for the number of shares of Common Stock to which the holder is entitled and a check payable to the holder for any cash due with respect to fractional shares.

 

(d)                                  Adjustments of Conversion Price for Certain Diluting Issuances Splits and Combinations .  The applicable Conversion Price for each series of Preferred Stock shall be subject to adjustment from time to time as follows:

 

(i)                                      Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock below the Conversion Price .  If the Corporation issues Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 3(d)(i)(D)) without consideration or for a consideration per share less than the Conversion Price for any series of Preferred Stock in effect immediately prior to such issue, then and in such event, such Conversion Price for such series shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) as set forth herein, unless otherwise provided in this Section 3.

 

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(A)                                Adjustment Formula .  Whenever the Conversion Price for a given series of Preferred Stock is adjusted pursuant to this Section 3(d)(i), the new Conversion Price for such series shall be determined by multiplying the Conversion Price by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (the “ Common Stock Outstanding ”) plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Conversion Price in effect immediately prior to such issue, and (y) the denominator of which shall be the number of shares of Common Stock Outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued.  For the purpose of this paragraph, the number of shares of Common Stock Outstanding shall be deemed to include the Common Stock issuable upon conversion of all outstanding Preferred Stock, upon conversion of all other outstanding Convertible Securities and upon exercise of all outstanding Options (and assuming conversion of Convertible Securities issuable upon exercise of Options).

 

(B)                                Special Definitions .  For purposes of this Section 3, the following definitions shall apply:

 

(1)                                  Options shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

 

(2)                                  Original Issue Date shall mean the date on which the first share of Series H Preferred was issued.

 

(3)                                  Convertible Securities shall mean instruments of indebtedness or securities convertible into or exchangeable for Common Stock, including without limitation Preferred Stock.

 

(4)                                  Additional Shares of Common Stock for any series of Preferred Stock shall mean all shares of Common Stock issued (or, pursuant to Section 3(d)(i)(D), deemed to be issued) by the Corporation after the Original Issue Date, other than as follows:

 

(I)                                    upon conversion of shares of Preferred Stock;

 

(II)                               capital stock or Options issued to officers, directors, employees of and service providers to the Corporation pursuant to plans and arrangements approved by the Board of Directors;

 

(III)                          as a dividend or other distribution on the Preferred Stock or any other event for which adjustment is made pursuant to Section 3(d)(ii), (e), (f) or (g);

 

(IV)                           upon the exercise or conversion of outstanding Options as of the date of this Restated Certificate;

 

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(V)                                capital stock or Options issued to financial institutions or lessors in connection with bona fide commercial credit arrangements, equipment financings, real property leases, or similar transactions, the terms of which have been approved by the Board of Directors of the Corporation, provided that such issuances are for other than primarily equity financing purposes;

 

(VI)                           capital stock or Options issued to strategic partners in connection with strategic collaborations, development agreements or licensing transactions, the terms of which have been approved by the Board of Directors of the Corporation, provided mat such issuances are for other than primarily equity financing purposes;

 

(VII)                      capital stock or Options issued in connection with bona fide acquisitions, mergers or similar transactions, the terms of which are approved by the Board of Directors of the Corporation, provided that such issuances are for other than primarily equity financing purposes;

 

(VIII)                 shares of capital stock issued or issuable in a Qualified IPO;

 

(IX)                           capital stock or Options issued with the approval of holders of a majority of the Preferred Stock then outstanding, voting as a single class, such approval to provide specifically mat such issuance is pursuant to this Subsection (IX); or

 

(X)                                by way of dividend or other distributions on securities referred to in subsections (I) through (IX) above.

 

(C)                                No Adjustment of Conversion Price .  No adjustment in the Conversion Price for a series of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Conversion Price in effect for such series immediately prior to such issue.

 

(D)                                Deemed Issue of Additional Shares of Common Stock .  If the Corporation at any time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of any holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options for Convertible Securities or for Preferred Stock, the conversion or exchange of such Convertible Securities or Preferred Stock, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued:

 

(1)                                  no further adjustment in the Conversion Price for any series of Preferred Stock shall be made upon the subsequent issue of Convertible

 

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Securities, or shares of Preferred Stock or Common Stock issued upon the exercise of such Options or conversion or exchange of such Convertible Securities or Preferred Stock;

 

(2)                                  if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price for each affected series of Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;

 

(3)                                  upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price for each affected series of Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:

 

(I)                                    in the case of Convertible Securities or Options for Common Stock, the only additional shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities, and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and

 

(II)                               in the case of Options for Convertible Securities or Preferred Stock, only the Convertible Securities or Preferred Stock, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised;

 

(4)                                  no readjustment pursuant to subsections (2) or (3) above shall have the effect of increasing the Conversion Price for any series of Preferred Stock to an amount which exceeds the lower of (x) the Conversion Price for such series of Preferred Stock, on the original adjustment date, or (y) the Conversion Price for such series of Preferred Stock that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date, and no readjustment shall affect Common Stock issued on conversion of Preferred Stock prior to such readjustment; and

 

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(5)                                  in the case of any Options which expire by their terms not more than 90 days after the date of issue thereof, no adjustment of the Conversion Price for any series of Preferred Stock shall be made until the expiration or exercise of all such Options.

 

(E)                                 Determination of Consideration .  For purposes of this Section 3(d), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

 

(1)                                  Cash and Property .  Such consideration shall:

 

(I)                                    insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation prior to amounts paid or payable for accrued interest or accrued dividends and prior to any commissions or expenses paid by the Corporation;

 

(II)                               insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors (irrespective of any accounting treatment); and

 

(III)                          if Additional Shares of Common Stock are issued together with other snares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received for the Additional Shares of Common Stock, computed as provided in subsections (I) and (II) above, as determined in good faith by the Board of Directors.

 

(2)                                  Options and Convertible Securities.  The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 3(d)(i)(D), relating to Options and Convertible Securities, shall be determined by dividing:

 

(I)                                    the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Option or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by,

 

(II)                               the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

 

(ii)                                   Adjustments for Stock Dividends .  Combinations or Splits.  If the outstanding shares of Common Stock are subdivided, by stock split or otherwise, into a

 

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greater number of shares of Common Stock, or if the Corporation shall declare or pay any dividend on the Common Stock payable in shares of Common Stock, then the Conversion Prices in effect prior to such event shall be proportionately decreased upon the occurrence of such event If the outstanding shares of Common Stock are combined or consolidated, by reclassification, reverse stock split or otherwise, into a lesser number of shares of Common Stock, men the Conversion Prices in effect prior to such event shall be proportionately increased upon the occurrence of such event.

 

(e)                                   Adjustments for Other Distributions.  If the Corporation fixes a record date for the determination of holders of Common Stock entitled to receive any distribution payable in securities of the Corporation other than shares of Common Stock (excluding any distribution in which the Preferred Stock participates on an as-converted basis, and any distribution for which adjustment is otherwise made pursuant to this Section 3), then in each such case provision shall be made so that the holders of Preferred Stock receive upon conversion, in addition to the Common Stock issuable upon conversion of their shares, the property or other securities of the Corporation which they would have received had their shares of Preferred Stock been converted into Common Stock immediately prior to such event and had they thereafter retained such securities, subject to all other adjustments called for during such period under this Section 3.

 

(f)                                    Adjustments for Reclassification, Exchange and Substitution .  If the Common Stock is changed into the same or a different number of shares of any other class or series of stock, whether by capital reorganization, reclassification or otherwise (other than a Deemed Liquidation or an event treated under Section 2 as a liquidation, dissolution or winding up, and events for which adjustment is made pursuant to Sections 3(d)(ii) or 3(e) above), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization, reclassification or change, be adjusted such that the Preferred Stock shall be convertible into, in lieu of the Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or series of stock equivalent to the number of shares of such other class or series, that such holders would have been entitled to receive in such reclassification, capital reorganization or change for the number of shares of Common Stock that the holders would have been entitled to receive upon conversion of their Preferred Stock immediately prior to such reclassification, capital reorganization or change.

 

(g)                                   Certificate as to Adjustments .  The Corporation shall promptly compute each Conversion Price adjustment and provide each holder of Preferred Stock a certificate describing such adjustment and showing in detail the facts upon which such adjustment is based.  If requested in writing by any holder of Preferred Stock, the Corporation shall provide such holder a certificate describing any Conversion Price adjustments, the current Conversion Price and the amount of Common Stock or other property issuable upon conversion of each series of Preferred Stock.

 

(h)                                  Notices of Record Date .  If the Corporation shall propose at any time:

 

(A)                                to declare any dividend or distribution upon its Common Stock other than a distribution payable solely in Common Stock;

 

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(B)                                to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights;

 

(C)                                to effect any reclassification or recapitalization of its Common Stock; or

 

(D)                                to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, to effect a Deemed Liquidation or to liquidate, dissolve or wind up;

 

then, in connection with each such event, the Corporation shall send to the holders of the Preferred Stock:

 

(1)                                  at least 20 days’ prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (C) and (D) above; and

 

(2)                                  in the case of the matters referred to in (C) and (D) above, at least 20 days’ prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event).

 

Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of Preferred Stock at the addresses for such stockholders as shown on the books of this Corporation.  Notwithstanding the other provisions of this Restated Certificate, all notice periods or requirements in this Restated Certificate may be shortened or waived, either before or after the action for which notice is required, upon the written consent of the holders of at least a majority of the Preferred Stock, voting together as a single class on an as-converted basis, that are entitled to such notice rights.

 

4.                                       Voting .

 

(a)                                  Except as expressly provided by tins Restated Certificate or as required by law, the holders of Preferred Stock shall have the same voting rights as the holders of the Common Stock and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation, and the holders of Common Stock and the Preferred Stock shall vote together as a single class on all matters.  Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held, and each holder of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Preferred Stock could then be converted.  Fractional votes shall not be permitted.  Any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

 

(b)                                  At each meeting of stockholders at which members of the Board of Directors are to be elected, or whenever members of the Board of Directors are to be elected by

 

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written consent of the stockholders, (i) the holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred, Series G Preferred, Series G-l Preferred and Series H Preferred, voting together as a separate class, shall be entitled to elect four (4) members of the Board of Directors, (each such member, a “ Preferred Director ”), (ii) the holders of the Common Stock, voting together as a separate class, shall be entitled to elect two (2) members of the Board of Directors (each such member, a “ Common Director ”), and (iii) the holders of Common Stock and Preferred Stock, voting together as a single class on an as-converted basis, shall be entitled to elect the remaining members of the Board of Directors (each such member, a “ Joint Director ”).

 

(c)                                   In the case of any vacancy in the office of a Preferred Director, the remaining Preferred Director or Preferred Directors (or, if there is no remaining Preferred Director, the holders of Preferred Stock voting together as a separate class, holding a majority of the then outstanding shares of Preferred Stock), shall elect a successor or successors to serve for the unexpired term of the Preferred Director whose office is vacant.  In the case of any vacancy in the office of a Common Director, the remaining Common Director or directors so elected by the holders of Common Stock (or, if there is no remaining Common Director, the holders of Common Stock voting together as a separate class, holding a majority of the then outstanding shares of Common Stock), shall elect a successor or successors to serve for the unexpired term of the Common Director whose office is vacant.  In the case of any vacancy in the office of a Joint Director, the Preferred Directors and Common Directors (or, if there is no remaining Preferred Director, the holders of Common Stock and of Preferred Stock, voting together as a single class on an as-converted to Common Stock basis, holding a majority of the then outstanding Common Stock and Preferred Stock, determined on an as-converted to Common Stock basis) shall elect a successor or successors to serve for the unexpired term of the Joint Director whose office is vacant Any director who was elected by a specified class or classes of stock or series thereof may be removed during his or her term of office, either for or without cause, by, and only by, the affirmative vote of a majority of the holders of the shares of the class or classes of stock or series thereof that initially elected such director.

 

5.                                       Protective Provisions .

 

(a)                                  This Corporation shall not, without the approval of the holders of a majority of the then outstanding Preferred Stock voting together as a separate class on an as-converted to Common Stock basis take any action (by amendment, merger, consolidation or otherwise) that:

 

(i)                                      authorizes or issues, or obligates the Corporation to sell or issue, any new class or series of securities having rights, preferences or privileges senior to or on a parity with any outstanding series of Preferred Stock whether as to liquidation preference, antidilution, redemption, conversion, voting, dividends or otherwise;

 

(ii)                                   amends or waives any provision of the Restated Certificate or the Bylaws of the Corporation, unless such amendment or waiver is approved by the Corporation’s Board of Directors;

 

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(iii)                                redeems or repurchases shares (excluding repurchases of Common Stock approved by the Board of Directors upon termination of an officer, employee, director or consultant pursuant to plans and arrangements previously approved by the Board of Directors at no greater than cost) or pursuant to Subsection 2(i) or Subsection 2.5, of Section (B) of this Article IV;

 

(iv)                               authorizes, obligates the Corporation to pay or results in the payment of any dividend or make any other distribution in respect of the Corporation’s capital stock (other than a dividend payable solely in shares of Common Stock for which an adjustment to the respective Conversion Rates has been made in accordance with Section 3(d)(ii));

 

(v)                                  effects any increase in the number of shares of Common Stock issuable pursuant to the Corporation’s stock option plan or the adoption of any new employee stock purchase plan, stock incentive compensation or similar stock option plan or arrangement;

 

(vi)                               increases or decreases the number of authorized directors;

 

(vii)                            effects a liquidation, dissolution or winding up of the Corporation, including without limitation any Deemed Liquidation;

 

(viii)                         effects any transaction with any of the Corporation’s officers, directors, affiliates or any affiliate thereof, other than (a) standard employee benefits generally made available to all employees, (b) standard director and officer indemnification agreements approved by the Board of Directors and stockholders, and (c) the purchase of shares of the Corporation’s capital stock and the issuance of options to purchase shares of the Corporation’s Common Stock, in each instance, approved by the Board of Directors;

 

(ix)                               effects any material change to the nature of the business of the Corporation; or

 

(x)                                  after the date hereof authorizes any borrowing or guarantee by the Corporation in excess of $500,000 individually or $1,000,000 in the aggregate in any twelve (12) month period unless approved by the Board including a majority of the Preferred Directors.

 

(b)                                  As long as shares of any series of Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent as provided by law) of the holders of more than fifty percent (50%) of the outstanding shares of that series of Preferred Stock:  (i) take any action that would alter the rights, preferences, privileges or powers of, or restrictions provided for the benefit of, that series in an adverse manner and that is differential and adverse to any contemporaneous alteration to the rights, preferences, privileged or powers or, or restrictions provided for the benefit of, any other series of Preferred Stock then outstanding (it being understood that such Preferred Stock shall not be deemed to be affected differently unless there is an express alteration to the rights, preferences, privileges or powers set forth herein, and in any event not because of proportional differences in the amounts of respective issue prices and liquidation preferences that arise out of differences in the original

 

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issue price for each series of Preferred Stock); or (ii) increase or decrease (other than for decreases resulting from conversion of that series) the authorized number of shares of that series.

 

6.                                       Status of Converted and Redeemed Shares .

 

In the event any shares of Preferred Stock shall be redeemed or converted pursuant to Sections 2(i), 2.5 or 3 hereof, the shares so redeemed or converted shall be canceled and shall not be issuable by the Corporation.  The Restated Certificate shall be appropriately amended to effect the corresponding reduction in the Corporation’s authorized capital stock.

 

(C)                                Rights, Preferences, Privileges and Restrictions of Common Stock

 

The relative rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock or the holders thereof are as follows:

 

1.                                       Dividends .  Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

 

2.                                       Liquidation .  Upon the liquidation, dissolution or winding up of the Corporation (including without limitation any Deemed Liquidation), the assets of the Corporation shall be distributed as provided in Section 2 of Division (B) of this Article IV.

 

3.                                       Redemption .  The Common Stock is not redeemable other than at cost in connection with the termination of service.

 

4.                                       Voting .  The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law.

 

ARTICLE V

 

(A)                                To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.

 

(B)                                The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director or officer at the request of the Corporation or any predecessor to the Corporation.

 

18



 

(C)                                Neither any amendment nor repeal of this Article V, nor the adoption of any provision of the Corporation’s Amended and Resulted Certificate of Incorporation inconsistent with this Article V, shall eliminate or reduce the effect of this Article V in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article V, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

 

ARTICLE VI

 

Subject to Section 5 of Division (B) of Article IV, the Board of Directors of the Corporation is expressly authorized to make, alter or repeal Bylaws of the Corporation, but the stockholders may make additional bylaws and may alter or repeal any bylaw whether adopted by them or otherwise.

 

ARTICLE VII

 

The Corporation is to have perpetual existence.

 

ARTICLE VIII

 

The number of directors which will constitute the whole Board of Directors shall be designated in the Bylaws of the Corporation.

 

ARTICLE IX

 

Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation.

 

ARTICLE X

 

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide.  The books of the Corporation may be kept (subject to any statutory provision) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors in the Bylaws of the Corporation.  Any action that could be taken at any annual or special meeting of the stockholder may be taken without a meeting, without prior notice and without a vote, if a written consent setting for the action to be taken is signed by stockholders of this Corporation holding of record not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

 

ARTICLE XI

 

Except as expressly set forth in a written agreement between the Corporation and one or more stockholders that has been approved by the Board of Directors of the Corporation, preemptive rights shall not exist with respect to shares of capital stock or securities convertible into the capital stock of this Corporation, whether now or hereafter authorized.

 

19



 

ARTICLE XII

 

The books of the Corporation may be kept (subject to any statutory provision) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors in the bylaws of the Corporation.

 

********

 

20



 

CERTIFICATE OF AMENDMENT TO THE

AMENDED AND RESTATED

CERTIFICATE OF

INCORPORATION OF

CONTROL4 CORPORATION

 

The undersigned does hereby certify on behalf of Control4 Corporation (the “ Corporation ”), a corporation organized and existing under the Delaware General Corporation Law, as follows:

 

FIRST:  That he is the duly elected and acting Chief Executive Officer of the Corporation.

 

SECOND:  That the Certificate of Incorporation of the Corporation was originally filed with the Secretary of State of the State of Delaware on March 27, 2003, under the name “Control4 Corporation.”

 

THIRD:  That pursuant to Section 242 of the General Corporation Law of the State of Delaware, Article IV (A)  of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:

 

“(A)                         Classes of Capital Stock

 

This Corporation is authorized to issue 211,000,000 shares of capital stock in the aggregate.  The capital stock of this Corporation shall be divided into two classes, designated “ Common Stock and “ Preferred Stock .” The number of shares of Common Stock the Corporation is authorized to issue is 127,836,592.  The number of shares of Preferred Stock the Corporation is authorized to issue is 83,163,408, 8,150,000 of which shall be designated as Series A Preferred Stock ^Series A Preferred ”), 18,124,230 of which shall be designated Series B Preferred Stock (“ Series B Preferred ”), 14,215,791 of which shall be designated Series C Preferred Stock (“ Series C Preferred ”), 7,789,215 of which shall be designated Series D Preferred Stock (“ Series D Preferred ”), 5,045,662 of which shall be designated Series E Preferred Stock (“ Series E Preferred ”), 5,988,024 of which shall be designated Series F Preferred Stock (“ Series F Preferred ”), 8,677,338 of which shall be designated Series G Preferred Stock (“ Series G Preferred ”), 2,073,148 of which shall be designated Series G-l Preferred Stock (“ Series G-l Preferred ”), and 13,100,000 of which shall be designated Series H Preferred Stock (“ Series H Preferred ”).   The Common Stock and Preferred Stock shall each have a par value of $0.0001 per share.  The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion of the Preferred Stock.  Subject to Section 5 of Division (B) below, the number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding or reserved for the exercise of options or warrants or conversion of the Preferred Stock) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon, voting as a single class (and not as a separate individual class of solely holders of Common Stock, excluding those holders of

 



 

equity securities who may be entitled to vote thereon as provided in this Certificate of Incorporation), as provided by Section 242(b)(2) of the Delaware General Corporation Law.”

 

FOURTH:  That the foregoing Certificate of Amendment to the Certificate of Incorporation of the Corporation has been duly adopted and approved by the Board of Directors and stockholders of the Corporation in accordance with the applicable provisions of Sections 141, 228 and 242 of the Delaware General Corporation Law.

 

IN WITNESS WHEREOF, the undersigned hereby further declares and certifies under penalty of perjury that the facts set forth in the foregoing certificate are true and correct to his own knowledge, and that this certificate is his own act and deed.

 

Executed on December 29, 2011.

 

 

By:

/s/Martin Plaehn

 

Martin Plaehn

 

Chief Executive Officer

 

2




Exhibit 3.2

 

SECOND AMENDED AND RESTATED

 

CERTIFICATE OF INCORPORATION

 

OF

 

CONTROL4 CORPORATION

a Delaware corporation

 

Control4 Corporation, a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), hereby certifies as follows:

 

1.             The name of the Corporation is Control4 Corporation.  The date of the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was March 27, 2003 (the “ Original Certificate ”).  The name under which the Corporation filed the Original Certificate was Control4 Corporation.

 

2.             This Second Amended and Restated Certificate of Incorporation (the “ Certificate ”) amends, restates and integrates the provisions of the Amended and Restated Certificate of Incorporation that was filed with the Secretary of State of the State of Delaware on January 20, 2011, as amended (the “ Existing Certificate ”), and was duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware (the “ DGCL ”).

 

3.             The text of the Existing Certificate is hereby amended and restated in its entirety to provide as herein set forth in full.

 

ARTICLE I

 

The name of the Corporation is Control4 Corporation.

 

ARTICLE II

 

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, 19808.  The name of its registered agent at that address is Corporation Service Company.

 

ARTICLE III

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

 



 

ARTICLE IV

 

CAPITAL STOCK

 

The total number of shares of capital stock which the Corporation shall have authority to issue is 525,000,000, of which (i) 500,000,000 shares shall be a class designated as common stock, par value $0.0001 per share (the “ Common Stock ”), and (ii) 25,000,000 shares shall be a class designated as undesignated preferred stock, par value $0.0001 per share (the “ Undesignated Preferred Stock ”).

 

Except as otherwise provided in any certificate of designations of any series of Undesignated Preferred Stock, the number of authorized shares of the class of Common Stock or Undesignated Preferred Stock may from time to time be increased or decreased (but not below the number of shares of such class outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation irrespective of the provisions of Section 242(b)(2) of the DGCL.

 

The powers, preferences and rights of, and the qualifications, limitations and restrictions upon, each class or series of stock shall be determined in accordance with, or as set forth below in, this Article IV.

 

A.  COMMON STOCK

 

Subject to all the rights, powers and preferences of the Undesignated Preferred Stock and except as otherwise provided by law or in this Certificate (or in any certificate of designations of any series of Undesignated Preferred Stock):

 

(a)           the holders of the Common Stock shall have the exclusive right to vote for the election of directors of the Corporation (the “ Directors ”) and on all other matters requiring stockholder action, each outstanding share entitling the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate (or on any amendment to a certificate of designations of any series of Undesignated Preferred Stock) that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of Undesignated Preferred Stock if the holders of such affected series  of Undesignated Preferred Stock are entitled to vote, either separately or together with the holders of one or more other such series, on such amendment pursuant to this Certificate (or pursuant to a certificate of designations of any series of Undesignated Preferred Stock) or pursuant to the DGCL;

 

(b)           dividends may be declared and paid or set apart for payment upon the Common Stock out of any assets or funds of the Corporation legally available for the payment of dividends, but only when and as declared by the Board of Directors or any authorized committee thereof; and

 

3



 

(c)           upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock.

 

B.  UNDESIGNATED PREFERRED STOCK

 

The Board of Directors or any authorized committee thereof is expressly authorized, to the fullest extent permitted by law, to provide by resolution or resolutions for, out of the unissued shares of Undesignated Preferred Stock, the issuance of the shares of Undesignated Preferred Stock in one or more series of such stock, and by filing a certificate of designations pursuant to applicable law of the State of Delaware, to establish or change from time to time the number of shares of each such series, and to fix the designations, powers, including voting powers, full or limited, or no voting powers, preferences and the relative, participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereof.

 

ARTICLE V

 

STOCKHOLDER ACTION

 

1.             No Action without Meeting .  Any action required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders and may not be taken or effected by a written consent of stockholders in lieu thereof.

 

2.             Special Meetings .  Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office, and special meetings of stockholders may not be called by any other person or persons.  Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation.

 

ARTICLE VI

 

DIRECTORS

 

1.             General .  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided herein or required by law.

 

2.             Election of Directors .  Election of Directors need not be by written ballot unless the By-laws of the Corporation (the “ By-laws ”) shall so provide.

 

3.             Number of Directors; Term of Office .  The number of Directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors.  The Directors, other than those who may be elected by the holders of any series of Undesignated Preferred Stock, shall be classified, with respect to the term for which

 

4



 

they severally hold office, into three classes.  The initial Class I Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2014, the initial Class II Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2015, and the initial Class III Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2016.  At each annual meeting of stockholders, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election.  Notwithstanding the foregoing, the Directors elected to each class shall hold office until their successors are duly elected and qualified or until their earlier resignation, death or removal.

 

Notwithstanding the foregoing, whenever, pursuant to the provisions of Article IV of this Certificate, the holders of any one or more series of Undesignated Preferred Stock shall have the right, voting separately as a series or together with holders of other such series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate and any certificate of designations applicable to such series.

 

4.             Vacancies .  Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors and to fill vacancies in the Board of Directors relating thereto, any and all vacancies in the Board of Directors, however occurring, including, without limitation, by reason of an increase in the size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled solely and exclusively by the affirmative vote of a majority of the remaining Directors then in office, even if less than a quorum of the Board of Directors, and not by the stockholders.  Any Director appointed in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director’s successor shall have been duly elected and qualified or until his or her earlier resignation, death or removal.  Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors, when the number of Directors is increased or decreased, the Board of Directors shall, subject to Article VI.3 hereof, determine the class or classes to which the increased or decreased number of Directors shall be apportioned; provided , however , that no decrease in the number of Directors shall shorten the term of any incumbent Director.  In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, shall exercise the powers of the full Board of Directors until the vacancy is filled.

 

5.             Removal .  Subject to the rights, if any, of any series of Undesignated Preferred Stock to elect Directors and to remove any Director whom the holders of any such series have the right to elect, any Director (including persons elected by Directors to fill vacancies in the Board of Directors) may be removed from office (i) only for cause and (ii) only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock then entitled to vote at an election of Directors.  At least forty-five (45) days prior to any annual or special meeting of stockholders at which it is proposed that any Director be removed from office, written notice of such proposed removal and the alleged grounds thereof shall be sent to the Director whose removal will be considered at the meeting.

 

5



 

ARTICLE VII

 

LIMITATION OF LIABILITY

 

A Director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (a) for any breach of the Director’s duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any transaction from which the Director derived an improper personal benefit.  If the DGCL is amended after the effective date of this Certificate to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

 

Any amendment, repeal or modification of this Article VII by either of (i) the stockholders of the Corporation or (ii) an amendment to the DGCL, shall not adversely affect any right or protection existing at the time of such amendment, repeal or modification with respect to any acts or omissions occurring before such amendment, repeal or modification of a person serving as a Director at the time of such amendment, repeal or modification.

 

ARTICLE VIII

 

EXCLUSIVE JURISDICTION OF DELAWARE COURTS

 

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s Certificate of Incorporation or By-laws, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine.  Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article VIII.

 

ARTICLE IX

 

AMENDMENT OF BY-LAWS

 

1.             Amendment by Directors .  Except as otherwise provided by law, the By-laws of the Corporation may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the Directors then in office.

 

2.             Amendment by Stockholders .  The By-laws of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class; provided , however , that if the Board of Directors recommends that stockholders approve such amendment

 

6



 

or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class.

 

ARTICLE X

 

AMENDMENT OF CERTIFICATE OF INCORPORATION

 

The Corporation reserves the right to amend or repeal this Certificate in the manner now or hereafter prescribed by statute and this Certificate, and all rights conferred upon stockholders herein are granted subject to this reservation.  Whenever any vote of the holders of capital stock of the Corporation is required to amend or repeal any provision of this Certificate, and in addition to any other vote of holders of capital stock that is required by this Certificate or by law, such amendment or repeal shall require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of the majority of the outstanding shares of each class entitled to vote thereon as a class, at a duly constituted meeting of stockholders called expressly for such purpose; provided , however , that the affirmative vote of not less than 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of not less than 75% of the outstanding shares of each class entitled to vote thereon as a class, shall be required to amend or repeal any provision of Article V, Article VI, Article VII, Article VIII, Article IX or Article X of this Certificate.

 

7



 

THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as of this          day of                     , 2013.

 

 

 

Control4 Corporation

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 




Exhibit 3.3

 

BYLAWS

 

OF

 

CONTROL4 CORPORATION

 



 

CONTENTS

 

ARTICLE I STOCKHOLDERS

1

 

 

Section 1.1

Annual Meetings

1

Section 1.2

Special Meetings

1

Section 1.3

Notice of Meetings

1

Section 1.4

Adjournments

1

Section 1.5

Quorum

1

Section 1.6

Organization

2

Section 1.7

Voting; Proxies

2

Section 1.8

Fixing Date for Determination of Stockholders of Record

2

Section 1.9

List of Stockholders Entitled to Vote

3

Section 1.10

Inspectors of Elections; Opening and Closing the Polls

3

Section 1.11

Action by Written Consent of Stockholders

4

 

 

ARTICLE II BOARD OF DIRECTORS

4

 

 

Section 2.1

Number: Qualifications

4

Section 2.2

Election; Resignation; Removal; Vacancies

4

Section 2.3

Regular Meetings

4

Section 2.4

Special Meetings

4

Section 2.5

Telephonic Meetings Permitted

5

Section 2.6

Quorum; Vote Required for Action

5

Section 2.7

Organization

5

Section 2.8

Written Action by Directors

5

Section 2.9

Powers

5

Section 2.10

Compensation of Directors

5

 

 

ARTICLE III COMMITTEES

5

 

 

Section 3.1

Committees

5

Section 3.2

Committee Rules

6

 

 

ARTICLE IV OFFICERS

6

 

 

Section 4.1

Executive Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies

6

Section 4.2

Powers and Duties of Executive Officers

6

Section 4.3

Compensation

6

 

 

ARTICLE V STOCK

7

 

 

Section 5.1

Certificates

7

 



 

Section 5.2

Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates

7

Section 5.3

Other Regulations

7

 

 

ARTICLE VI INDEMNIFICATION

7

 

 

Section 6.1

Right to Indemnification

7

Section 6.2

Prepayment of Expenses

8

Section 6.3

Claims

8

Section 6.4

Nonexclusivity of Rights

8

Section 6.5

Other Sources

8

Section 6.6

Amendment or Repeal

8

Section 6.7

Other Indemnification and Prepayment of Expenses

8

Section 6.8

Indemnification Contracts

8

Section 6.9

Effect of Amendment

9

Section 6.10

Insurance

9

Section 6.11

Savings Clause

9

 

 

ARTICLE VII MISCELLANEOUS

9

 

 

Section 7.1

Fiscal Year

9

Section 7.2

Seal

9

Section 7.3

Waiver of Notice of Meetings of Stockholders, Directors and Committees

9

Section 7.4

Interested Directors; Quorum

10

Section 7.5

Form of Records

10

Section 7.6

Reliance Upon Books and Records

10

Section 7.7

Certification of Incorporation Governs

10

Section 7.8

Severability

10

Section 7.9

Amendments

11

 

ii



 

BYLAWS

 

OF

 

CONTROL4 CORPORATION

 

ARTICLE I

 

STOCKHOLDERS

 

Section 1.1                                     Annual Meetings .  An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time.  Any other proper business may be transacted at the annual meeting.

 

Section 1.2                                     Special Meetings .  Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors, or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority include the power to call such meetings, but such special meetings may not be called by any other person or persons.

 

Section 1.3                                     Notice of Meetings .  Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.  Unless otherwise provided by applicable law or the Certificate of Incorporation, the written notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting.  If mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the Corporation.

 

Section 1.4                                     Adjournments .  Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken.  At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting.  If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

Section 1.5                                     Quorum .  At each meeting of stockholders, except where otherwise provided by law or the Certificate of Incorporation or these Bylaws, the holders of a majority of the outstanding shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum.  In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 1.4 of these Bylaws until a quorum shall attend.  Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of

 



 

such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of any corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

 

Section 1.6                                     Organization .  Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in the absence of such person, the President, or in his or her absence by a Vice President, or in the absence of the foregoing persons,, by a chairman designated by the Board of Directors, or in the absence of such designation, by a chairman chosen at the meeting.  The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

 

Section 1.7                                     Voting; Proxies .  Unless otherwise provided by law or the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question.  Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.  A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an, interest sufficient in law to support an irrevocable power.  A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation.  Unless otherwise required by law, voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the Board of Directors, or holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine.  At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect.  All other elections and questions shall, unless otherwise provided by law or by the Certificate of Incorporation or these Bylaws, be decided by the vote of the holders of a majority of the outstanding shares of stock entitled to vote thereon present in person or by proxy at the meeting.

 

Section 1.8                                     Fixing Date for Determination of Stockholders of Record .

 

(a)                                  In order that tire Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date such record date is fixed and shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than, sixty (60) days prior to any other action.  If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given.  The record date for any other purpose other than stockholder action by written consent shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.  A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment

 

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of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

 

(b)                                  In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors.  Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date.  The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date.  If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded.  Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.  If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at tire close of business on the date on which the Board of Directors adopts the resolution taking such prior action.

 

Section 1.9                                     List of Stockholders Entitled to Vote .  The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held.  The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present.  The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

 

Section 1.10                              Inspectors of Elections; Opening and Closing the Polls .

 

(a)                                  If required by the Delaware General Corporation Law, the Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives of the Corporation, to act at the meeting and make a written report thereof.  The procedures, oath, duties, and determinations with respect to inspectors shall be as provided under the Delaware General Corporation Law.

 

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(b)                                  The chairman of any meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting.

 

Section 1.11                              Action by Written Consent of Stockholders .  Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.  Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

 

ARTICLE II

 

BOARD OF DIRECTORS

 

Section 2.1                                     Number: Qualifications .  The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors.  The initial number of directors shall be three (3), and thereafter shall be fixed from time to time by resolution of the Board of Directors.  Directors need not be stockholders.

 

Section 2.2                                     Election; Resignation; Removal; Vacancies .  The Board of Directors shall initially consist of the persons elected as such by the incorporator or named in the Corporation’s Certificate of Incorporation.  At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect Directors to replace those Directors who have resigned or been removed, or if applicable, whose terms have expired.  Any Director may resign at any time upon written notice to the Corporation.  Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the Board, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each Director so elected shall hold office until the expiration of the term of office, if any, of the Director whom he or she has replaced.

 

Section 2.3                                     Regular Meetings .  Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine.  Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board of Directors.

 

Section 2.4                                     Special Meetings .  Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or a majority of the members of the Board of Directors then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix.  Notice of the time, date and place of such meeting shall be given, orally or in writing, by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery,

 

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telegram, telex, mailgram, facsimile or similar communication method.  Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting.

 

Section 2.5                                     Telephonic Meetings Permitted .  Members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this bylaw shall constitute presence in person at such meeting.

 

Section 2.6                                     Quorum; Vote Required for Action .  At all meetings of the Board of Directors a majority of the whole Board shall constitute a quorum for the transaction of business.  Except as otherwise provided in these Bylaws, or in the Certificate of Incorporation or required by law, the vote of a majority of the directors present shall be the act of the Board of Directors.

 

Section 2.7                                     Organization .  Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his or her absence by the Vice Chairman of the Board, if any, or in his or her absence by the President, or in their absence by a chairman chosen at the meeting.  The Secretary shall, act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

 

Section 2.8                                     Written Action by Directors .  Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

 

Section 2.9                                     Powers .  The Board of Directors may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.

 

Section 2.10                              Compensation of Directors .  Directors, as such, may receive, pursuant to a resolution of the Board of Directors, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board of Directors.

 

ARTICLE III

 

COMMITTEES

 

Section 3.1                                     Committees .  The Board of Directors may , by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation.  The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member.  Any such committee, to the extent provided in the resolution of the Board of Directors, shall

 

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have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law, fix any of the preferences or rights of such shares, except voting rights of the shares), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, or amending these Bylaws; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock.

 

Section 3.2                                     Committee Rules .  Unless the Board of Directors otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business.  In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws.

 

ARTICLE IV

 

OFFICERS

 

Section 4.1                                     Executive Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies .  The Board of Directors shall choose a President and Secretary, and it may, if it so determines, choose a Chairman of the Board and a Vice Chairman of the Board from among its members.  The Board of Directors may also choose one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers.  Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding this election, and until his or her successor is elected and qualified or until his or her earlier resignation or removal Any officer may resign at any time upon written notice to the Corporation.  The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.  Any number of offices may be held by the same person.  Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting.

 

Section 4.2                                     Powers and Duties of Executive Officers .  The officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors.  The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his or her duties.

 

Section 4.3                                     Compensation .  The salaries of all officers and agents of the Corporation shall be fixed from time to time by the Board of Directors or by a committee appointed or officer designated for such purpose, and no officer shall be prevented from receiving such compensation by reason of the fact that he is also a director of the Corporation.

 

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ARTICLE V

 

STOCK

 

Section 5.1                                     Certificates .  Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by him or her in the Corporation.  Any of or all the signatures on the certificate may be a facsimile.  In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent, or registrar at the date of issue.

 

Section 5.2                                     Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates .  The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his or her legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

 

Section 5.3                                     Other Regulations .  The issue, transfer, conversion and registration of stock certificates shall be governed by such other regulations as the Board of Directors may establish.

 

ARTICLE VI

 

INDEMNIFICATION

 

Section 6.1                                     Right to Indemnification .  The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended in a manner more favorable to indemnitees, any person (an “Indemnitee”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he, she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Indemnitee.  Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3, the Corporation shall be required to indemnify an Indemnitee in connection with a proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such proceeding (or part thereof) by the Indemnitee was authorized by the Board of Directors of the Corporation.

 

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Section 6.2                                     Prepayment of Expenses .  The Corporation shall pay the expenses (including attorneys’ fees) incurred by an Indemnitee in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Indemnitee to repay all amounts advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified under this Article VI or otherwise; and provided, further, that the Corporation shall not be required to advance any expenses to a person against whom the Corporation directly brings a claim, in a proceeding, alleging that such person has breached his or her duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction.

 

Section 6.3                                     Claims .  If a claim for indemnification or payment of expenses under this Article VI is not paid in full within sixty (60) days after a written claim therefor by the Indemnitee has been received by the Corporation, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim.  In any such action the Corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or payment of expenses under applicable law.

 

Section 6.4                                     Nonexclusivity of Rights .  The rights conferred on any Indemnitee by this Article VI shall not be exclusive of any other rights which such Indemnitee may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.  Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.

 

Section 6.5                                     Other Sources .  The Corporation’s obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or nonprofit enterprise.

 

Section 6.6                                     Amendment or Repeal .  Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any right or protection hereunder of any Indemnitee in respect of any act or omission occurring prior to the time of such repeal or modification.

 

Section 6.7                                     Other Indemnification and Prepayment of Expenses .  This Article VI shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Indemnitees when and as authorized by appropriate corporate action.

 

Section 6.8                                     Indemnification Contracts .  The Board of Directors is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or

 

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agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person.  Such rights may be greater than those provided in this Article VI.

 

Section 6.9                                     Effect of Amendment .  Any amendment, repeal or modification of any provision of this Article VI shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification.

 

Section 6.10                              Insurance .  The Corporation may purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her or on his or her behalf in any such capacity, or arising out of his or her status as such , whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article VI.

 

Section 6.11                              Savings Clause .  If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director and officer of the Corporation as to costs, charges and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the full extent permitted by applicable law.

 

ARTICLE VII

 

MISCELLANEOUS

 

Section 7.1                                     Fiscal Year .  The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.

 

Section 7.2                                     Seal .  The corporate seal, if any, shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors.

 

Section 7.3                                     Waiver of Notice of Meetings of Stockholders, Directors and Committees .  Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice.  Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice.

 

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Section 7.4                                     Interested Directors; Quorum .  No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if:  (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders.  Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

 

Section 7.5                                     Form of Records .  Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of any information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time.  The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same.

 

Section 7.6                                     Reliance Upon Books and Records .  A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall, in the performance of his or her duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

 

Section 7.7                                     Certification of Incorporation Governs .  In the event of any conflict between the provisions of the Corporation’s Certificate of Incorporation and these Bylaws, the provisions of the Certificate of Incorporation shall govern.

 

Section 7.8                                     Severability .  If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Corporation’s Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any Section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.

 

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Section 7.9                                     Amendments .  Stockholders of the Corporation holding a majority of the Corporation’s outstanding voting stock shall have power to adopt, amend or repeal Bylaws.  To the extent provided in the Corporation’s Certificate of Incorporation, the Board of Directors of the Corporation shall also have the power to adopt, amend or repeal Bylaws of the Corporation, except insofar as Bylaws adopted by the stockholders shall otherwise provide.

 

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CERTIFICATION OF BYLAWS

 

OF

 

CONTROL4 CORPORATION

 

KNOW ALL BY THESE PRESENTS:

 

I, William B. West, certify that I am the President of Control4 Corporation, a Delaware corporation (the “Company”), that I am duly authorized to make and deliver this certification, that the attached Bylaws are a true and correct copy of the Bylaws of the Company in effect as of the date of this certificate.

 

Dated: March 27, 2003.

 

 

/s/ William B. West

 

William B. West, President

 


 

CERTIFICATE OF AMENDMENT TO THE

 

BYLAWS OF

 

CONTROL4 CORPORATION

 

I, William B. West, certify that I am the Chief Executive Officer and President of Control4 Corporation, a corporation organized and existing under the laws of the State of Delaware (the “ Company ”), and do hereby further certify that:

 

1.                                       Article I, Section 1.2 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 1.2  Special Meetings .  Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board, the President or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent of the votes at that meeting.  If a special meeting is called by any person or persons other than the Board of Directors, the President or the Chairman of the Board, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board, the President, any Vice President, or the Secretary of the Corporation.  No business may be transacted at such special meeting otherwise than specified in such notice.  The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Section 1.3 of this Article I, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than ten (10) nor more than sixty (60) days before the date of the special meeting.  If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice.  Nothing contained in this Section 1.2 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.”

 

2.                                       Article I, Section 1.11 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 1.11  Action by Written Consent of Stockholders .

 

Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be delivered by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

 

A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons

 

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authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the Corporation can determine (i) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission.  The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed.  No consent given by a telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded.  Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.

 

Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.”

 

3.                                       Article II, Section 2.1 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 2.1  Number; Qualifications .  The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors.  The number of directors shall be five (5), and thereafter shall be fixed from time to time by resolution of the Board of Directors.  Directors need not be stockholders.”

 

4.                                       Article II, Section 2.2 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 2.2  Election; Resignation; Removal; Vacancies .  The Board of Directors shall initially consist of the persons elected as such by the incorporator or named in the Corporation’s Certificate of Incorporation.  At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect Directors to replace those Directors who have resigned or been removed, or if applicable, whose terms have expired.  Any Director may resign at any time upon written notice given in writing or by electronic transmission to the Corporation, and, subject to the Corporation’s Certificate of Incorporation or these Bylaws, any Director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares entitled to vote at the election of such Director or Directors.  Unless otherwise provided in the Corporation’s Certificate of Incorporation or these Bylaws:

 

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(i)                                      Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by the affirmative vote of a majority of the directors then in office, although such majority is less than a quorum, or by a sole director.

 

(ii)                                   Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Corporation’s Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

 

Each Director so elected shall hold office until the expiration of the term of office, if any, of the Director whom he or she has replaced.”

 

5.                                       Article II, Section 2.4 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 2.4  Special Meetings .  Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or a majority of the members of the Board of Directors then in office, any Vice President, the Secretary or any two members of the Board of Directors then in office, and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix.  Notice of the time, date and place of such meeting shall be given, orally or in writing, by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile or similar communication method.  Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting.”

 

6.                                       Article II, Section 2.7 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 2.7  Organization .  Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his or her absence by the Vice Chairman of the Board, if any, or in his or her absence by the President, or in their absence by a chairman chosen at the meeting.  The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting, and such secretary shall prepare minutes of such meeting, which shall be filed and maintained in the minute books of the Corporation.”

 

7.                                       Article II, Section 2.8 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 2.8  Written Action by Directors .  Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic

 

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transmission or transmissions are filed with the minutes of proceedings of the Board or committee.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

8.                                       Article III, Section 3.2 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 3.2  Committee Rules .  Unless the Board of Directors otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business.  In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws.  Each committee shall maintain minutes of its meetings, which shall be filed in the minute books of the Corporation, and which shall be reported to the Board of Directors upon request.”

 

9.                                       Article IV, Section 4.1 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 4.1  Executive Officer; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies .  The Board of Directors shall choose a President and Secretary, and it may, if it so determines, choose a Chairman of the Board and a Vice Chairman of the Board from among its members.  The Board of Directors may also choose one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers.  Each such officer shall hold office until his or her successor is elected and qualified, or until his or her earlier resignation or removal.  Any officer may resign at any time upon written notice to the Corporation.  The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.  Any number of offices may be held by the same person.  Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting.”

 

10.                                Article VI, Section 6.3 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 6.3  Claims .  If a claim for indemnification or payment of expenses under this Article VI is not paid in full within twenty (20) days after a written claim therefor by the Indemnitee has been received by the Corporation, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim.  In any such action the Corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or payment of expenses under applicable law.”

 

11.                                Article VII, Section 7.9 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 7.9  Amendments .  Stockholders of the Corporation holding a majority, or such higher percentage as may be required by the Corporation’s Certificate of Incorporation,

 

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of the Corporation’s outstanding voting stock shall have power to adopt, amend or repeal Bylaws.  To the extent provided in the Corporation’s Certificate of Incorporation, the Board of Directors of the Corporation shall also have the power to adopt, amend or repeal Bylaws of the Corporation, except insofar as Bylaws adopted by the stockholders shall otherwise provide.”

 

12.                                This Certificate of Amendment of the Company’s Bylaws has been duly adopted by the Company’s Board of Directors in accordance with Section 109 of the General Corporation Law of Delaware.

 

[Signature Page to Follow]

 

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Dated: July 29, 2003

 

 

CONTROL4 CORPORATION

 

 

 

 

 

By:

/s/ William B. West

 

 

William B. West,

 

 

Chief Executive Officer and President

 

Signature Page to

Certificate of Amendment to the Bylaws

 



 

Certificate of Amendment to the Bylaws of

Control4 Corporation

 

I, William B. West, certify that I am the Chief Executive Officer and President of Control4 Corporation, a corporation organized and existing under the laws of the State of Delaware (the “ Company ”), and do hereby further certify that:

 

1.                                       Article II, Section 2.1 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 2.1  Number; Qualifications.  The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors.  The number of directors shall be seven (7), and thereafter shall be fixed from time to time by resolution of the Board of Directors.  Directors need not be stockholders.”

 

Dated: June 16, 2004

 

 

CONTROL4 CORPORATION

 

 

 

 

 

By:

/s/ William B. West

 

 

William B. West,

 

 

President and Chief Executive Officer

 



 

Certificate of Amendment to the Bylaws of

Control4 Corporation

 

I, Dan Strong, certify that I am the Chief Financial Officer and Secretary of Control4 Corporation, a corporation organized and existing under the laws of the State of Delaware (the “Company”), and do hereby further certify that:

 

1.                                       Article II, Section 2.1 of the Bylaws of the Company shall be amended and restated in its entirety to read as follows:

 

“Section 2.1  Number; Qualifications.  The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors.  The number of directors shall be nine (9), and thereafter shall be fixed from time to time by resolution of the Board of Directors.  Directors need not be stockholders.”

 

Dated: September 29, 2011

 

 

CONTROL4 CORPORATION

 

 

 

 

 

By:

/s/ Dan Strong

 

 

Dan Strong,

 

 

CFO and Secretary

 




Exhibit 3.4

 

AMENDED AND RESTATED

 

BY-LAWS

 

OF

 

CONTROL4 CORPORATION

 

(the “Corporation”)

 

ARTICLE I

 

Stockholders

 

SECTION 1.                             Annual Meeting .  The annual meeting of stockholders of the Corporation (any such meeting being referred to in these By-laws as an “Annual Meeting”) shall be held at the hour, date and place within or without the United States which is fixed by the Board of Directors, which time, date and place may subsequently be changed at any time by vote of the Board of Directors.  If no Annual Meeting has been held for a period of thirteen (13) months after the Corporation’s last Annual Meeting, a special meeting in lieu thereof may be held, and such special meeting shall have, for the purposes of these By-laws or otherwise, all the force and effect of an Annual Meeting.  Any and all references hereafter in these By-laws to an Annual Meeting or Annual Meetings shall be deemed to also refer to any special meeting(s) in lieu thereof.

 

SECTION 2.                             Notice of Stockholder Business and Nominations .

 

(a)                                  Annual Meetings of Stockholders .

 

(1)                                  Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be brought before an Annual Meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting, who is present (in person or by proxy) at the meeting and who complies with the notice procedures set forth in this By-law as to such nomination or business.  For the avoidance of doubt, the foregoing clause (ii) shall be the exclusive means for a stockholder to bring nominations or business properly before an Annual Meeting (other than matters properly brought under Rule 14a-8 or Rule 14a-11 (or any successor rules) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and such stockholder must comply with the notice and other procedures set forth in Article I, Section 2(a)(2) and (3) of this By-law to bring such nominations or business properly before an Annual Meeting.  In addition to the other requirements set forth in this By-law, for any proposal of business to be considered at an Annual Meeting, it must be a proper subject for action by stockholders of the Corporation under Delaware law.

 



 

(2)                                  For nominations or other business to be properly brought before an Annual Meeting by a stockholder pursuant to clause (ii) of Article I, Section 2(a)(1) of this By-law, the stockholder must (i) have given Timely Notice (as defined below) thereof in writing to the Secretary of the Corporation, (ii) have provided any updates or supplements to such notice at the times and in the forms required by this By-law and (iii) together with the beneficial owner(s), if any, on whose behalf the nomination or business proposal is made, have acted in accordance with the representations set forth in the Solicitation Statement (as defined below) required by this By-law.  To be timely, a stockholder’s written notice shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the one-year anniversary of the preceding year’s Annual Meeting; provided , however , that in the event the Annual Meeting is first convened more than thirty (30) days before or more than sixty (60) days after such anniversary date, or if no Annual Meeting were held in the preceding year, notice by the stockholder to be timely must be received by the Secretary of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made (such notice within such time periods shall be referred to as “Timely Notice”).  Notwithstanding anything to the contrary provided herein, for the first Annual Meeting following the initial public offering of common stock of the Corporation, a stockholder’s notice shall be timely if received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such Annual Meeting is first made or sent by the Corporation.  Such stockholder’s Timely Notice shall set forth:

 

(A)                                as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected);

 

(B)                                as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest in such business of each Proposing Person (as defined below);

 

(C)                                (i) the name and address of the stockholder giving the notice, as they appear on the Corporation’s books, and the names and addresses of the other Proposing Persons (if any) and (ii) as to each Proposing Person, the following information: (a) the class or series and number of all shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially or of record by such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), including any shares of any class or series of capital stock of the Corporation as to which such

 

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Proposing Person or any of its affiliates or associates has a right to acquire beneficial ownership at any time in the future; (b) all Synthetic Equity Interests (as defined below) in which such Proposing Person or any of its affiliates or associates, directly or indirectly, holds an interest including a description of the material terms of each such Synthetic Equity Interest, including without limitation, identification of the counterparty to each such Synthetic Equity Interest and disclosure, for each such Synthetic Equity Interest, as to (x) whether or not such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in such shares to such Proposing Person, (y) whether or not such Synthetic Equity Interest is required to be, or is capable of being, settled through delivery of such shares and (z) whether or not such Proposing Person and/or, to the extent known, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest; (c) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote any shares of any class or series of capital stock of the Corporation; (d) any rights to dividends or other distributions on the shares of any class or series of capital stock of the Corporation, directly or indirectly, owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation; and (e) any performance-related fees (other than an asset based fee) that such Proposing Person, directly or indirectly, is entitled to based on any increase or decrease in the value of shares of any class or series of capital stock of the Corporation or any Synthetic Equity Interests (the disclosures to be made pursuant to the foregoing clauses (a) through (e) are referred to, collectively, as “Material Ownership Interests”) and (iii) a description of the material terms of all agreements, arrangements or understandings (whether or not in writing) entered into by any Proposing Person or any of its affiliates or associates with any other person for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Corporation;

 

(D)                                (i) a description of all agreements, arrangements or understandings by and among any of the Proposing Persons, or by and among any Proposing Persons and any other person (including with any proposed nominee(s)), pertaining to the nomination(s) or other business proposed to be brought before the meeting of stockholders (which description shall identify the name of each other person who is party to such an agreement, arrangement or understanding), and (ii) identification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support such nominations or other business proposal(s), and to the extent known the class and number of all shares of the Corporation’s capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s); and

 

(E)                                 a statement whether or not the stockholder giving the notice and/or the other Proposing Person(s), if any, will deliver a proxy statement and form of proxy to holders of, in the case of a business proposal, at least the percentage of

 

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voting power of all of the shares of capital stock of the Corporation required under applicable law to approve the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder (such statement, the “Solicitation Statement”).

 

For purposes of this Article I of these By-laws, the term “Proposing Person” shall mean the following persons: (i) the stockholder of record providing the notice of nominations or business proposed to be brought before a stockholders’ meeting, and (ii) the beneficial owner(s), if different, on whose behalf the nominations or business proposed to be brought before a stockholders’ meeting is made.  For purposes of this Section 2 of Article I of these By-laws, the term “Synthetic Equity Interest” shall mean any transaction, agreement or arrangement (or series of transactions, agreements or arrangements), including, without limitation, any derivative, swap, hedge, repurchase or so-called “stock borrowing” agreement or arrangement, the purpose or effect of which is to, directly or indirectly:  (a) give a person or entity economic benefit and/or risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due to the fact that such transaction, agreement or arrangement provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of any shares of any class or series of capital stock of the Corporation, (b) mitigate loss to, reduce the economic risk of or manage the risk of share price changes for, any person or entity with respect to any shares of any class or series of capital stock of the Corporation, (c) otherwise provide in any manner the opportunity to profit or avoid a loss from any decrease in the value of any shares of any class or series of capital stock of the Corporation, or (d) increase or decrease the voting power of any person or entity with respect to any shares of any class or series of capital stock of the Corporation.

 

(3)                                  A stockholder providing Timely Notice of nominations or business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such notice pursuant to this By-law shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to such Annual Meeting, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth (5th) business day after the record date for the Annual Meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eighth (8th) business day prior to the date of the Annual Meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting).

 

(4)                                  Notwithstanding anything in the second sentence of Article I, Section 2(a)(2) of this By-law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the

 

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increased Board of Directors made by the Corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with the second sentence of Article I, Section 2(a)(2), a stockholder’s notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.

 

(b)                                  General .

 

(1)                                  Only such persons who are nominated in accordance with the provisions of this By-law or in accordance with Rule 14a-11 under the Exchange Act shall be eligible for election and to serve as directors and only such business shall be conducted at an Annual Meeting as shall have been brought before the meeting in accordance with the provisions of this By-law or in accordance with Rule 14a-8 under the Exchange Act.  The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this By-law.  If neither the Board of Directors nor such designated committee makes a determination as to whether any stockholder proposal or nomination was made in accordance with the provisions of this By-law, the presiding officer of the Annual Meeting shall have the power and duty to determine whether the stockholder proposal or nomination was made in accordance with the provisions of this By-law.  If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any stockholder proposal or nomination was not made in accordance with the provisions of this By-law, such proposal or nomination shall be disregarded and shall not be presented for action at the Annual Meeting.

 

(2)                                  Except as otherwise required by law, nothing in this Article I, Section 2 shall obligate the Corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for director or any other matter of business submitted by a stockholder.

 

(3)                                  Notwithstanding the foregoing provisions of this Article I, Section 2, if the nominating or proposing stockholder (or a qualified representative of the stockholder) does not appear at the Annual Meeting to present a nomination or any business, such nomination or business shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation.  For purposes of this Article I, Section 2, to be considered a qualified representative of the proposing stockholder, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such written instrument or electronic transmission, or a reliable reproduction of the written instrument or electronic transmission, to the presiding officer at the meeting of stockholders.

 

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(4)                                  For purposes of this By-law, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

 

(5)                                  Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law.  Nothing in this By-law shall be deemed to affect any rights of (i) stockholders to have nominations or proposals included in the Corporation’s proxy statement pursuant to Rule 14a-8 or Rule 14a-11 (or any successor rules), as applicable, under the Exchange Act and, to the extent required by such rule, have such nominations or proposals considered and voted on at an Annual Meeting or (ii) the holders of any series of Undesignated Preferred Stock to elect directors under specified circumstances.

 

SECTION 3.                             Special Meetings .  Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office.  The Board of Directors may postpone or reschedule any previously scheduled special meeting of stockholders. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation.  Nominations of persons for election to the Board of Directors of the Corporation and stockholder proposals of other business shall not be brought before a special meeting of stockholders to be considered by the stockholders unless such special meeting is held in lieu of an annual meeting of stockholders in accordance with Article I, Section 1 of these By-laws, in which case such special meeting in lieu thereof shall be deemed an Annual Meeting for purposes of these By-laws and the provisions of Article I, Section 2 of these By-laws shall govern such special meeting.

 

SECTION 4.                             Notice of Meetings; Adjournments .

 

(a)                                  A notice of each Annual Meeting stating the hour, date and place, if any, of such Annual Meeting and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten (10) days nor more than sixty (60) days before the Annual Meeting, to each stockholder entitled to vote thereat by delivering such notice to such stockholder or by mailing it, postage prepaid, addressed to such stockholder at the address of such stockholder as it appears on the Corporation’s stock transfer books.  Without limiting the manner by which notice may otherwise be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (“DGCL”).

 

(b)                                  Notice of all special meetings of stockholders shall be given in the same manner as provided for Annual Meetings, except that the notice of all special meetings shall state the purpose or purposes for which the meeting has been called.

 

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(c)                                   Notice of an Annual Meeting or special meeting of stockholders need not be given to a stockholder if a waiver of notice is executed, or waiver of notice by electronic transmission is provided, before or after such meeting by such stockholder or if such stockholder attends such meeting, unless such attendance is for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.

 

(d)                                  The Board of Directors may postpone and reschedule any previously scheduled Annual Meeting or special meeting of stockholders and any record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting has been sent or made pursuant to Section 2 of this Article I of these By-laws or otherwise.  In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled meeting of stockholders commence a new time period for the giving of a stockholder’s notice under this Article I of these By-laws.

 

(e)                                   When any meeting is convened, the presiding officer may adjourn the meeting if (i) no quorum is present for the transaction of business, (ii) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (iii) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation.  When any Annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place, if any, to which the meeting is adjourned and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting; provided, however, that if the adjournment is for more than thirty (30) days from the meeting date, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting shall be given to each stockholder of record entitled to vote thereat and each stockholder who, by law or under the Certificate of Incorporation of the Corporation (as the same may hereafter be amended and/or restated, the “Certificate”) or these By-laws, is entitled to such notice.

 

SECTION 5.                             Quorum .  A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders.  If less than a quorum is present at a meeting, the holders of voting stock representing a majority of the voting power present at the meeting or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this Article I.  At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed.  The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

 

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SECTION 6.                             Voting and Proxies .  Stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the stock ledger of the Corporation as of the record date, unless otherwise provided by law or by the Certificate.  Stockholders may vote either (i) in person, (ii) by written proxy or (iii) by a transmission permitted by Section 212(c) of the DGCL.  Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by Section 212(c) of the DGCL may be substituted for or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.  Proxies shall be filed in accordance with the procedures established for the meeting of stockholders.  Except as otherwise limited therein or as otherwise provided by law, proxies authorizing a person to vote at a specific meeting shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting.  A proxy with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them.

 

SECTION 7.                             Action at Meeting .  When a quorum is present at any meeting of stockholders, any matter before any such meeting (other than an election of a director or directors) shall be decided by a majority of the votes properly cast for and against such matter, except where a larger vote is required by law, by the Certificate or by these By-laws.  Any election of directors by stockholders shall be determined by a plurality of the votes properly cast on the election of directors.

 

SECTION 8.                             Stockholder Lists .  The Secretary or an Assistant Secretary, if any (or the Corporation’s transfer agent or other person authorized by these By-laws or by law) shall prepare and make, at least ten (10) days before every Annual Meeting or special meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for a period of at least ten (10) days prior to the meeting in the manner provided by law.  The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.

 

SECTION 9.                             Presiding Officer .  The Board of Directors shall designate a representative to preside over all Annual Meetings or special meetings of stockholders, provided that if the Board of Directors does not so designate such a presiding officer, then the Chairperson  of the Board, if one is elected, shall preside over such meetings.  If the Board of Directors does not so designate such a presiding officer and there is no Chairperson of the Board or the Chairperson of the Board is unable to so preside or is absent, then the Chief Executive Officer, if one is elected, shall preside over such meetings, provided further that if there is no Chief Executive Officer or the Chief Executive Officer is unable to so preside or is absent, then the President shall preside over such meetings.  The presiding officer at any Annual Meeting or special meeting of stockholders shall have the power, among other things, to adjourn such meeting at any time and

 

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from time to time, subject to Sections 4 and 5 of this Article I.  The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer.

 

SECTION 10.                      Inspectors of Elections .  The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof.  The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act.  If no inspector or alternate is able to act at a meeting of stockholders, the presiding officer shall appoint one or more inspectors to act at the meeting.  Any inspector may, but need not, be an officer, employee or agent of the Corporation.  Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability.  The inspectors shall perform such duties as are required by the DGCL, including the counting of all votes and ballots.  The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.  The presiding officer may review all determinations made by the inspectors, and in so doing the presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspectors.  All determinations by the inspectors and, if applicable, the presiding officer, shall be subject to further review by any court of competent jurisdiction.

 

ARTICLE II

 

Directors

 

SECTION 1.                             Powers .  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided by the Certificate or required by law.

 

SECTION 2.                             Number and Terms .  The number of directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors.  The directors shall hold office in the manner provided in the Certificate.

 

SECTION 3.                             Qualification .  No director need be a stockholder of the Corporation.

 

SECTION 4.                             Vacancies .  Vacancies in the Board of Directors shall be filled in the manner provided in the Certificate.

 

SECTION 5.                             Removal .  Directors may be removed from office only in the manner provided in the Certificate.

 

SECTION 6.                             Resignation .  A director may resign at any time by giving written notice to the Chairperson of the Board, if one is elected, the President or the Secretary.  A resignation shall be effective upon receipt, unless the resignation otherwise provides.

 

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SECTION 7.                             Regular Meetings .  The regular annual meeting of the Board of Directors shall be held, without notice other than this Section 7, on the same date and at the same place as the Annual Meeting following the close of such meeting of stockholders.  Other regular meetings of the Board of Directors may be held at such hour, date and place as the Board of Directors may by resolution from time to time determine and publicize by means of reasonable notice given to any director who is not present at the meeting at which such resolution is adopted.

 

SECTION 8.                             Special Meetings .  Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the directors, the Chairperson of the Board, if one is elected, or the President.  The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.

 

SECTION 9.                             Notice of Special Meetings .  Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairperson of the Board, if one is elected, or the President or such other officer designated by the Chairperson of the Board, if one is elected, or the President.  Notice of any special meeting of the Board of Directors shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communication, sent to his or her business or home address, at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to his or her business or home address, at least forty-eight (48) hours in advance of the meeting.  Such notice shall be deemed to be delivered when hand-delivered to such address, read to such director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, dispatched or transmitted if sent by facsimile transmission or by electronic mail or other form of electronic communications.  A written waiver of notice signed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting.  The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened.  Except as otherwise required by law, by the Certificate or by these By-laws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

 

SECTION 10.                      Quorum .  At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice.  Any business that might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present.  For purposes of this section, the total number of directors includes any unfilled vacancies on the Board of Directors.

 

SECTION 11.                      Action at Meeting .  At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of the directors present shall constitute action by the Board of Directors, unless otherwise required by law, by the Certificate or by these By-laws.

 

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SECTION 12.                      Action by Consent .  Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.  Such consent shall be treated as a resolution of the Board of Directors for all purposes.

 

SECTION 13.                      Manner of Participation .  Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these By-laws.

 

SECTION 14.                      Presiding Director .  The Board of Directors shall designate a representative to preside over all meetings of the Board of Directors, provided that if the Board of Directors does not so designate such a presiding director or such designated presiding director is unable to so preside or is absent, then the Chairperson of the Board, if one is elected, shall preside over all meetings of the Board of Directors.  If both the designated presiding director, if one is so designated, and the Chairperson of the Board, if one is elected, are unable to preside or are absent, the Board of Directors shall designate an alternate representative to preside over a meeting of the Board of Directors.

 

SECTION 15.                      Committees .  The Board of Directors, by vote of a majority of the directors then in office, may elect one or more committees, including, without limitation, a Compensation Committee, a Nominating & Corporate Governance Committee and an Audit Committee, and may delegate thereto some or all of its powers except those which by law, by the Certificate or by these By-laws may not be delegated.  Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors.  All members of such committees shall hold such offices at the pleasure of the Board of Directors.  The Board of Directors may abolish any such committee at any time.  Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors.

 

SECTION 16.                      Compensation of Directors .  Directors shall receive such compensation for their services as shall be determined by a majority of the Board of Directors, or a designated committee thereof, provided that directors who are serving the Corporation as employees and who receive compensation for their services as such, shall not receive any salary or other compensation for their services as directors of the Corporation.

 

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ARTICLE III

 

Officers

 

SECTION 1.                             Enumeration .  The officers of the Corporation shall consist of a President, a Treasurer, a Secretary and such other officers, including, without limitation, a Chairperson of the Board of Directors, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine.

 

SECTION 2.                             Election .  At the regular annual meeting of the Board of Directors following the Annual Meeting, the Board of Directors shall elect the President, the Treasurer and the Secretary.  Other officers may be elected by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting.

 

SECTION 3.                             Qualification .  No officer need be a stockholder or a director.  Any person may occupy more than one office of the Corporation at any time.

 

SECTION 4.                             Tenure .  Except as otherwise provided by the Certificate or by these By-laws, each of the officers of the Corporation shall hold office until the regular annual meeting of the Board of Directors following the next Annual Meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal.

 

SECTION 5.                             Resignation .  Any officer may resign by delivering his or her written resignation to the Corporation addressed to the President or the Secretary, and such resignation shall be effective upon receipt, unless the resignation otherwise provides.

 

SECTION 6.                             Removal .  Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the directors then in office.

 

SECTION 7.                             Absence or Disability .  In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.

 

SECTION 8.                             Vacancies .  Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

 

SECTION 9.                             President .  The President shall, subject to the direction of the Board of Directors, have such powers and shall perform such duties as the Board of Directors may from time to time designate.

 

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SECTION 10.                      Chairperson of the Board .  The Chairperson of the Board, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

 

SECTION 11.                      Chief Executive Officer .  The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

 

SECTION 12.                      Vice Presidents and Assistant Vice Presidents .  Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

 

SECTION 13.                      Treasurer and Assistant Treasurers .  The Treasurer shall, subject to the direction of the Board of Directors and except as the Board of Directors or the Chief Executive Officer may otherwise provide, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account.  The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation.  He or she shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer.  Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

 

SECTION 14.                      Secretary and Assistant Secretaries .  The Secretary shall record all the proceedings of the meetings of the stockholders and the Board of Directors (including committees of the Board of Directors) in books kept for that purpose.  In his or her absence from any such meeting, a temporary secretary chosen at the meeting shall record the proceedings thereof.  The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation).  The Secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or that of an Assistant Secretary.  The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer.  In the absence of the Secretary, any Assistant Secretary may perform his or her duties and responsibilities.  Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

 

SECTION 15.                      Other Powers and Duties .  Subject to these By-laws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.

 

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ARTICLE IV

 

Capital Stock

 

SECTION 1.                             Certificates of Stock .  Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors.  Such certificate shall be signed by the Chairperson of the Board, the President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary.  The Corporation seal and the signatures by the Corporation’s officers, the transfer agent or the registrar may be facsimiles.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the time of its issue.  Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law.  Notwithstanding anything to the contrary provided in these Bylaws, the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares (except that the foregoing shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation), and by the approval and adoption of these Bylaws the Board of Directors has determined that all classes or series of the Corporation’s stock may be uncertificated, whether upon original issuance, re-issuance, or subsequent transfer.

 

SECTION 2.                             Transfers .  Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock that are represented by a certificate may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate theretofore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require.  Shares of stock that are not represented by a certificate may be transferred on the books of the Corporation by submitting to the Corporation or its transfer agent such evidence of transfer and following such other procedures as the Corporation or its transfer agent may require.

 

SECTION 3.                             Record Holders .  Except as may otherwise be required by law, by the Certificate or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.

 

SECTION 4.                             Record Date .  In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of

 

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stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting and (b) in the case of any other action, shall not be more than sixty (60) days prior to such other action.  If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 

SECTION 5.                             Replacement of Certificates .  In case of the alleged loss, destruction or mutilation of a certificate of stock of the Corporation, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe.

 

ARTICLE V

 

Indemnification

 

SECTION 1.                             Definitions .  For purposes of this Article:

 

(a)                                  “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, (iii) as a Non-Officer Employee of the Corporation, or (iv) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity which such person is or was serving at the request of the Corporation.  For purposes of this Section 1(a), a Director, Officer or Non-Officer Employee of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation.  Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;

 

(b)                                  “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;

 

(c)                                   “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;

 

(d)                                  “Expenses” means all attorneys’ fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without

 

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limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;

 

(e)           “Liabilities” means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement;

 

(f)            “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;

 

(g)           “Officer” means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation;

 

(h)           “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and

 

(i)            “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) fifty percent (50%) or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) fifty percent (50%) or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.

 

SECTION 2.         Indemnification of Directors and Officers .

 

(a)           Subject to the operation of Section 4 of this Article V of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), and to the extent authorized in this Section 2.

 

(1)           Actions, Suits and Proceedings Other than By or In the Right of the Corporation .  Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer

 

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reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.

 

(2)           Actions, Suits and Proceedings By or In the Right of the Corporation . Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made under this Section 2(a)(2) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deems proper.

 

(3)           Survival of Rights .  The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.

 

(4)           Actions by Directors or Officers .  Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding (including any parts of such Proceeding not initiated by such Director or Officer) was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce such Officer’s or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.

 

SECTION 3.         Indemnification of Non-Officer Employees .  Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was

 

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unlawful.  The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators.  Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.

 

SECTION 4.         Determination .  Unless otherwise ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful.  Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.

 

SECTION 5.         Advancement of Expenses to Directors Prior to Final Disposition .

 

(a)           The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses.  Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding (including any parts of such Proceeding not initiated by such Director) was (i) authorized by the Board of Directors of the Corporation, or (ii) brought to enforce such Director’s rights to indemnification or advancement of Expenses under these By-laws.

 

(b)           If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim.  The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to an action brought by a Director for recovery of the unpaid amount of an advancement claim and

 

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shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.

 

(c)           In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.

 

SECTION 6.         Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition .

 

(a)           The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any Non-Officer Employee in connection with any Proceeding in which such person is involved by reason of his or her Corporate Status as an Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such person to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.

 

(b)           In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.

 

SECTION 7.         Contractual Nature of Rights .

 

(a)           The provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, in consideration of such person’s past or current and any future performance of services for the Corporation.  Neither amendment, repeal or modification of any provision of this Article V nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article V shall eliminate or reduce any right conferred by this Article V in respect of any act or omission occurring, or any cause of action or claim that accrues or arises or any state of facts existing, at the time of or before such amendment, repeal, modification or adoption of an inconsistent provision (even in the case of a proceeding based on such a state of facts that is commenced after such time), and all rights to indemnification and advancement of Expenses granted herein or arising out of any act or omission shall vest at the time of the act or omission in question, regardless of when or if any proceeding with respect to such act or omission is commenced.  The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Article V shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributes of such person.

 

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(b)           If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim.  The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to an action brought by a Director or Officer for recovery of the unpaid amount of an indemnification claim and shall not create a presumption that such indemnification is not permissible.  The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.

 

(c)           In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

 

SECTION 8.         Non-Exclusivity of Rights .  The rights to indemnification and to advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.

 

SECTION 9.         Insurance .  The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.

 

SECTION 10.       Other Indemnification .  The Corporation’s obligation, if any, to indemnify or provide advancement of Expenses to any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification or advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise (the “Primary Indemnitor”).  Any indemnification or advancement of Expenses under this Article V owed by the Corporation as a result of a person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall only be in excess of, and shall be secondary to, the indemnification or advancement of Expenses available from the applicable Primary Indemnitor(s) and any applicable insurance policies.

 

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ARTICLE VI

 

Miscellaneous Provisions

 

SECTION 1.         Fiscal Year .  The fiscal year of the Corporation shall be determined by the Board of Directors.

 

SECTION 2.         Seal .  The Board of Directors shall have power to adopt and alter the seal of the Corporation.

 

SECTION 3.         Execution of Instruments .  All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by the Chairperson of the Board, if one is elected, the President or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors or the executive committee of the Board may authorize.

 

SECTION 4.         Voting of Securities .  Unless the Board of Directors otherwise provides, the Chairperson of the Board, if one is elected, the President or the Treasurer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by the Corporation.

 

SECTION 5.         Resident Agent .  The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.

 

SECTION 6.         Corporate Records .  The original or attested copies of the Certificate, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, may be kept outside the State of Delaware and shall be kept at the principal office of the Corporation, at an office of its counsel, at an office of its transfer agent or at such other place or places as may be designated from time to time by the Board of Directors.

 

SECTION 7.         Certificate .  All references in these By-laws to the Certificate shall be deemed to refer to the Amended and Restated Certificate of Incorporation of the Corporation, as amended and/or restated and in effect from time to time.

 

SECTION 8.         Amendment of By-laws .

 

(a)           Amendment by Directors .  Except as provided otherwise by law, these By-laws may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the directors then in office.

 

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(b)           Amendment by Stockholders .  These By-laws may be amended or repealed at any Annual Meeting, or special meeting of stockholders called for such purpose in accordance with these By-Laws, by the affirmative vote of at least seventy-five percent (75%) of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class.  Notwithstanding the foregoing, stockholder approval shall not be required unless mandated by the Certificate, these By-laws, or other applicable law.

 

SECTION 9.         Notices .  If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation.  Without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the DGCL.

 

SECTION 10.       Waivers .  A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person.  Neither the business to be transacted at, nor the purpose of, any meeting need be specified in such a waiver.

 

Adopted April 25, 2013, subject to effectiveness of the Corporation’s Registration Statement on Form S-1.

 

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Exhibit 4.2

 

CONTROL4 CORPORATION

 

EIGHTH AMENDED AND RESTATED

INVESTORS’ RIGHTS AGREEMENT

 

January 21, 2011

 



 

TABLE OF CONTENTS

 

1.

Registration Rights

2

 

1.1

Definitions

2

 

1.2

Request for Registration

3

 

1.3

Company Registration

4

 

1.4

Form S-3 Registration

6

 

1.5

Obligations of the Company

7

 

1.6

Information from Holder

8

 

1.7

Expenses of Registration

8

 

1.8

Delay of Registration

9

 

1.9

Indemnification

9

 

1.10

Reports Under Securities Exchange Act of 1934

11

 

1.11

Assignment of Registration Rights

11

 

1.12

Limitations on Subsequent Registration Rights

12

 

1.13

Market Stand-Off Agreement

12

 

1.14

Termination of Registration Rights

13

 

 

 

2.

Covenants

13

 

2.1

Delivery of Financial Statements

13

 

2.2

Inspection

14

 

2.3

Termination of Information and Inspection Covenants

14

 

2.4

Right of First Offer

15

 

2.5

Board Observer Rights

16

 

2.6

Expenses

16

 

2.7

Director and Officer Insurance

17

 

2.8

Legend

17

 

2.9

Lock-Up Agreement of Future Security Holders

17

 

2.10

Employee Stock

17

 

2.11

Confidential Information, Invention Assignment and Non-Compete Agreements

17

 

2.12

Key Person Insurance

18

 

2.13

IPO Participation Rights

18

 

2.14

Termination of Certain Covenants

20

 

 

 

3.

Miscellaneous

21

 

3.1

Successors and Assigns

21

 

3.2

Governing Law

21

 

3.3

Counterparts

21

 

3.4

Titles and Subtitles

21

 

3.5

Notices

21

 

3.6

Expenses

21

 

3.7

Entire Agreement; Amendments and Waivers

22

 

3.8

Severability

22

 

3.9

Aggregation of Stock

23

 

3.10

Arbitration

23

 

3.11

Waiver of Right of First Offer

23

 

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CONTROL4 CORPORATION

 

EIGHTH AMENDED AND RESTATED

INVESTORS’ RIGHTS AGREEMENT

 

This Eighth Amended and Restated Investors’ Rights Agreement (this “ Agreement ”) is made as of the 21st day of January, 2011, by and among Control4 Corporation, a Delaware corporation (the “ Company ”), and the investors listed on Schedule A hereto (individually, an “ Investor ” and collectively, the “ Investors ”) and the holders of Common Stock listed on Schedule B hereto (the “ Common Holders ”).

 

RECITALS

 

A.                                     Certain existing investors of the Company (the “ Existing Investors ”) hold shares of the Company’s Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock or Series G-l Preferred Stock and possess registration rights, rights of first offer and certain other rights pursuant to that certain Seventh Amended and Restated Investors’ Rights Agreement dated as of June 24, 2009 among the Company, the Existing Investors, and the Common Holders, (the “ Prior Agreement ”);

 

B.                                     The Existing Investors are holders of at least a majority of the outstanding Registrable Securities (as defined in the Prior Agreement) and desire to amend and restate the Prior Agreement and to accept the rights created pursuant hereto in lieu of the rights granted to them under the Prior Agreement;

 

C.                                     The execution of this Agreement on or by the First Closing or a Subsequent Closing (each as defined in the Series H Preferred Stock Purchase Agreement of even date herewith (the “Series H Agreement”)) is a condition of the Company’s and certain of the Investors’ mutual obligations at the First Closing or a Subsequent Closing, as applicable (each as defined in the Series H Agreement); and

 

D.                                     In order to induce the Company and the Common Holders to approve the issuance of the Series H Preferred Stock and to induce certain of the Investors to invest funds in the Company pursuant to the Series H Agreement, the Investors, the Common Holders and the Company hereby agree that this Agreement shall govern the rights of the Investors and the Common Holders to cause the Company to register shares of Common Stock issued or issuable to them and certain other matters as set forth herein.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows:

 



 

AGREEMENT

 

1.                                       Registration Rights

 

The Company covenants and agrees as follows:

 

1.1                                Definitions

 

For purposes of this Section 1 and for purposes of this Agreement:

 

(a)                                  The term “ Act ” means the Securities Act of 1933, as amended.

 

(b)                                  The term “ Form S-3 ” means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

 

(c)                                   The term “ Holder ” means any person owning or having the right to acquire Registrable Securities or any assignee thereof to whom registration rights are assigned in accordance with Section 1.11 hereof; provided, however, that the Common Holders shall not be deemed to be Holders for purposes of Sections 1.2, 1.4, 1.12 and 3.7.

 

(d)                                  The term “ Initial Offering ” means the Company’s first firm commitment underwritten public offering of its Common Stock under the Act.

 

(e)                                   The term “ 1934 Act ” means the Securities Exchange Act of 1934, as amended.

 

(f)                                    The terms “ register ,” “ registered ” and “ registration ” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document.

 

(g)                                   The term “ Registrable Securities ” means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series G-l Preferred Stock or Series H Preferred Stock, (ii) the shares of Common Stock issued to the Common Holders; provided, however, that such shares of Common Stock shall not be deemed Registrable Securities for the purposes of Sections 1.2, 1.4, 1.12 and 3.7, and (iii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (i) and (ii) above; provided, however, that the foregoing definition shall exclude in all cases any Registrable Securities sold by a Holder in a transaction in which such Holder’s rights under this Agreement are not assigned.  In addition, Common Stock or other securities shall only be treated as Registrable Securities if and so long as (A) they have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, including sales made pursuant to Rule 144 promulgated under the Act, (B) they have not been sold in a

 

2



 

transaction exempt from the registration and prospectus delivery requirements of the Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale or (C) the Holder’s rights pursuant to this Section 1 have not terminated in accordance with Section 1.14 below.  The number of shares of “Registrable Securities” outstanding shall be the sum of the number of shares of Common Stock outstanding that are Registrable Securities plus the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are Registrable Securities.

 

(h)                                  The term “ SEC ” shall mean the Securities and Exchange Commission.

 

1.2                                Request for Registration

 

(a)                                  Subject to the conditions of this Section 1.2, if the Company shall receive at any time after the earlier of (i) three (3) years after the date of this Agreement or (ii) six months after the effective date of the Initial Offering, a written request (the “ Initial Request ”) from the Holders of Registrable Securities then outstanding (the “ Initiating Holders ”) that the Company file a registration statement under the Act covering the registration of Registrable Securities with an anticipated aggregate offering price of at least $5,000,000, then the Company shall, within twenty days of the receipt of the Initial Request, give written notice of the Initial Request to all Holders, and subject to the limitations of this Section 1.2, file as soon as practicable, and in any event within 90 days, a registration statement under the Act covering the Registrable Securities that the Holders request to be registered in a written request received by the Company within twenty days after the mailing of the Company’s notice pursuant to this Section 1.2(a), and to use best efforts to cause such registration statement to become effective within one hundred twenty days of the Initial Request.

 

(b)                                  If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in Section 1.2(a).  In such event the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein.  All Holders proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company (which underwriter or underwriters shall be reasonably acceptable to a majority in interest of the Initiating Holders).  Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Company in writing that marketing factors require a limitation of the number of securities underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated among the participating Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders); provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely

 

3



 

excluded from the underwriting.  Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.

 

(c)                                   The Company shall not be required to effect a registration pursuant to this Section 1.2:

 

(1)                                  in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Act; or

 

(2)                                  after the Company has effected two registrations pursuant to this Section 1.2, and such registrations have been declared or ordered effective, provided, that either (i) the distributions described in such registration statements have been completed or (ii) the registration statements continue to remain in effect and there are no “stop orders” in effect with respect to such registration statements; or

 

(3)                                  during the period starting with the date sixty days prior to the Company’s good faith estimate of the date of the filing of a Company-initiated registration subject to Section 1.3 hereof, provided the Company delivers notice to the Holders within thirty days of any request for registration under this Section 1.2, and ending on a date ninety days after such registration or in the case of the Initial Offering ending on a date one hundred eighty days after the effective date of such Initial Offering, provided that the Company is actively employing in good faith best efforts to cause such registration statement to become effective; or

 

(4)                                  if the Initiating Holders propose to dispose of Registrable Securities that may be registered on Form S-3 pursuant to Section 1.4 hereof; or

 

(5)                                  if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the Company’s Chief Executive Officer or Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than one hundred twenty days after receipt of the Initial Request, provided that such right to delay any request of the Holders under this Section 1 shall be exercised by the Company not more than once in any twelve-month period.

 

1.3                                Company Registration

 

(a)                                  If the Company proposes to register (including for this purpose a registration initiated by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering for cash of such securities (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration relating to a corporate reorganization or other transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is

 

4



 

Common Stock issuable upon conversion of debt securities that are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration.  Upon the written request of each Holder given within twenty days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 1.3(c), use best efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered.

 

(b)                                  Right to Terminate Registration .  The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration.  The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 1.7 hereof.

 

(c)                                   Underwriting Requirements .  In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under this Section 1.3 to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters) and enter into an underwriting agreement in customary form with such underwriter or underwriters, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company subject to the terms of this Section 1.3(c).  If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, that the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling Holders according to the total amount of securities entitled to be included therein owned by each selling Holder or in such other proportions as shall mutually be agreed to by such selling Holders), but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below twenty-five percent of the total amount of securities included in such offering, unless such offering is a “ Qualified IPO ” (as such term is defined in the Company’s then current Amended and Restated Certificate of Incorporation, as amended (the “ Restated Certificate ”)), in which case the selling Holders may be completely excluded if the underwriters make the determination described above and no other stockholder’s securities are included, (ii) securities held by any Common Holder be included if any securities by any other selling Holder are excluded, or (iii) the number of shares of Registrable Securities to be included in such underwriting be reduced unless all other securities (other than those of the Company) are first entirely excluded from the underwriting.  For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder that is a Holder of Registrable Securities and that is a partnership, limited liability company or corporation, the partners, retired partners, members and stockholders of such Holder, or the estates and family members of any such partners, retired partners, members and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “ selling Holder ,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate amount of Registrable Securities owned by all such related entities and individuals.

 

5



 

1.4                                Form S-3 Registration

 

In case the Company shall receive from any Holder(s) of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall:

 

(a)                                  promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

 

(b)                                  use best efforts to effect, as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are specified in a written request given within fifteen days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4:

 

(1)                                  if Form S-3 is not available for use by the Company with respect to such offering by the Holders;

 

(2)                                  if the Holders, together with the Holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $1,000,000;

 

(3)                                  if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer or Chairman of the Board of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than one hundred twenty days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize such right to delay any request of the Holders under this Section 1.4 more than once in any twelve-month period;

 

(4)                                  if the Company has, within the twelve-month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.4; or

 

(5)                                  in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required under the Act; and

 

(c)                                   Subject to the foregoing, file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable, and in any event within 30 days, after receipt of the request or requests of the Holders. 

 

6



 

Registrations effected pursuant to this Section 1.4 shall not be counted as requests for registration effected pursuant to Section 1.2.

 

1.5                                Obligations of the Company

 

Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

 

(a)                                  prepare and file with the SEC a registration statement with respect to such Registrable Securities and use best efforts to cause such registration statement to become effective, and keep such registration statement effective for a period of up to one hundred twenty days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided that such 120 day period shall be extended for a period of time equal to the period of time that the underwriters or the Company requests that the participating Holders refrain from selling any securities included in such registration;

 

(b)                                  prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement;

 

(c)                                   furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;

 

(d)                                  use best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless the Company is already subject to service in such jurisdiction and except as may be required under the Act;

 

(e)                                   in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering;

 

(f)                                    notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act or the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

 

(g)                                   cause all such Registrable Securities registered pursuant to this Agreement to be listed on each securities exchange on which similar securities issued by the Company are then listed;

 

7



 

(h)                                  provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; and

 

(i)                                      use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (1) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (2) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities.

 

1.6                                Information from Holder

 

It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder’s Registrable Securities.

 

1.7                                Expenses of Registration

 

All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2, 1.3, 1.4 and 1.5 including (without limitation) all registration, filing and qualification fees, printer’s and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements not to exceed $35,000 of one counsel for the selling Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, shall be borne by the Company.  Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or Section 1.4 if the registration request is subsequently withdrawn at the request of the participating Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be requested in the withdrawn registration) unless, in the case of a withdrawn registration requested under Section 1.2, the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2 or unless, in the case of a withdrawn registration requested under Section 1.4, the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration on Form S-3 pursuant to Section 1.4 within the 12-month period after the date of the initial request for registration pursuant to Section 1.4; provided, however, that if at the time of such withdrawal, the Holders (i) have learned of a material adverse change in the condition, business, or prospects of the Company that was not

 

8



 

known to the Holders at the time of their request and (ii)have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses.

 

1.8                                Delay of Registration

 

No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

 

1.9                                Indemnification

 

In the event any Registrable Securities are included in a registration statement under this Section 1:

 

(a)                                  To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners or officers, directors and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state laws, insofar as such losses, claims, damages, or liabilities (or actions, proceedings, or settlements in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “ Violation ”):  (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws; and the Company will reimburse each such Holder, underwriter or controlling person, as incurred, for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action, proceeding or settlement; provided, however, that the indemnity agreement contained in this Section 1.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action or proceeding if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld, conditioned or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action, proceeding or settlement to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person.

 

(b)                                  To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or

 

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other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state laws, insofar as such losses, claims, damages or liabilities (or actions, proceedings or settlements in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any person intended to be indemnified pursuant to this Section 1.9(b), as incurred, for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability or action, proceeding or settlement; provided, however, that the indemnity agreement contained in this Section 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action or proceeding if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld or delayed), and provided further, that in no event shall any indemnity under this Section 1.9(b) exceed the net proceeds from the offering received by an indemnifying Holder.

 

(c)                                   Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9.

 

(d)                                  If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided, however, that an indemnifying Holder will not be obligated to contribute more than the net proceeds received by such indemnifying Holder from such offering.  The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material

 

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fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

 

(e)                                   The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.

 

1.10                         Reports Under Securities Exchange Act of 1934

 

With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

 

(a)                                  make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the Initial Offering;

 

(b)                                  take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the registration statement filed by the Company for the Initial Offering is declared effective;

 

(c)                                   file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and

 

(d)                                  furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form.

 

1.11                         Assignment of Registration Rights

 

The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities, other than a competitor of the Company (as determined by the Company’s Board of Directors in its reasonable discretion), that (i) is a subsidiary, parent or affiliate of a Holder that is an entity, (ii) is a family member of a Holder or a partner, limited partner, member, retired member, retired, partner or stockholder of a Holder or trust for the benefit of such an individual, (iii) held Registrable Securities prior to such transfer, or (iv) after such assignment or transfer, holds at least 1,000,000 shares of Registrable Securities (subject to

 

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appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations) (or such lesser amount if the Holder is transferring all Registrable Securities held by the Holder), provided: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.13 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act.

 

1.12                         Limitations on Subsequent Registration Rights

 

From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority in interest of the then outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder any registration rights if (a) the terms of such registration rights are senior to or pari passu with the registration rights granted to the Holders pursuant to this Agreement or (b) such holder would not be bound by obligations similar to the obligations of the Holders set forth in Section 1.9 and 1.13.  The Investors agree that the foregoing shall not be construed as to limit the Company’s ability to extend the registration rights contained herein pari passu to subsequent purchasers of shares of Series H Preferred Stock who purchase such shares pursuant to and in accordance with the Subsequent Closing (as defined in the Series H Agreement) provisions of the Series H Agreement.  Such purchasers shall be deemed a Holder and an Investor with all of the rights of a Holder and an Investor under this Agreement; provided that as a condition thereto such Holder or Investor shall sign a counterpart signature page to this Agreement.

 

1.13                         Market Stand-Off Agreement

 

Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter(s), during the period commencing on the date of the final prospectus relating to the Company’s Initial Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty days) (i) lend, 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, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are then owned by the Holder or are thereafter acquired), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise.  Each Holder further agrees to execute and enter into an agreement (such agreement to be in the form as may be requested by the managing underwriter(s)) with the managing underwriter(s) of such Initial Offering to reflect the foregoing.  The foregoing provisions of this Section 1.13 shall apply only to the Company’s Initial Offering of equity securities, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the Holders if all officers, directors and greater than one percent

 

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stockholders of the Company enter into similar agreements; provided, however, that if any provision of such agreement is waived or terminated with respect to any of the securities of any such officer, director or greater than one percent stockholder (in any such case of waiver or termination, such securities being the “ Released Securities ”), the foregoing provisions shall be waived or terminated, as applicable, to the same extent with respect to the same percentage of securities of each Holder as the percentage the Released Securities represent with respect to the securities held by the applicable officer, director or greater than one percent stockholder.  The underwriters in connection with the Company’s Initial Offering are intended third party beneficiaries of this Section 1.13 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.  In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.

 

1.14                         Termination of Registration Rights

 

No Holder shall be entitled to exercise any right provided for in this Section 1 after five years following the consummation of a Qualified IPO or, as to any Holder, such earlier time at which all Registrable Securities held by such Holder (and any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) can be sold in any three (3)-month period without registration in compliance with Rule 144 of the Act, provided that the shares held by such Holder are less than one percent (1%) of the Company’s outstanding securities.

 

2.                                       Covenants

 

The Company hereby covenants to each of the Investors as follows:

 

2.1                                Delivery of Financial Statements

 

The Company shall deliver to each Investor who holds at least 1,000,000 shares of the Preferred Stock (or Common Stock issued upon conversion of the Preferred Stock) and as adjusted for splits, dividends, combinations and other recapitalizations (a “ Major Investor ”):

 

(a)                                  as soon as practicable, but in any event within 120 days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder’s equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports (the “ Year-End Financial Reports ”) to be in reasonable detail, prepared in accordance with generally accepted accounting principles (“ GAAP ”) consistently applied, certified by the Company’s Chief Executive Officer or Chief Financial Officer, and unless otherwise determined by the Board of Directors, audited and certified by an independent public accounting firm of nationally recognized standing approved by the Board of Directors;

 

(b)                                  as soon as practicable, but in any event within 90 days after the end of each fiscal year of the Company, unaudited Year-End Financial Reports;

 

(c)                                   as soon as practicable, but in any event within forty-five days after the end of each of the first three quarters of each fiscal year of the Company, an unaudited income

 

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statement, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter, each of the foregoing income statement, statement of cash flows and balance sheet also to set forth in comparative form the budgeted amounts for such period and the corresponding figures for the period in the prior fiscal year, to be in reasonable detail, prepared in accordance with GAAP and to be certified, subject to normal year-end audit adjustments, by the Company’s Chief Executive Officer or Chief Financial Officer that they are true and accurate in all material respects as of their dates;

 

(d)                                  within thirty days of the end of each month, an unaudited income statement and statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail, each of the foregoing income statement, statement of cash flows and balance sheet also to set forth in comparative form the budgeted amounts for such period and the corresponding figures for the period in the prior fiscal year, to be in reasonable detail, prepared in accordance with GAAP consistently applied and to be certified, subject to normal year-end audit adjustments, by the Company’s Chief Executive Officer or Chief Financial Officer that they are true and accurate in all material respects as of their dates;

 

(e)                                   as soon as practicable, but in any event at least thirty days prior to the end of each fiscal year, a budget for the next fiscal year, approved by the Board of Directors prepared on a monthly basis, including balance sheets, income statements and statements of cash flows for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; and

 

(f)                                    such other information relating to the financial condition, business, prospects or corporate affairs of the Company as any Major Investor may from time to time request, including a capitalization table and a list of the Company’s stockholders and all holders of the Company’s outstanding options, warrants or other securities; provided, however, that the Company shall not be obligated under this Section 2.1(f) to provide information that it deems in good faith to be a trade secret or similar confidential information.

 

2.2                                Inspection

 

The Company shall permit each Major Investor, at such Major Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information that it reasonably considers to be a trade secret or similar confidential information.

 

2.3                                Termination of Information and Inspection Covenants

 

The covenants set forth in Sections 2.1 and 2.2 shall terminate as to Major Investors and be of no further force or effect upon the earlier of (a) the closing of the Initial Offering, (b)when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, or (c) a “ Deemed Liquidation ” (as such term is defined in the Restated Certificate) of the Company, provided that in such Deemed Liquidation the Investors receive cash, cash equivalents or Marketable Securities (as defined below) in consideration for the

 

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securities of the Company held by them, provided that this clause (c) shall not cause the information rights to terminate following a merger effected solely for the purpose of changing the domicile of the Company.  The term “Marketable Securities” means securities that are (i) listed on a national securities exchange or listed on the NASDAQ National Market System and (ii) freely tradable by each of the Investors under applicable securities laws on such exchange or system.

 

2.4                                Right of First Offer

 

Subject to the terms and conditions specified in this Section 2.4, the Company hereby grants to each Major Investor a right of first offer with respect to future sales by the Company of its New Shares (as hereinafter defined).  For purposes of this Section 2.4, Major Investor includes any affiliates of a Major Investor.  A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its affiliates as it deems appropriate.  Each time the Company proposes to offer any shares of, or securities convertible into or exchangeable or exercisable for any shares of, any class of its capital stock (“ New Shares ”), the Company shall first make an offering of such New Shares to each Major Investor in accordance with the following provisions:

 

(a)                                  The Company shall deliver a notice in accordance with Section 3.5 (“ Notice ”) to the Major Investors stating (i) its bona fide intention to offer such New Shares, (ii) the number of such New Shares to be offered, and (iii) the price and terms upon which it proposes to offer such New Shares.

 

(b)                                  By written notification received by the Company, within fifteen (15) calendar days after receipt of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such New Shares that equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities of the Company then held, by such Major Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion of all outstanding convertible securities and the exercise of any outstanding options or warrants).  The Company shall promptly, in writing, inform each Major Investor that elects to purchase all the New Shares available to it (a “ Fully-Exercising Investor ”) of any other Major Investor’s failure to do likewise.  During the ten (10) day period commencing after such information is given, each Fully-Exercising Investor may elect to purchase all or a portion of the New Shares for which Major Investors were entitled to subscribe but which were not subscribed for by the Major Investors (such shares, the “ Remaining Shares ”), provided that to the extent the aggregate number of shares the Fully-Exercising Investors desire to purchase exceeds the number of Remaining Shares, then each Fully-Exercising Investor shall only be entitled to purchase that portion of the Remaining Shares that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities of the Company then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock issued and held, or issuable upon conversion of and exercise of all convertible or exercisable securities of the Company then held, by all Fully-Exercising Investors who wish to purchase the Remaining Shares.

 

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(c)                                   If all New Shares that Investors are entitled to obtain pursuant to Section 2.4(b) are not elected to be obtained as provided in Section 2.4(b) hereof, the Company may, during the forty-five (45) day period following the expiration of the period provided in Section 2.4(b) hereof, offer the remaining unsubscribed portion of such New Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree (individually or in the aggregate) than those specified in the Notice.  If the Company does not enter into an agreement for the sale of the New Shares within such period, or if such agreement is not consummated within 45 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith.

 

(d)                                  For purposes of this Section 2.4, “ New Shares ” shall not include, and therefore the right of first offer shall not be applicable to the issuance of, any securities that are specifically excluded from the definition of “ Additional Shares of Common Stock ” in the Restated Certificate, including, without limitation, shares of Series H Preferred Stock issued or issuable under the Series H Agreement at the First Closing or any Subsequent Closing and shares of Common Stock issuable upon conversion of any shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series G-l Preferred Stock or Series H Preferred Stock.

 

2.5                                Board Observer Rights

 

Each Major Investor (or its representative), and Best Buy Co., Inc. (“ Best Buy ”) if it is not a Major Investor but holds not less than 1,000,000 shares of Registrable Securities, shall have the right to attend all meetings of the Board of Directors in a nonvoting observer capacity (each such participant, an “ Observer ”), and to receive copies of all notices, minutes, consents, and other materials that the Company provides to its directors; provided, however, that the Company reserves the right, upon the advice of its counsel, to withhold any information and to exclude such Major Investor if (i) access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel; (ii) such Major Investor or its representative is a direct competitor of the Company; or (iii) a majority of the members of the Board of Directors deem it appropriate to exclude such Major Investor’s representative from any meeting or from any portion thereof because attendance at such meeting or portion thereof (a) could reasonably be expected to raise issues as to a potential conflict of interest between such Major Investor or its representative and the Company or (b) if such Major Investor is a competitor or a potential competitor, or could gain a competitive advantage by reason of the subject matter to be addressed.  Each Major Investor agrees, and any representative of each Major Investor will agree, to hold in confidence all information provided to it or learned by it in connection with its rights under this Section 2.5, except to the extent otherwise required by law and any other regulatory process to which such Major Investor is subject.

 

2.6                                Expenses

 

The Company shall pay the reasonable out-of-pocket expenses incurred by non-employee directors in connection with their attendance at Board of Directors meetings or other Company-authorized business.

 

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2.7                                Director and Officer Insurance

 

The Company shall use commercially reasonable efforts to obtain from financially sound and reputable insurers and maintain at all times thereafter director and officer liability insurance with coverage limits customary for similarly situated companies, as determined by and on such terms as are approved by a majority of the directors.

 

2.8                                Legend

 

Each certificate evidencing any of the Shares shall bear a legend substantially as follows:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN INVESTORS’ RIGHTS AGREEMENT, AS AT ANY TIME AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ENCUMBERED EXCEPT IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF SAID AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY AND WILL BE FURNISHED TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE.”

 

2.9                                Lock-Up Agreement of Future Security Holders

 

The Company shall cause each future holder of its securities to enter into an agreement substantially similar to the market stand-off agreement of the Holders set forth in Section 1.13.

 

2.10                         Employee Stock

 

With respect to any shares issued or options or rights granted, unless the Board of Directors (including at least one of the Preferred Directors (as defined in the Restated Certificate) agrees otherwise, the Company shall cause each officer, director and employee of the Company to enter into an agreement (i) providing for vesting of such shares or options or rights over 48 months, with no shares or options or rights being vested for 12 months from the date of issuance or grant, as the case may be, at which time 12/48ths of the shares or options or rights shall be vested (provided, however, that director grants may vest monthly over 36 months); (ii) providing for the repurchase of such shares in the event the holder’s employment with or service to the Company terminates; (iii) under which the holder agrees to a market standoff requested by the Company or the underwriters of any public offering of the Company’s securities, substantially similar to that set forth in Section 1.13; and (iv) providing for a right of first refusal in favor of the Company with respect to both vested and unvested shares.

 

2.11                         Confidential Information, Invention Assignment and Non-Compete Agreements

 

Each employee of and consultant to the Company shall, as a condition to the commencement and continuation of their employment with or service to the Company, execute a confidential information and invention assignment agreement in a form reasonably satisfactory

 

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to the Board of Directors.  Subject to the provisions of applicable law, each key employee of and consultant to the Company (as reasonably determined from time to time by the Board of Directors) shall enter into a non-compete agreement in a form reasonably satisfactory to the Investors.

 

2.12                         Key Person Insurance

 

The Company shall use all reasonable efforts to maintain at all times hereafter, term life insurance on the life of William B. West in the amount of $1,000,000.  Such policies shall name the Company as loss payee and shall not be cancelable without the prior approval of the Board of Directors.

 

2.13                         IPO Participation Rights

 

(a)                                  Grant of Right.  In connection with the Initial Offering the Company shall, to the extent permissible under applicable law, use reasonable efforts to cause the managing underwriter(s) (the “ Managing Underwriter ”) of the Initial Offering to offer to each of the holders of the Preferred Stock, including shares of Common Stock issued upon conversion of such Preferred Stock (each, a “ Preferred Holder ”), the right to purchase in the Initial Offering, at the offering price per share and upon the same terms and conditions which such shares of Common Stock are offered to the public in the Initial Offering, a number of shares of Common Stock determined pursuant to the terms of this Section 2.14.  Subject to the terms and conditions specified in this Section 2.14, the aggregate number of shares that shall be subject to the Preferred Holders’ rights under this Section 2.14 (the “ IPO Shares ”) shall be determined by dividing (a) Ten Percent (10%) of the aggregate offering price to the public for all the shares offered in the Initial Offering by (b) the offering price per share to the public in the Initial Offering; provided, however, that in the event that the Managing Underwriter advises the Preferred Holders in writing that such level of participation would, in its opinion, materially adversely affect the offering price or the Managing Underwriter’s ability to complete the offering and shall specify the number of IPO Shares which, in its opinion, can be purchased by the Preferred Holders in the Initial Offering without having such an effect, in which case the number of IPO Shares shall be reduced to the number specified in writing by the Managing Underwriter (the “ Managing Director’s Cutback ”).

 

(b)                                  Initial Allocation of Shares.  Each Preferred Holder shall initially have the right to purchase in the Initial Offering that portion of the IPO Shares (each Preferred Holder’s “ IPO Pro Rata Portion ”) which is equal to a fraction, the numerator of which shall be the number of shares of Common Stock issuable upon conversion of such Preferred Holder’s shares of Preferred Stock (including any shares of Common Stock issued upon conversion of such Preferred Holders’ shares of Preferred Stock), and the denominator of which shall be the number of shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock held by Preferred Holders (including any shares of Common Stock issued upon conversion of such Preferred Holders’ shares of Preferred Stock).

 

(c)                                   Initial Offering Notice.  Promptly following the date on which the Company’s red herring preliminary prospectus is first distributed to investors in connection with the Initial Offering, the Company shall deliver written notice (the “ Initial Offering Notice ”) to

 

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each Preferred Holder stating the IPO Pro Rata Portion available to each Preferred Holder in terms of dollars.

 

(d)                                  Initial Election Notice.  Within five (5) business days after receipt of the Initial Offering Notice, each Preferred Holder desiring to purchase all or a portion of its IPO Pro Rata Portion in the Initial Offering shall deliver written notice to the Company (the “ Initial Election Notice ”) indicating the amount of such Preferred Holder’s IPO Pro Rata Portion in terms of dollars that the Preferred Holder desires to purchase in the Initial Offering, which indication shall be non-binding with respect to such Preferred Holder.

 

(e)                                   Additional Allocation Shares.  Each Preferred Holder that elected in its Initial Election Notice to purchase its full IPO Pro Rata Portion (a “ Fully-Exercising Preferred Holder ”) shall have the right to purchase in the Initial Offering that portion (each Fully-Exercising Preferred Holder’s “ Additional IPO Pro Rata Portion ”) of the IPO Shares for which the Preferred Holders were entitled to subscribe but were not subscribed for by such Preferred Holders (the “ Unexercised IPO Shares ”) which is equal to a fraction, the numerator of which shall be the number of shares of Common Stock issuable upon conversion of such Preferred Holder’s shares of Preferred Stock (including any shares of Common Stock issued upon conversion of such Preferred Holder’s shares of Preferred Stock), and the denominator of which shall be the number of shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock then held by all Fully-Exercising Preferred Holders (including any shares of Common Stock held by Fully-Exercising Preferred Holders issued upon conversion of Fully-Exercising Preferred Holders’ shares of Preferred Stock).

 

(f)                                    Additional IPO Notice.  The Company shall promptly deliver written notice (the “ Additional IPO Notice ”) to each Fully-Exercising Preferred Holder stating such Fully-Exercising Preferred Holder’s Additional IPO Pro Rata Portion in terms of dollars.

 

(g)                                   Additional Election Notice.  Within three (3) business days after receipt of the Additional IPO Notice, each Fully-Exercising Preferred Holder desiring to purchase all or a portion of its Additional IPO Pro Rata Portion in the Initial Offering shall deliver written notice to the Company indicating the amount of such Fully-Exercising Preferred Holder’s Additional Pro Rata Portion in terms of dollars that the Fully-Exercising Preferred Holder desires to purchase in the Initial Offering, which indication shall be non-binding with respect to such Preferred Holder.  A Preferred Holder may, in its Initial Election Notice, indicate its interest in purchasing all or a portion of its Additional IPO Pro Rata Portion (if any), which shall be deemed sufficient notice to the Company for purposes of this subsection (g).

 

(h)                                  Sale of IPO Shares by the Company.  The Company shall have the right to sell to the public (or, as applicable, the underwriters) in the Initial Offering all IPO Shares not elected to be purchased pursuant to this Section 2.14.

 

(i)                                      Assignment.  The right to purchase IPO Shares pursuant to this Section 2.14 may be assigned, in whole or in part, by a Preferred Holder only to limited or general partners, stockholders, members, unitholders or affiliates of such Preferred Holder, any beneficial owners of any interest in such Preferred Holder; provided, that in no event shall any of

 

19



 

the rights in this Section 2.14 be assigned prior to the time that the Company first distributes its red herring preliminary prospectus to investors in connection with an Initial Offering.

 

(j)                                     Securities Law Compliance.  Notwithstanding anything to the contrary contained in this Section 2.14, all action taken pursuant to this Section 2.14 shall be made in accordance with all federal and state securities laws, including, without limitation, Rule 134 of the Securities Act and all applicable rules and regulations promulgated by the National Association of Securities Dealers, Inc. and other such self-regulating organizations.  This arrangement between the Company and each Preferred Holder is not an offer to sell or a solicitation of an offer to buy the IPO Shares, and any decision any Preferred Holder makes with respect to the IPO Shares shall be made only after delivery of the “red herring prospectus” related to the Initial Offering and shall be made in compliance with all securities laws and regulations.  Each Preferred Holder also understands that the provisions of Section 16 of the Exchange Act and other statutory and regulatory provisions may limit such investor’s ability to resell the IPO Shares.  The Company shall be relieved of any obligations under this Section 2.14 if (a) regulatory authorities prohibit the consummation of the Initial Offering based on their objection to the provisions of this Section 2.14 after discussion with the Company and its legal counsel; (b) regulatory authorities allow the Company to fulfill its obligations under this Section 2.14 only on the condition that rescission rights or other extraordinary liability will be assumed by the Company or the underwriters; or (c) the resolution with regulatory authorities relating to this arrangement would delay the Initial Offering more than ten (10) days beyond delays caused by other comments from regulatory authorities.  Nothing in this Section 2.14 obligates the Company to make a registered public offering of its shares and this Section 2.14 applies only to the Initial Offering, if and when one occurs.

 

(k)                                  Further Assurances.  In connection with any potential purchase under this Section 2.14, each of the Preferred Holders agrees to take all actions that the Company or its counsel reasonably deems necessary, appropriate or desirable in connection with such potential purchase.

 

(l)                                      Amendments and Waivers.  Notwithstanding anything to the contrary herein, any provision of this Section 2.14 may be amended, and the performance or observance of any provision of this Section may be waived, only by a written instrument signed by (1) the Company, and (2) the holders of Preferred Stock holding not less than fifty-eight percent (58%) of the Common Stock issued or issuable upon conversion of the Preferred Stock issued to such Preferred Holders.

 

2.14                         Termination of Certain Covenants

 

The covenants set forth in Sections 2.4 through 2.13 (except to the extent expressly set forth therein) shall terminate and be of no further force or effect upon: (a) the consummation of a Qualified IPO, or (b) a Deemed Liquidation (as defined in the Restated Certificate) of the Company, provided that in such Deemed Liquidation the Investors receive cash, cash equivalents or Marketable Securities in consideration for the securities of the Company held by them, and provided that this clause (b) shall not cause the covenants in Sections 2.4 through 2.13 to terminate following a merger effected solely for the purpose of changing the legal domicile of the Company.

 

20



 

3.                                       Miscellaneous

 

3.1                                Successors and Assigns

 

Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities).  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

3.2                                Governing Law

 

This Agreement shall be governed by and construed under the corporate laws of the State of Delaware and the laws of the State of California (where Delaware corporate law does not apply) as applied to agreements among California residents entered into and to be performed entirely within California, without giving effect to principles of conflicts of laws.

 

3.3                                Counterparts

 

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Counterparts may be delivered via facsimile or other electronic transmission.

 

3.4                                Titles and Subtitles

 

The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

3.5                                Notices

 

Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given (a) upon personal delivery to the party to be notified, (b) upon receipt by the sender of a confirmation of a successful facsimile transmission, (c) one business day after deposit with a nationally recognized overnight courier service, prepaid for overnight delivery and addressed as set forth in (d) below, or (d) three days after deposit with the U.S.  Postal Service, postage prepaid, registered or certified with return receipt requested and addressed to the party to be notified at the address indicated for such party on the Schedule A or Schedule B hereto, as the case may be, or at such other address as such party may designate by ten days’ advance written notice to the other parties.

 

3.6                                Expenses

 

If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

 

21



 

3.7                                Entire Agreement; Amendments and Waivers

 

This Agreement (including the exhibits hereto) constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof.  Without limiting the foregoing, this Agreement amends and restates the Prior Agreement in its entirety and all of the terms of the Prior Agreement as superseded by the terms of this Agreement.  Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors holding a majority in interest of the then outstanding Registrable Securities; provided, however, that in the event that such amendment or waiver adversely affects the obligations and/or rights of the Common Holders in a different manner than the other Holders, such amendment or waiver shall also require the written consent of the Common Holders holding a majority of the Registrable Securities held by the Common Holders; provided, however, that in the event that such amendment or waiver adversely affects the obligations and/or rights of the Major Investors, such amendment or waiver shall also require the written consent of the Major Investors holding a majority of the Preferred Stock (or Common Stock issued upon conversion of the Preferred Stock) held by the Major Investors; provided further, that any waiver or amendment that has the effect of (i) imposing a new obligation on an Investor or Major Investor, (ii) increasing any existing obligation of an Investor, or (iii) diminishing or waiving any right, privilege or restriction provided for the benefit of an Investor or Major Investor (including, without limitation, a change to the number or percentage of securities that must be held to secure such rights) (other than as a result of any stock dividend, combination, split, reclassification or the like), in each case, without a corresponding modification to the obligations, rights, privileges or restrictions held by each other Investor or Major Investor, as the case may be, shall require the prior written consent of each such differently affected Investor or Major Investor, as the case may be; provided further, that any waiver or amendment that affects any Investor’s observer rights as provided in Section 2.5 or information rights as provided in Section 2.1 shall require the prior written consent of such Investors; and provided further, that any Common Holder or Investor may waive any of such Common Holder’s or Investor’s own rights hereunder without obtaining the consent of any other Common Holders or Investors, as applicable.  Any amendment or waiver effected in accordance with this Section 3.7 shall be binding upon each Holder of any Registrable Securities, each future Holder of any Registrable Securities and the Company.  Notwithstanding anything in this Agreement to the contrary, the Company may amend this Agreement solely to add a party who after the date of this Agreement acquires shares of the Company’s Series H Preferred Stock pursuant to the terms of the Series H Agreement.  Any such additional party, by executing a counterpart signature page to this Agreement, shall become an Investor for all purposes and shall be bound by all of the applicable provisions under this Agreement.

 

3.8                                Severability

 

If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

 

22



 

3.9                                Aggregation of Stock

 

All shares of Registrable Securities held or acquired by subsidiaries or affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

 

3.10                         Arbitration

 

Any claims arising under this Agreement shall be resolved in binding arbitration with a duly authorized representative of the American Arbitration Association (“AAA”) in accordance with the provisions hereof and thereof.  Either the Company, the Common Holder(s) or the Investor(s) may submit the matter to binding arbitration before the AAA in San Mateo County, California, which arbitration shall be final and binding on the parties and the exclusive method, absent agreement between the Company, such Common Holder(s) and such Investor(s), for purposes of determining the ability of the Company to satisfy such claim.  All claims shall be settled by a single arbitrator appointed in accordance with the Commercial Arbitration Rules then in effect of the AAA (the “ AAA Rules ”).  The arbitrator shall render a final decision pursuant to the AAA Rules within thirty (30) days after filing of the claim.  The final decision of the arbitrator shall be furnished to such Common Holder(s), such Investor(s) and the Company in writing and shall constitute the conclusive determination of the issue in question binding upon such Common Holder(s), such Investor(s) and the Company, and shall not be contested by any of them.  Such decision may be used in a court of law only for the purpose of seeking enforcement of the arbitrator’s decision.  The prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief that such party may be entitled.  For purposes of this Agreement, the prevailing party shall be that party in whose favor final judgment is rendered or who substantially prevails, if both parties are awarded judgment.

 

3.11                         Waiver of Right of First Offer

 

Each of the Existing Investors hereby waives any right of notice or right of first offer to which such Existing Investor may be entitled pursuant to the Prior Agreement.  Such waiver shall be binding upon all parties to the Prior Agreement.

 

[SIGNATURE PAGES FOLLOW]

 

23



 

EXHIBIT A

 

SCHEDULE OF INVESTORS

 

Name and Address of Investors

 

Foundation Capital IV L.P.

250 Middlefield Road

Menlo Park, CA 94025

(650) 614-0505 Facsimile

 

FC IV Active Advisors Fund, LLC

250 Middlefield Road

Menlo Park, CA 94025

(650) 614-0505 Facsimile

 

Foundation Capital IV Principals Fund, LLC

250 Middlefield Road

Menlo Park, CA 94025

(650) 614-0505 Facsimile

 

Foundation Capital VI, L.P.

250 Middlefield Road

Menlo Park, CA 94025

(650) 614-0505 Facsimile

 

Foundation Capital VI Principals Fund, LLC

250 Middlefield Road

Menlo Park, CA 94025

(650)614-0505 Facsimile

 

Redelfs Family Trust UAD December 11, 2000

1108 Fremont Ave.

Los Altos, CA 94024

 

Thomas Weisel Venture Partners, L.P.

One Montgomery Street, Suite 3700

San Francisco, CA 94104

 

Thomas Weisel Venture Partners Employee Fund, L.P.

1950 University Avenue, Suite 501

East Palo Alto, CA 94303

 

vSpring III, L.P.

2795 E. Cottonwood Pkwy, Suite #360

Salt Lake City, Utah 84121

 



 

vSpring III (SP), L.P.

2795 E. Cottonwood Pkwy, Suite #360

Salt Lake City, Utah 84121

 

vSpring Partners III, L.P.

2795 E. Cottonwood Pkwy, Suite #360

Salt Lake City, Utah 84121

 

vSpring SBIC, L.P.

2795 E. Cottonwood Pkwy, Suite #360

Salt Lake City, Utah 84121

 

TWB Investment Partnership, L.P.

1201 Third Avenue, 40th Floor

Seattle, Washington 98101

 

Frazier Technology Ventures, L.P.

601 Union

Two Union Square, Suite 3200

Seattle, WA 98101

 

SAP Ventures Fund I, L.P.

4 West 4th Avenue, Suite 300

San Mateo, CA 94402

 

Snake River Ventures, LLC

263 Santa Rita Ave.

Palo Alto, CA 94301

 

South Fork Ventures LLC

791 Sunshine Dr

Los Altos, CA 94024

 

Christopher B. Paisley

14870 Three Oaks Court

Saratoga, CA 95070

 

TWB Investment Partnership II, L.P.

1201 Third Avenue, Floor 48

Seattle, Washington 98101

 

University Opportunity Fund, LLC

299 South Main, 8th Floor

Salt Lake City, UT 84111

 

University Opportunity Affiliates Fund, LLC

299 South Main, 8th Floor

Salt Lake City, UT 84111

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

Mercato Partners, L.P.

6405 South 3000 East

Salt Lake City, UT 84121-6976

 

Mercato Partners Q.P., L.P.

6405 South 3000 East

Salt Lake City, UT 84121-6976

 

Best Buy Co., Inc.

7601 Penn Avenue South

Richfield, MN 55423

Attn: Vice President - Best Buy Capital

Fax No.: (952) 430-4817

 

Copies to:

 

Best Buy Co., Inc.

7601 Penn Avenue South

Richfield, MN 55423

Attn: Legal Department - Corporate and Securities

Fax No.: (612) 292-2323

 

And

 

Robins, Kaplan, Miller & Ciresi L.L.P.

2800 LaSalle Plaza

800 LaSalle Avenue

Minneapolis, MN 55402-2015

Attn: Kevin S.  Spring

Fax No.: (612)339-4181

 

Cisco Systems, Inc.

170 West Tasman Drive

San Jose, CA 95134-1706

Attention: General Counsel Fax No.: 408-525-4757

 

With a copy to:

 

Attention: Business Development

Fax No.: 408-526-7864

 

Fenwick & West LLP

801 California Street

Mountain View, CA 94041

Attn.: Cynthia Clarfield Hess, Esq.

Fax No.: (650)938-5200

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

Sony Electronics Inc.

16530 Via Esprillo, MZ 1106

San Diego, CA 92127

Attn: Head of Corporate Development

 

With a copy to:

 

Sony Electronics Inc.

16530 Via Esprillo, MZ 1105

San Diego, CA 92127

ATTN to General Counsel

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

SCHEDULE B

 

SCHEDULE OF COMMON HOLDERS

 

Name and Address

 

William B. West

c/o Control4 Corporation

11734 South Election Road

Salt Lake City, Utah 84020

 

W. Eric Smith

c/o Control4 Corporation

11734 South Election Road

Salt Lake City, Utah 84020

 

Mark J. Morgan

c/o Control4 Corporation

11734 South Election Road

Salt Lake City, Utah 84020

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 


 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

COMPANY:

 

 

 

CONTROL4 CORPORATION

 

 

 

 

 

By:

/s/ William B. West

 

 

William B. West

 

 

Chief Executive Officer

 

 

 

Address:

11734 South Election Road

 

 

Salt Lake City, Utah 84020

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

INVESTOR:

 

 

 

CISCO SYSTEMS, INC.

 

 

 

 

 

By:

/s/ Ned Hooper

 

 

Name: Ned Hooper

 

 

Title: Chief Strategy Officer

 

 

 

Address:

 

 

 

170 West Tasman Drive

 

San Jose, CA 95134-1706

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

INVESTOR:

 

 

 

SAP VENTURES FUND I, UP.

 

 

 

By:

SAP Ventures (GPE) I, LLC

 

 

Its General Partner

 

 

 

 

 

By:

/s/ Nino Marakovic

 

Name:

Nino Marakovic

 

Title:

Managing Member

 

 

 

Address:

4 West 4th Avenue, Suite 300

 

 

San Mateo, CA 94402

 

 

 

By:

/s/ Jayendra Das

 

Name:

Jayendra Das

 

Title:

Managing Member

 

 

 

Address:

4 West 4th Avenue, Suite 300

 

 

San Mateo, CA 94402

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

INVESTOR:

 

 

 

SONY ELECTRONICS INC.

 

 

 

 

 

By:

/s/ Marjorie Thomas

 

Name:

Marjorie Thomas

 

Title:

Senior Vice President and Corporate Controller

 

 

 

Address:

16530 Via Esprillo

 

 

San Diego, CA 92127

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

INVESTOR:

 

 

 

BEST BUY CO., INC.

 

 

 

 

 

By:

/s/ Kuk Yi

 

 

Kuk Yi

 

 

Vice President, Best Buy Capital

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

INVESTORS:

 

 

 

Foundation Capital IV, L.P.

 

By:

Foundation Capital Management Co. IV, LLC

 

 

its Manager

 

 

 

 

 

By:

[Illegible]

 

 

Manager

 

 

 

 

 

FCIV Active Advisors Fund, LLC

 

By:

Foundation Capital Management Co. IV, LLC

 

 

its Manager

 

 

 

 

 

By:

[Illegible]

 

 

Manager

 

 

 

 

 

Foundation Capital IV Principals Fund, LLC

 

By:

Foundation Capital Management Co. IV, LLC

 

 

its Manager

 

 

 

 

 

By:

[Illegible]

 

 

Manager

 

 

 

 

 

Foundation Capital VI, L.P.

 

By:

Foundation Capital Management Co. VI, LLC

 

 

its Manager

 

 

 

 

 

By:

[Illegible]

 

 

Manager

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

 

Foundation Capital VI Principals Fund, LLC

 

By:

Foundation Capital Management Co. VI, LLC

 

 

its Manager

 

 

 

 

 

By:

[Illegible]

 

 

Manager

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

INVESTORS:

 

 

 

THOMAS WEISEL VENTURE PARTNERS, L.P.

 

 

 

BY:

THOMAS WEISEL VENTURE PARTNERS LLC

 

ITS:

GENERAL PARTNER

 

 

 

By:

[Illegible]

 

Name:

 

 

Title:

 

 

 

 

Address:

 

One Montgomery Street, Suite 3700

 

San Francisco, CA 94104

 

 

 

 

 

THOMAS WEISEL VENTURE PARTNERS EMPLOYEE FUND, L.P.

 

 

 

BY:

THOMAS WEISEL CAPITAL MANAGEMENT, LLC

 

ITS:

GENERAL PARTNER

 

 

 

By:

[Illegible]

 

Name:

 

 

Title:

 

 

 

 

Address:

 

One Montgomery Street, Suite 3700

 

San Francisco, CA 94104

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

INVESTORS:

 

 

 

vSpring SBIC, L.P.

 

By:

vSpring SBIC Management, L.L.C.

 

 

its General Partner

 

 

 

 

 

By:

/s/ Scott Petty

 

 

Scott Petty, Managing Director

 

 

 

 

 

vSpring III, L.P.

 

By:

vSpring Management III, L.L.C.

 

 

its General Partner

 

 

 

 

 

By:

/s/ Scott Petty

 

 

Scott Petty, Managing Director

 

 

 

 

 

vSpring III (SP), L.P.

 

By:

vSpring Management III, L.L.C.

 

 

its General Partner

 

 

 

 

 

By:

/s/ Scott Petty

 

 

Scott Petty, Managing Director

 

 

 

 

 

vSpring Partners III, L.P.

 

By:

vSpring Management III, L.L.C.

 

 

its General Partner

 

 

 

 

 

By:

/s/ Scott Petty

 

 

Scott Petty, Managing Director

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

INVESTOR:

 

 

 

FRAZIER TECHNOLOGY VENTURES II, L.P.

 

 

 

By FTVM II, L.P., its general partner

 

 

 

By Frazier Technology Management, L.L.C., its general partner

 

 

 

 

 

By:

/s/ Len K. Jordan

 

 

Len K. Jordan, Managing Member

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

INVESTOR:

 

 

 

/s/ Chris Paisley

 

Chris Paisley

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

COMMON HOLDERS:

 

 

 

/s/ William B. West

 

William B. West

 

 

 

Address:

Control4 Corporation

 

 

11734 South Election Road

 

 

Salt Lake City, UT 84020

 

 

 

Fax: (801) 523-3199

 

 

 

Phone: (801) 523-3103

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 



 

IN WITNESS WHEREOF, the parties have executed this Eighth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

 

COMMON HOLDERS:

 

 

 

/s/ W. Eric Smith

 

W. Eric Smith

 

 

 

Address:

Control4 Corporation

 

 

11734 South Election Road

 

 

Salt Lake City, UT 84020

 

 

 

Fax: (801) 523-3199

 

 

 

Phone: (801) 523-3103

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 




Exhibit 4.3

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“ 33 ACT ” OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 33 ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE 33 ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE 33 ACT, OR ANY APPLICABLE STATE SECURITIES LAWS.

 

WARRANT

 

To Purchase Shares of the Common Stock of

 

CONTROL4 CORPORATION

 

Dated as of October 25, 2010 (the “ Effective Date ”)

 

WHEREAS , pursuant to the certain asset purchase agreement (the “ Asset Purchase Agreement ”) dated October 25, 2010 by and between Control4 Corporation, a Delaware corporation (the “ Company ”) and Control UI, LLC, a Massachusetts limited liability company (“ Control UI ”), the Company agreed to grant to Control UI a warrant to purchase 370,000 shares of the Company’s Common Stock; and

 

NOW , in consideration of the foregoing and in consideration of the premises and the mutual covenants and agreements contained herein, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged the parties agree as follows:

 

1.                                       GRANT OF THE RIGHT TO PURCHASE COMMON STOCK; NUMBER OF SHARES; EXERCISE PRICE.

 

The Company hereby grants to Control UI or its registered assigns (hereafter, the “ Warrantholder ”), upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase from the Company 370,000 shares of the Company’s Common Stock (“ Common Stock ”), in accordance with the vesting terms set forth below, subject to adjustment in accordance with Section 8 (collectively, the “ Warrant Shares ”) at the exercise price of the lesser of $1.44 per share or the independent valuation for the Company shares dated September 30, 2010, as such valuation may be conducted by Company in its sole discretion, (as adjusted pursuant to the terms hereof, the “ Exercise Price ”).  All defined terms not defined herein shall have the meaning ascribed to them in the Asset Purchase Agreement.

 

The Warrant Shares will be subject to forfeiture until the earlier of the successful integration of the Purchased Assets into Company’s business (the “ Integration ”) or one hundred thirty five (135) days after Effective Date (the “ Integration Period ”).  Thereafter the Warrant Shares shall not be subject to forfeiture (“ Vesting Date ”).  “Integration” means the completion by O’Brien, Hudson and Company of the following during the Integration Period: (1) delivery of the Purchased Assets to the Company; (2) provision to Company of the architectural

 



 

documentation for the Purchased Assets and documentation related to the major business processes for code development, registration and support of the Apple, Android, and Blackberry; and (3) submission of one version each of the iPhone & iPad applications to Apple for approval.  Notwithstanding the foregoing, the Warrant Shares shall no longer be subject to forfeiture within the Integration Period if O’Brien and/or Hudson are terminated without cause.

 

For purposes of this section, “cause” shall mean and include:

 

(a)                                  any act, whether or not involving Company or any affiliate of Company, of fraud or gross misconduct;

 

(b)                                  dishonest statements or acts with respect to Company or any affiliate of Company;

 

(c)                                   the commission of (i) a felony or (ii) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud;

 

(d)                                  failure to use commercially reasonable efforts, to the commercially reasonable satisfaction of the Board of Directors of Company, to conclude the Integration; provided, however , that Company will provide O’Brien and/or Hudson, as the case may be, with written notice to take corrective action to rectify the cause for termination hereunder and if such cause is not rectified to Company’s commercially reasonable satisfaction within fourteen (14) business days thereafter, employment shall terminate immediately thereafter for cause; or

 

(e)                                   gross negligence or willful misconduct.

 

Cause shall not include death or disability, nor O’Brien or Hudson leaving Company’s employment, or a failure to complete the Integration, for good reason.  For purposes of this section, “good reason” shall mean and include:

 

(a)                                  a reduction of salary without consent;

 

(b)                                  Company requiring O’Brien and/or Hudson to relocate their residence;

 

(c)                                   Company failing to engage on commercially reasonable terms third parties necessary in the reasonable judgment of Company to complete the Integration, including without limitation, Alan Weiner, Jeremy Millers, and/or Steve Dow, as the case may be;

 

(d)                                  During the Integration Period, Company has not applied for an Apple Developer account with Apple and does not have a new Macintosh computer (MacBook Pro, iMac, or PowerMac) dedicated to iPhone & iPad release engineering within fifteen (15) days of Closing, This will be the “build machine” used to build and submit iOS apps to Apple and will be the responsibility of Company’s release engineering to set up with the build tools, code source tools and certificates; or

 

(e)                                   Company does not provide O’Brien and/or Hudson with commercially necessary technological and personnel assistance in order to complete the Integration.

 

2



 

Notwithstanding the foregoing, Company will have fourteen (14) business days after written notice thereof to take corrective action to rectify the good reason for O’Brien and/or Hudson to leave Company’s employment.

 

Furthermore, the Warrant Shares shall no longer be subject to forfeiture if at any time within the Integration Period, Company undergoes an initial public offering or a change of control.  A change of control shall be deemed to occur if: (a) the shareholders of Company approve (i) any consolidation, merger or sale of equity interests in Company (x) where the shareholders of Company immediately prior to the consolidation, merger or sale would not, immediately after the consolidation, merger or sale beneficially own, directly or indirectly, shares representing in the aggregate more than 50% of the combined voting power of all the outstanding securities of the corporation issuing cash or securities in the consolidation, merger or sale (or of its ultimate parent company, if any) or (y) where the members of the Board of Directors of Company, immediately prior to the consolidation, merger or sale would not, immediately after the consolidation, merger or sale constitute more than 50 % of the Board of Directors issuing cash or securities after the consolidation, merger or sale (or of its ultimate parent company, if any); (ii) any sale, lease, exchange, or other transfer (in one transaction or series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company; or (iii) any plan or proposal for the liquidation or dissolution of Company.

 

2.                                       TERM OF THE WARRANT; EXERCISE PERIOD.

 

Subject to the terms and conditions set forth herein, Warrantholder shall be entitled to purchase and exercise this Warrant, in whole or in part, at any time on or after the Vesting Date until the Warrant shall expire on the earlier of (i) five (5) years from the Effective Date; or (ii) the consummation of a Sale Transaction (the date of such exercise referred to as the “ Exercise Date ”).  For purposes of this Warrant, a “ Sale Transaction ” shall mean the closing of a merger, consolidation, reorganization, initial public offering or recapitalization of the Company or a sale of the outstanding shares of the Company which, in either case, will result in the Company’s stockholders immediately prior to such transaction not holding (by virtue of such shares or securities issued or sold solely with respect thereto) at least 50% of the voting power of the surviving, continuing or purchasing entity, or a sale of all or substantially all of the assets of the Company.

 

The Company shall notify the Warrantholder twenty (20) days prior to the consummation of a Sale Transaction in accordance with the terms of Section 13(d)(ii) hereof and this Warrant shall terminate unless exercised prior to the date of consummation of such Sale Transaction.  If the Company fails to deliver such written notice, then notwithstanding anything to the contrary contained in this Warrant, Warrantholder’s right to purchase the Company’s Common Stock pursuant to the terms of this Warrant shall not expire for a period of twenty (20) days after the Company complies with such notice provisions.

 

3.                                       EXERCISE OF THE PURCHASE RIGHTS.

 

The purchase rights set forth in this Warrant shall be exercisable, in whole or in part, at any time, or from time to time, within the period set forth in Section 2 above, by tendering to the

 

3



 

Company at its principal office (i) a notice of exercise in the form attached hereto as Exhibit I (the “ Notice of Exercise ”), duly completed and executed, (ii) this Warrant for surrender, and (iii) payment of the purchase price in accordance with the terms set forth below.  Promptly upon exercise as set forth in the preceding sentence, and in no event later than ten (10) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Common Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the “ Acknowledgment of Exercise ”) indicating the number of shares which remain subject to future purchases, if any.

 

The Exercise Price be paid at the Warrantholder’s election either (i) by cash, cashier’s check, or wire transfer of immediately available funds pursuant to the Company’s wire instructions in an amount equal to the aggregate exercise price of the shares being purchased, or (ii) by the surrender of this Warrant (“ Net Issuance ”) as set forth below.  If the Warrantholder elects the Net Issuance method, the Company will issue Common Stock or other consideration, as the case may be, in accordance with the following formula:

 

 

Where:

X

=

the number of shares of Common Stock to be issued to the Warrantholder pursuant to a Net Issuance.

 

 

 

 

 

Y

=

the number of shares of Common Stock requested to be exercised under this Warrant.

 

 

 

 

 

A

=

the current fair market value of one (1) share of Common Stock on the date of such calculation.

 

 

 

 

 

B

=

the Exercise Price.

 

For purposes of the above calculation, current fair market value of Common Stock shall mean with respect to each share of Common Stock:

 

(i)                                      if the exercise is in connection with an initial public offering (an “ IPO ”) and if the Company’s registration statement relating to the IPO has been declared effective by the Securities and Exchange Commission (“ SEC ), then the current fair market value per share shall be the initial “ Price to Public ” specified in the final prospectus with respect to the IPO;

 

(ii)                                   otherwise, the current fair market value of Common Stock shall be as determined in good faith by its Board of Directors. In the event that the Warrantholder disagrees with such valuation as determined by the Board of Directors, the Warrantholder shall be entitled to have the valuation determined by an independent appraiser mutually agreeable to the Company and the Warrantholder, the fees for which appraisal shall be borne solely by the Warrantholder.

 

Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended and restated Warrant representing the remaining number of shares purchasable

 

4



 

hereunder.  All other terms and conditions of such amended Warrant shall be identical to those contained herein, including, but not limited to the Effective Date hereof.

 

4.                                       RESERVATION OF SHARES.

 

(a)                                  Authorization and Reservation of Shares .  During the term of this Warrant, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Common Stock as provided for herein.

 

(b)                                  Registration or Listing .  If any shares of Common Stock required to be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the 33 Act, as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be.

 

5.                                       NO FRACTIONAL SHARES OR SCRIP.

 

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.

 

6.                                       NO RIGHTS AS STOCKHOLDER.

 

This Warrant does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the exercise of the Warrant.

 

7.                                       WARRANTHOLDER REGISTRY.

 

The Company shall maintain a registry showing the name and address of the registered holder of this Warrant.

 

8.                                       ADJUSTMENT RIGHTS.

 

The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment, as follows:

 

(a)                                  Reclassification of Shares .  If there at any time shall occur, by combination, reclassification, exchange or subdivision of securities or otherwise, a change in any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such combination, reclassification, exchange, subdivision or other change.  Appropriate adjustments shall also be made to the purchase price payable per share, but

 

5



 

the aggregate purchase price payable for the total number of shares purchasable, under this Warrant (as adjusted) shall remain the same.

 

(b)                                  Subdivision or Combination of Shares .  If the Company at any time shall combine or subdivide its Common Stock, the number of shares that may be purchased pursuant to the terms of this Warrant shall be proportionately increased in the case of a subdivision, or proportionately decreased in the case of a combination.  Appropriate adjustments shall also be made to the purchase price payable per share, but the aggregate purchase price payable for the total number of shares purchasable under this Warrant (as adjusted) shall remain the same.  Any adjustment under this Section 8(b) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(c)                                   Stock Dividends .  If the Company at any time shall pay a dividend payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company’s stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company’s stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company’s stock outstanding immediately after such dividend or distribution.  The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.

 

9.                                       REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

 

(a)                                  Reservation of Common Stock .  The Common Stock issuable upon exercise of the Wan-ant has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant, will be validly issued, fully paid and non-assessable.

 

(b)                                  Due Authority .  The execution and delivery by the Company of this Warrant and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Common Stock, have been duly authorized by all necessary corporate action on the part of the Company, and this Warrant is not inconsistent with the Company’s charter or bylaws.

 

(c)                                   Exempt Transaction .  Subject to the accuracy of the Warrantholder’s representations in Section 10 hereof, the issuance of the Common Stock upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the 33 Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

 

6


 

 

10.                                REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

 

The Company has entered into this Warrant in reliance upon the following representations and covenants of the Warrantholder:

 

(a)                                  Investment Purpose .  The right to acquire Common Stock or the Common Stock issuable upon exercise of the Warrantholder’s lights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption.

 

(b)                                  Private Issue .  The Warrantholder understands (i) that the Common Stock issuable upon exercise of this Warrant is not registered under the 33 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant will be exempt from the registration and qualification requirements thereof, and (ii) that the Company’s reliance on such exemption is predicated on the representations set forth in this Section 10.

 

(c)                                   Disposition of Warrantholder’s Rights .  In no event will the Warrantholder make a disposition of any of its (i) rights to acquire Common Stock under this Warrant, or (ii) Common Stock issuable upon exercise of such rights, unless and until (A) it shall have notified the Company of the proposed disposition, and (B) if requested by the Company, it shall have furnished the Company with an opinion of counsel satisfactory to the Company to the effect that (1) appropriate action necessary for compliance with the 33 Act has been taken, or (2) an exemption from the registration requirements of the 33 Act is available.  The foregoing notice provisions shall expire as to any particular share of Common Stock when (a) such security shall have been effectively registered under the 33 Act and sold by the holder thereof in accordance with such registration or (b) such security shall have been sold without registration in compliance with Rule 144 under the 33 Act, or (c) a letter shall have been issued to the Warrantholder at its request by the staff of the SEC or a ruling shall have been issued to the Warrantholder at its request by the SEC stating that no action shall be recommended by the SEC or taken by the SEC, as the case may be, if such security is transferred without registration under the 33 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required.  Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Common Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Common Stock not bearing any restrictive legend.

 

(d)                                  Financial Risk .  The Warrantholder is aware of the Company’s business affairs and financial condition, and has sufficient information about the Company to reach an informed and knowledgeable decision to acquire this Warrant and the Common Stock issuable hereunder.  The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.

 

(e)                                   Risk of No Registration .  The Warrantholder understands that if the Company does not register with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934, as

 

7



 

amended (the “ 34 Act ”), or file reports pursuant to Section 15(d) of the 34 Act, or if a registration statement covering the securities under the 33 Act is not in effect when Warrantholder desires to sell (i) the rights to purchase Common Stock pursuant to this Warrant, or (ii) the Common Stock issuable upon exercise of the right to purchase, Warrantholder may be required to hold such securities for an indefinite period.  The Warrantholder also understands that any sale of its rights to purchase Common Stock or Common Stock which might be sold by it in reliance upon Rule 144 under the 33 Act may be made only in accordance with the terms and conditions of that Rule.

 

(f)                                    Accredited Investor .  Warrantholder is an “accredited investor” within the meaning of the Rule 501 of Regulation D of the 33 Act, as presently in effect.

 

(g)                                   Legends .  The Warrantholder understands that the share certificate(s) evidencing the shares issued hereunder shall be endorsed with legend(s) substantially similar to the following:

 

(i)                                      THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENT OF SUCH ACT.

 

(ii)                                   Any legend required by any applicable state securities laws.

 

(h)                                  Exercise Price .  The Warrantholder further agrees and acknowledges that the Company makes no representation or warranties regarding the future value of such Common Stock.

 

11.                                TRANSFERS.

 

(a)                                  The Company shall maintain a register containing the name and address of the registered holder(s) of this Warrant.  The registered holder may change its address as shown on the warrant register by written notice to the Company requesting such change.

 

(b)                                  Subject to the restrictions set forth in this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant with a properly executed assignment in the form attached hereto as Exhibit III (the “ Transfer Notice ”).  Such transfer shall be recorded on the books of the Company upon receipt by the Company of the Transfer Notice, addressed to the Company as set forth in Section 13(d) below, and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer.

 

(c)                                   Until any transfer of this Warrant is made in the warrant register, the Company may treat the registered holder as the absolute owner hereof for all purposes; provided, however ,

 

8



 

that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

 

12.                                Intentionally Omitted.

 

13.                                MISCELLANEOUS.

 

(a)                                  Attorneys’ Fees .  In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Warrant.

 

(b)                                  Governing Law .  This Warrant shall be governed by and construed for all purposes under and in accordance with the laws of the State of Utah without regard to principles of conflicts of law.

 

(c)                                   Counterparts .  This Warrant may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

(d)                                  Notices .

 

(i)                                      Notice of Adjustments .  Whenever the Exercise Price or number of shares purchasable hereunder shall be adjusted pursuant to Section 8 above, the Company shall provide written notice to the Warrantholder of such adjustment.  Each such written notice shall set forth, in reasonable detail, to the extent applicable, (A) the event requiring the adjustment, (B) the method by which such adjustment was calculated, (C) the Exercise Price, and (D) the number of shares subject to purchase hereunder after giving effect to such adjustment.

 

(ii)                                   Notice as to Certain Events .  In case: (A) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any dividend or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; (B) of any voluntary dissolution, liquidation or winding-up of the Company; (C) of any redemption or conversion of all outstanding Common Stock; or (D) the Company shall propose to enter into any Sale Transaction (any of the foregoing, an “ Extraordinary Event ”), then, and in each such case, the Company will mail or cause to be mailed to the Warrantholder a notice specifying, as the case may be, (x) the anticipated date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (y) the anticipated date on which such Sale Transaction, reclassification, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such Sale Transaction, reclassification, dissolution, liquidation or winding-up, or (z) the anticipated date on which the Company expects its first registration statement with the SEC to become effective.  Such notice shall be mailed at least ten (10) days prior to the anticipated date therein specified.

 

9



 

(iii)                                Timely Notice .  Failure to timely provide the notice required by subsections (i) and (ii) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder.  The notice period shall begin on the date Warrantholder actually receives a written notice containing all the information specified above.

 

(iv)                               Method of Giving Notice .  Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or facsimile transmission ( provided that the original is sent by personal delivery or mail as hereinafter set forth), one day after deposit with a nationally-recognized overnight courier, or three (3) days after deposit in the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at Control UI, LLC, 167 Marlborough Street, Suite 3, Boston, MA 02116, Attention: Sean O’Brien, and (ii) to the Company at 11734 S. Election Road, Draper, Utah 84020, Attention: General Counsel, or at such other address as any such party may subsequently designate by written notice to the other party.

 

(e)                                   Remedies .  In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable.  The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement.

 

(f)                                    No Impairment of Rights .  The Company will not, by amendment of its charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment.

 

(g)                                   Survival .  The representations, warranties, covenants and conditions of the respective parties contained herein or made pursuant to this Warrant shall survive the execution and delivery of this Warrant.

 

(h)                                  Severability .  In the event any one or more of the provisions of this Warrant shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

 

(i)                                      Amendments .  Any provision of this Warrant may be amended or waived (either retroactively or prospectively and either generally or in a particular instance) by a written instrument signed by the Company and by the Warrantholder.

 

(j)                                     Successors and Assigns .  This Warrant shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective successors and assigns.

 

10



 

(k)                                  Prevailing Party .  To the extent permitted by applicable law, in any action or suit to enforce any right or remedy (or to interpret) this Agreement, the prevailing Party will be entitled to recover its fees and costs, including reasonable attorneys’ fees.

 

[Remainder of page intentionally left blank]

 

11



 

IN WITNESS WHEREOF , the parties hereto have caused this Warrant to be executed by its officers thereunto duly authorized as of the Effective Date.

 

 

COMPANY:

 

 

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

 

By:

/s/ Dan Strong

 

Name:

Dan Strong

 

Title:

CFO

 

 

 

 

WARRANTHOLDER:

 

 

 

 

CONTROL UI, LLC

 

 

 

 

 

 

 

By:

/s/Sean B. O’Brien

 

Name:

Sean B. O’Brien

 

Title:

Co-Founder

 



 

EXHIBIT I

 

NOTICE OF EXERCISE

 

To:  Control4 Corporation; Attention: CFO

 

(1)                                  The undersigned Warrantholder hereby elects to purchase                    shares of the Common Stock of Control4 Corporation, a Delaware corporation, pursuant to the terms of the Warrant effective as of                      , 2001 (the “ Warrant ”) between Control4 Corporation and the Warrantholder, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any.  [This Notice of exercise is being delivered in connection with a proposed Sale Transaction and shall be effective immediately prior to the effective date of such Sale Transaction.]

 

(2)                                  In exercising its rights to purchase the Common Stock of Control4 Corporation, the undersigned hereby confirms and acknowledges the investment representations and warranties made in Section 9 of the Warrant and the covenant made in Section 12 of the Warrant.

 

(3)                                 Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below.

 

 

 

 

(Name)

 

 

 

 

 

(Address)

 

 

 

 

 

Warrantholder

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

Date:

 

 

 



 

EXHIBIT II

 

ACKNOWLEDGMENT OF EXERCISE

 

The undersigned hereby acknowledge receipt of the “ Notice of Exercise ” from Control UI, LLC to purchase                                  shares of the Common Stock of Control4 Corporation., a Delaware corporation, pursuant to the terms of the Warrant, and further acknowledges that                          shares remain subject to purchase under the terms of the Warrant.

 

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

By:

 

 

 

Title:

 

 

Date:

 



 

EXHIBIT III

 

TRANSFER NOTICE

 

(To transfer or assign the foregoing Warrant execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED , the foregoing Warrant and all rights evidenced thereby are hereby transferred and assigned to

 

 

 

(Please Print)

 

 

 

whose address is

 

 

 

 

Dated:

 

 

 

 

 

 

 

Holder’s Signature:

 

 

 

 

 

Holders Address:

 

 

 

 

 

Signature Guaranteed:

 

 

NOTE:                           The signature to this Transfer Notice must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence, of authority to assign the foregoing Warrant.

 


 



Exhibit 4.4

 

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, DISTRIBUTED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

 

WARRANT TO PURCHASE STOCK

 

Company:

 

Control4 Corporation, a Delaware corporation

Number of Shares:

 

38,095

Class of Stock:

 

Series C Preferred

Warrant Price:

 

$1.058 per share

Issue Date:

 

Is the Warrant Effective Date, which is the date in which the Holder executes this Warrant

Expiration Date:

 

The earlier of: (i) The 10th anniversary after the Issue Date or (ii) The 5 th  anniversary after the Company’s Initial Public Offering, if any.

 

THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, SILICON VALLEY BANK (“Holder”) is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the “Shares”) of the company (the “Company”) at the Warrant Price, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

 

ARTICLE 1.                            EXERCISE .

 

1.1                                Method of Exercise .  Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company.  Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

 

1.2                                Conversion Right .  In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share.  The fair market value of the Shares shall be determined pursuant to Article 1.3.

 



 

1.3                                Fair Market Value .  If the Company’s common stock is traded in a public market and the Shares are common stock, the fair market value of each Share shall be the closing price of a Share reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering, the “price to public” per share price specified in the final prospectus relating to such offering).  If the Company’s common stock is traded in a public market and the Shares are preferred stock, the fair market value of a Share shall be the closing price of a share of the Company’s common stock reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or, in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering, the initial “price to public” per share price specified in the final prospectus relating to such offering), in both cases, multiplied by the number of shares of the Company’s common stock into which a Share is convertible.  If the Company’s common stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.

 

1.4                                Delivery of Certificate and New Warrant .  Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.

 

1.5                                Replacement of Warrants .  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

 

1.6                                Treatment of Warrant Upon Acquisition of Company .

 

1.6.1                      Acquisition ”.  For the purpose of this Warrant, “Acquisition” means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company’s securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction.

 

1.6.2                      Treatment of Warrant at Acquisition .

 

A)                                    Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is not an asset sale and in which the sole consideration is cash, either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of such Acquisition.  The Company shall provide the Holder with written notice of its request relating to the foregoing (together with such reasonable information as the Holder may request in

 

2



 

connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

 

B)                                    Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is an “arm’s length” sale of all or substantially all of the Company’s assets (and only its assets) to a third party that is not an Affiliate (as defined below) of the Company (a “True Asset Sale”), either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will continue until the Expiration Date if the Company continues as a going concern following the closing of any such True Asset Sale.  The Company shall provide the Holder with written notice of its request relating to the foregoing (together with such reasonable information as the Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

 

C)                                    Upon the closing of any Acquisition other than those particularly described in subsections (A) and (B) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing.  The Warrant Price and/or number of Shares shall be adjusted accordingly.

 

As used herein “ Affiliate ” shall mean any person or entity that owns or controls directly or indirectly ten (10) percent or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such person’s or entity’s officers, directors, joint venturers or partners, as applicable.

 

ARTICLE 2.                            ADJUSTMENTS TO THE SHARES .

 

2.1                                Stock Dividends, Splits, Etc .  If the Company declares or pays a dividend on the Shares payable in common stock, or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend occurred.  If the Company subdivides the Shares by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of stock into which the Shares are convertible, the number of shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased.  If the outstanding shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

 

2.2                                Reclassification, Exchange, Combinations or Substitution .  Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been

 

3



 

exercised immediately before such reclassification, exchange, substitution, or other event.  Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company’s Articles or Certificate (as applicable) of Incorporation upon the closing of a registered public offering of the Company’s common stock.  The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant.  The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant.  The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

 

2.3                                Adjustments for Diluting Issuances .  The Warrant Price and the number of Shares issuable upon exercise of this Warrant or, if the Shares are preferred stock, the number of shares of common stock issuable upon conversion of the Shares, shall be subject to adjustment, from time to time in the manner set forth in the Company’s Certificate of Incorporation with respect to the Company’s Series C Preferred Stock as if the Shares were issued and outstanding on and as of the date of any such required adjustment.  The provisions set forth for the Shares in the Company’s Articles or Certificate (as applicable) of Incorporation relating to the above in effect as of the Issue Date may not be amended, modified or waived, without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to the Holder.

 

2.4                                No Impairment .  The Company shall not, by amendment of its Articles or Certificate (as applicable) of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder’s rights under this Article against impairment.

 

2.5                                Fractional Shares .  No fractional Shares shall be issuable upon exercise or conversion of this Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share.  If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.

 

2.6                                Certificate as to Adjustments .  Upon each adjustment of the Warrant Price, the Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based.  The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.

 

4



 

ARTICLE 3.                            REPRESENTATIONS AND COVENANTS OF THE COMPANY .

 

3.1                                Representations and Warranties .  The Company represents and warrants to the Holder as follows:

 

(a)                                  The initial Warrant Price referenced on the first page of this Warrant is not greater than (i) the price per share at which the Shares were last issued in an arms-length transaction in which at least $500,000 of the Shares were sold and (ii) the fair market value of the Shares as of the date of this Warrant.

 

(b)                                  All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

 

(c)                                   The Capitalization Table previously provided to Holder remains true and complete as of the Issue Date in all material respects.

 

3.2                                Notice of Certain Events .  If the Company proposes at any time (a) to declare any dividend or distribution upon any of its stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for sale any shares of the Company’s capital stock (or other securities convertible into such capital stock), other than (i) pursuant to the Company’s stock option or other compensatory plans, (ii) in connection with commercial credit arrangements or equipment financings, or (iii) in connection with strategic transactions for purposes other than capital raising; (c) to effect any reclassification or recapitalization of any of its stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the Company’s securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days’ prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (a) and (b) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.

 

3.3                                Registration Under Securities Act of 1933, as amended .  The Company agrees that the Shares or, if the Shares are convertible into common stock of the Company, such common stock, shall have certain incidental, or “Piggyback,” registration rights pursuant to and as set forth in the Company’s Investor Rights Agreement or similar agreement.  The provisions set forth in the Company’s Investors’ Right Agreement or similar agreement relating to the above in effect as of the Issue Date may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights

 

5



 

associated with the Shares in the same manner as such amendment, modification, or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to the Holder.

 

3.4                                No Shareholder Rights .  Except as provided in this Warrant, the Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.

 

ARTICLE 4.                            REPRESENTATIONS, WARRANTIES OF THE HOLDER .  The Holder represents and warrants to the Company as follows:

 

4.1                                Purchase for Own Account .  This Warrant and the securities to be acquired upon exercise of this Warrant by the Holder will be acquired for investment for the Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act.  Holder also represents that the Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares.

 

4.2                                Disclosure of Information .  The Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities.  The Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Holder or to which the Holder has access.

 

4.3                                Investment Experience .  The Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk.  The Holder has experience as an investor in securities of companies in the development stage and acknowledges that the Holder can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that the Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables the Holder to be aware of the character, business acumen and financial circumstances of such persons.

 

4.4                                Accredited Investor Status .  The Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

 

4.5                                The Act .  The Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder’s investment intent as expressed herein.  The Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.

 

6



 

ARTICLE 5.                            MISCELLANEOUS .

 

5.1                                Term .  This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.

 

5.2                                Legends .  This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form;

 

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT SBSTR0EFIFEK£D, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

 

5.3                                Compliance with Securities Laws on Transfer .  This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without the prior written consent of the Company (but no such consent is required with respect to the transfer from Silicon Valley Bank to SVB Financial Group or any other affiliate of Holder), which consent shall not be unreasonably withheld, or compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company).  The Company shall not require Holder to provide an opinion of counsel if the transfer is to Holder’s parent company, SVB Financial Group (formerly Silicon Valley Bancshares), or any other affiliate of Holder.  Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder’s notice of proposed sale.

 

5.4                                Transfer Procedure .  Upon receipt by Holder of the executed Warrant, Holder will transfer all of this Warrant to Holder’s parent company, SVB Financial Group, by execution of an Assignment substantially in the form of Appendix 2.  Subject to the provisions of Article 5.3 and upon providing Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee; provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and

 

7



 

Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable).  The Company may refuse to transfer this Warrant or the Shares to any person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded.

 

5.5                                Notices .  All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may (or on the first business day after transmission by facsimile) be, in writing by the Company or such Holder from time to time.  Effective upon receipt of the fully executed Warrant and the initial transfer described in Article 5.4 above, all notices to the Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

 

SVB Financial Group
Attn: Treasury Department
3003 Tasman Drive, HA 200
Santa Clara, CA  95054
Telephone:  408-654-7400
Facsimile:  408-496-2405

 

Notice to the Company shall be addressed as follows until the Holder receives notice of a change in address:

 

Control4 Corporation
Attn:                             
11734 South Election Road, Suite 200
Draper, Utah  84020
Telephone:
                                                                                                                                  
Facsimile:

 

5.6                                Waiver .  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

 

5.7                                Attorneys’ Fees .  In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

 

5.8                                Automatic Conversion upon Expiration .  In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a

 

8



 

certificate representing the Shares (or such other securities) issued upon such conversion to the Holder.

 

5.9                                Counterparts .  This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

 

[Remainder of page intentionally left blank]

 

9



 

“COMPANY”

 

 

 

CONTROL4 CORPORATION

 

 

 

 

 

By:

/s/ William B. West

 

By:

/s/ W. Eric Smith

 

William B. West

 

W. Eric Smith

 

Chairman of the Board, President or Vice President

 

Chief Financial Officer, Secretary, Assistant Treasurer or Assistant Secretary

 

 

 

 

 

 

“HOLDER”

 

 

 

 

SILICON VALLEY BANK

 

 

 

 

 

By:

/s/ Shane Anderson

 

 

 

Shane Anderson

 

 

Relationship Manager

 

 

 

 

 

Warrant Effective Date: 12/29/05

 

 



 

APPENDIX 1

 

NOTICE OF EXERCISE

 

1.           Holder elects to purchase                  shares of the Common/Series             Preferred [strike one] Stock of           pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.

 

[or]

 

1.           Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised for                       of the Shares covered by the Warrant.

 

[Strike paragraph that does not apply.]

 

2.             Please issue a certificate or certificates representing the shares in the name specified below:

 

 

Holders Name

 

 

(Address)

 

3.             By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.

 

 

HOLDER:

 

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

(Date):

 

 



 

APPENDIX 2

 

ASSIGNMENT

 

For value received, Silicon Valley Bank hereby sells, assigns and transfers unto

 

Name:

SVB Financial Group

Address:

3003 Tasman Drive (HA-200)

 

Santa Clara, CA 95054

 

 

Tax ID:

91-1962278

 

that certain Warrant to Purchase Stock issued by Control4 Corporation (the “Company”), on December       , 2005 (the “Warrant”) together with all rights, title and interest therein.

 

 

 

SILICON VALLEY BANK

 

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

Date:

December         , 2005

 

 

 

 

 

By its execution below, and for the benefit of the Company, SVB Financial Group makes each of the representations and warranties set forth in Article 4 of the Warrant and agrees to all other provisions of the Warrant as of the date hereof.

 

 

SVB FINANCIAL GROUP

 

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 




Exhibit 4.5

 

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

 

WARRANT TO PURCHASE STOCK

 

Company:

 

Control4 Corporation, a Delaware corporation

Number of Shares:

 

22,831

Class of Stock:

 

Series C Preferred

Warrant Price:

 

$2.19 per share

Issue Date:

 

June 13, 2007

Expiration Date:

 

The earlier of: (i) The 10th anniversary after the Issue Date or (ii) The 5 th  anniversary after the Company’s Initial Public Offering, if any.

Credit Facility

 

This Warrant is issued in connection with the Loan and Security Agreement between Company and Silicon Valley Bank dated December 29, 2005 (as amended from time to time).

 

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (Silicon Valley Bank, together with any registered holder from time to time of this Warrant or any holder of the shares issuable or issued upon exercise of this Warrant, “Holder”) is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the “Shares”) of the Company at the Warrant Price, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

 

ARTICLE 1.                            EXERCISE .

 

1.1                                Method of Exercise .  Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company.  Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

 

1.2                                Conversion Right .  In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such

 



 

Shares by (b) the fair market value of one Share.  The fair market value of the Shares shall be determined pursuant to Article 1.3.

 

1.3                                Fair Market Value .  If the Company’s common stock is traded in a public market and the Shares are common stock, the fair market value of each Share shall be the closing price of a Share reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering, the “price to public” per share price specified in the final prospectus relating to such offering).  If the Company’s common stock is traded in a public market and the Shares are preferred stock, the fair market value of a Share shall be the closing price of a share of the Company’s common stock reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or, in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering, the initial “price to public” per share price specified in the final prospectus relating to such offering), in both cases, multiplied by the number of shares of the Company’s common stock into which a Share is convertible.  If the Company’s common stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.

 

1.4                                Delivery of Certificate and New Warrant .  Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.

 

1.5                                Replacement of Warrants .  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

 

1.6                                Treatment of Warrant Upon Acquisition of Company .

 

1.6.1                      Acquisition ”.  For the purpose of this Warrant, “Acquisition” means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company’s securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction.

 

1.6.2                      Treatment of Warrant at Acquisition .

 

A)                                    Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is not an asset sale and in which the sole consideration is cash, either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of such

 

2



 

Acquisition.  The Company shall provide Holder with written notice of its request relating to the foregoing (together with such reasonable information as Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

 

B)                                    Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is an “arms’ length” sale of all or substantially all of the Company’s assets (and only its assets) to a third party that is not an Affiliate (as defined below) of the Company (a “True Asset Sale”), either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will continue until the Expiration Date if the Company continues as a going concern following the closing of any such True Asset Sale.  The Company shall provide Holder with written notice of its request relating to the foregoing (together with such reasonable information as Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

 

C)                                    Upon the closing of any Acquisition other than those particularly described in subsections (A) and (B) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing.  The Warrant Price and/or number of Shares shall be adjusted accordingly.

 

As used herein “ Affiliate ” shall mean any person or entity that owns or controls directly or indirectly ten (10) percent or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such person’s or entity’s officers, directors, joint venturers or partners, as applicable.

 

ARTICLE 2.                            ADJUSTMENTS TO THE SHARES .

 

2.1                                Stock Dividends, Splits, Etc .  If the Company declares or pays a dividend on the Shares payable in common stock, or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend occurred.  If the Company subdivides the Shares by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of stock into which the Shares are convertible, the number of shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased.  If the outstanding shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

 

2.2                                Reclassification, Exchange, Combinations or Substitution .  Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of

 

3



 

securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event.  Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company’s Articles or Certificate (as applicable) of Incorporation upon the closing of a registered public offering of the Company’s common stock.  The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant.  The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant.  The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

 

2.3                                Adjustments for Diluting Issuances .  The Warrant Price and the number of Shares issuable upon exercise of this Warrant or, if the Shares are preferred stock, the number of shares of common stock issuable upon conversion of the Shares, shall be subject to adjustment, from time to time in the manner set forth in the Company’s Articles or Certificate of Incorporation as if the Shares were issued and outstanding on and as of the date of any such required adjustment.  The provisions set forth for the Shares in the Company’s Articles or Certificate (as applicable) of Incorporation relating to the above in effect as of the Issue Date may not be amended, modified or waived, without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to Holder.

 

2.4                                No Impairment .  The Company shall not, by amendment of its Articles or Certificate (as applicable) of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder’s rights under this Article against impairment.

 

2.5                                Fractional Shares .  No fractional Shares shall be issuable upon exercise or conversion of this Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share.  If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.

 

2.6                                Certificate as to Adjustments .  Upon each adjustment of the Warrant Price, the Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based.  The Company

 

4



 

shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.

 

ARTICLE 3.                            REPRESENTATIONS AND COVENANTS OF THE COMPANY .

 

3.1                                Representations and Warranties .  The Company represents and warrants to Holder as follows:

 

(a)                                  The initial Warrant Price referenced on the first page of this Warrant is not greater than (i) the price per share at which the Shares were last issued in an arms-length transaction in which at least $500,000 of the Shares were sold and (ii) the fair market value of the Shares as of the date of this Warrant.

 

(b)                                  All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

 

(c)                                   The Company’s capitalization table attached hereto as Schedule 1 is true and complete as of the Issue Date.

 

3.2                                Notice of Certain Events .  If the Company proposes at any time (a) to declare any dividend or distribution upon any of its stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for sale any shares of the Company’s capital stock (or other securities convertible into such capital stock), other than (i) pursuant to the Company’s stock option or other compensatory plans, (ii) in connection with commercial credit arrangements or equipment financings, or (iii) in connection with strategic transactions for purposes other than capital raising; (c) to effect any reclassification or recapitalization of any of its stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the Company’s securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days’ prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (a) and (b) above; (2) in the case of the matters referred to in (c) and (d) above at least 10 days’ prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.  Company will also provide information requested by Holder reasonably necessary to enable Holder to comply with Holders accounting or reporting requirements.

 

3.3                                Registration Under Securities Act of 1933, as amended .  The Company agrees that the Shares or, if the Shares are convertible into common stock of the Company, such

 

5



 

common stock, shall have certain “piggyback,” registration rights pursuant to and as set forth in the Company’s Investor Rights Agreement or similar agreement.  The provisions set forth in the Company’s Investors’ Right Agreement or similar agreement relating to the above in effect as of the Issue Date may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification, or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to Holder.

 

3.4                                No Shareholder Rights .  Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.

 

ARTICLE 4.                            REPRESENTATIONS, WARRANTIES OF THE HOLDER .  Holder represents and warrants to the Company as follows:

 

4.1                                Purchase for Own Account .  This Warrant and the securities to be acquired upon exercise of this Warrant by Holder will be acquired for investment for Holder’s account not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act.  Holder also represents that Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares.

 

4.2                                Disclosure of Information .  Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities.  Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.

 

4.3                                Investment Experience .  Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk.  Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.

 

4.4                                Accredited Investor Status .  Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

 

4.5                                The Act .  Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Holder’s investment intent as expressed herein.  Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless

 

6



 

subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.

 

ARTICLE 5.                            MISCELLANEOUS .

 

5.1                                Term .  This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.

 

5.2                                Legends .  This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form;

 

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT SBSTR0EFIFEK£D, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

 

5.3                                Compliance with Securities Laws on Transfer .  This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company).  The Company shall not require Silicon Valley Bank (“Bank”) to provide an opinion of counsel if the transfer is to Bank’s parent company, SVB Financial Group (formerly Silicon Valley Bancshares), or any other affiliate of Bank.  Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder’s notice of proposed sale.

 

5.4                                Transfer Procedure .  After receipt by Bank of the executed Warrant, Bank will transfer all of this Warrant to SVB Financial Group by execution of an Assignment substantially in the form of Appendix 2.  Subject to the provisions of Article 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee; provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this

 

7



 

Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable).  The Company may refuse to transfer this Warrant or the Shares to any person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded.

 

5.5                                Notices .  All notices and other communications from the Company to Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or Holder, as the case may (or on the first business day after transmission by facsimile) be, in writing by the Company or such Holder from time to time.  Effective upon receipt of the fully executed Warrant and the initial transfer described in Article 5.4 above, all notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

 

SVB Financial Group
Attn:  Treasury Department
3003 Tasman Drive, HA 200
Santa Clara, CA  95054
Telephone:  408-654-7400
Facsimile:  408-496-2405

 

Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

 

Control4 Corporation
Attn:  William B. West, CEO
11734 South Election Road, Suite 200
Draper, Utah  84020
Telephone:  (801) 523-3100
Facsimile:  (801) 523-3199

 

5.6                                Waiver .  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

 

5.7                                Attorneys’ Fees .  In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

 

5.8                                Automatic Conversion upon Expiration .  In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to Holder.

 

8



 

5.9                                Counterparts .  This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

 

5.10                         Governing Law .  This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

 

[Remainder of page intentionally left blank]

 

9



 

 

Date: June 13, 2007

 

 

“COMPANY”

 

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

 

 

By:

/s/ William B. West

 

By:

/s/ W. Eric Smith

 

William B. West

 

W. Eric Smith

 

President and CEO

 

Secretary and CTO

 

 

 

 

 

 

“HOLDER”

 

 

 

 

SILICON VALLEY BANK

 

 

 

 

 

By:

/s/ Shane Anderson

 

 

 

Name: Shane Anderson

 

 

Title: Deal Team Leader

 

 



 

SCHEDULE 1

 

CAPITALIZATION TABLE

 

CAP Table - Control4, Inc

 

All Values are in thousands except “$ Price per Share”.

 

 

 

Number of
Employees

 

Date of
Round

 

Board
Member

 

Number of
Shares
Common

 

Number of
Shares
Preferred

 

$ Price per
Share

 

$ Invested
Total

 

Post-
money
valuation

 

# of shares
- fully
diluted

 

Ownership
%

 

Cumulative
ownership

 

1st Professional Round

 

 

 

7/15/2003

 

 

 

 

 

8,150.0

 

$

0.50

 

$

4,100.0

 

$

8,600.0

 

8,150.0

 

15.13

%

 

 

Thomas Weisel Partners

 

 

 

 

 

 

 

 

 

4,500.0

 

 

 

$

2,300.0

 

 

 

4,500,0

 

8.35

%

 

 

vSpring Capital

 

 

 

 

 

 

 

 

 

3,600.0

 

 

 

$

1,800.0

 

 

 

3,600.0

 

6.68

%

 

 

2nd Professional Round

 

 

 

6/15/2004

 

 

 

 

 

18,124.2

 

$

0.81

 

$

14,700.0

 

$

31,000.0

 

18,124.2

 

33.64

%

 

 

Frazier Technology Ventures

 

 

 

 

 

 

 

 

 

7,380.0

 

 

 

$

6,000.0

 

 

 

7,380.0

 

13.70

%

 

 

Thomas Weisel Partners

 

 

 

 

 

 

 

 

 

6,150.0

 

 

 

$

5,000.0

 

 

 

6,150.0

 

11.42

%

 

 

vSpring Capital

 

 

 

 

 

 

 

 

 

4,532.5

 

 

 

$

3,700.0

 

 

 

4,532.5

 

8.41

%

 

 

3rd Professional Round

 

 

 

7/15/2005

 

 

 

 

 

14,177.6

 

$

1.05

 

$

15,000.0

 

$

57,000.0

 

14,177.6

 

26.32

%

 

 

Foundation Capital

 

 

 

 

 

 

 

 

 

9,357.2

 

 

 

$

9,900.0

 

 

 

9,357.2

 

17.37

%

17.37

%

Thomas Weisel Partners

 

 

 

 

 

 

 

 

 

1,923.7

 

 

 

$

2,000.0

 

 

 

1,923.7

 

3.57

%

23.34

%

vSpring Capital

 

 

 

 

 

 

 

 

 

1,469.0

 

 

 

$

1,600.0

 

 

 

1,469.0

 

2.73

%

17.82

%

Frazier Technology Ventures

 

 

 

 

 

 

 

 

 

1,333.0

 

 

 

$

1,400.0

 

 

 

1,333.0

 

2.47

%

16.17

%

Common Outstanding

 

 

 

 

 

 

 

6,560.8

 

 

 

 

 

 

 

 

 

6,560.8

 

12.18

%

 

 

Warrants Outstanding

 

 

 

 

 

 

 

92.2

 

 

 

 

 

 

 

 

 

92.2

 

0.17

%

 

 

Options Outstanding

 

 

 

 

 

 

 

6,770.5

 

 

 

 

 

 

 

 

 

6,770.5

 

12.57

%

 

 

Total

 

 

 

 

 

 

 

13,423.5

 

40,451.8

 

 

 

$

33,800.0

 

 

 

53,875.3

 

100.00

%

 

 

 

10



 

APPENDIX 1

 

NOTICE OF EXERCISE

 

1.                                       Holder elects to purchase                      shares of the Common/Series Preferred [strike one] Stock of                                  pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.

 

[or]

 

1.                                       Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant.  This conversion is exercised for                                      of the Shares covered by the Warrant.

 

[Strike paragraph that does not apply.]

 

2.                                       Please issue a certificate or certificates representing the shares in the name specified below:

 

 

 

 

 

Holder’s Name

 

 

 

 

 

 

 

 

(Address)

 

 

3.                                       By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.

 

 

HOLDER:

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

Date:

 



 

APPENDIX 2

 

ASSIGNMENT

 

For value received, Silicon Valley Bank hereby sells, assigns and transfers unto

 

Name:

 

SVB Financial Group

Address:

 

3003 Tasman Drive (HA-200)

 

 

Santa Clara, CA 95054

 

 

 

Tax ID:

 

91-1962278

 

that certain Warrant to Purchase Stock issued by Control4 Corporation (the “Company”), on June   , 2007 (the “Warrant”) together with all rights, title and interest therein.

 

 

SILICON VALLEY BANK

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

Date: June   , 2007

 

By its execution below, and for the benefit of the Company, SVB Financial Group makes each of the representations and warranties set forth in Article 4 of the Warrant and agrees to all other provisions of the Warrant as of the date hereof.

 

 

SVB FINANCIAL GROUP

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 




Exhibit 10.1

 

FORM OF INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (“ Agreement ”) is made as of [                          ], 2013 by and between Control4 Corporation, a Delaware corporation (the “ Company ”), and [                                      ] (“ Indemnitee ”).

 

RECITALS

 

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;

 

WHEREAS, in order to induce Indemnitee to provide or continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;

 

WHEREAS, the Bylaws (as the same may be amended, restated or otherwise modified from time to time, the “ Bylaws ”) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “ DGCL ”);

 

WHEREAS, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;

 

WHEREAS, the Board of Directors of the Company (the “ Board ”) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Company’s stockholders;

 

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law, regardless of any amendment or revocation of the Certificate of Incorporation (as the same may be amended, restated or otherwise modified from time to time, the “ Charter ”) or the Bylaws, so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

 

WHEREAS, this Agreement is a supplement to and in furtherance of the indemnification provided in the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and

 

[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by [Name of Fund/Sponsor] which Indemnitee and [Name of Fund/Sponsor] intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided in this

 



 

Agreement, with the Company’s acknowledgment and agreement to the foregoing being a material condition to Indemnitee’s willingness to serve or continue to serve on the Board.](1)

 

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

 

Section 1.                                            Services to the Company .  Indemnitee agrees to serve or to continue to serve as a director or officer of the Company.  Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position.  This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.

 

Section 2.                                            Definitions .

 

As used in this Agreement:

 

(a)                                  Change in Control ” shall mean:

 

(i)                                      the date any “person,” as such term is used in Sections 13(d) and  14(d) of the Securities Exchange Act of 1934, as amended (the “ Act ”) (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Act) of such person, becomes the “beneficial owner” (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 50 percent or more of the combined voting power of the Company’s then outstanding securities having the right to vote in an election of the Board (“ Voting Securities ”) (in such case other than as a result of an acquisition of securities directly from the Company); or

 

(ii)                                   the date a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election; or

 

(iii)                                the date of consummation of (A) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than 50 percent of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (B) any sale or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company.

 


(1)  Note: to include for directors affiliated with funds.

 

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Notwithstanding the foregoing, a “Change in Control” will not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of Voting Securities beneficially owned by any person to 50 percent or more of the combined voting power of all of the then outstanding Voting Securities; provided, however, that if any person referred to in this sentence will thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns 50 percent or more of the combined voting power of all of the then outstanding Voting Securities, then a “Change in Control” will be deemed to have occurred for purposes of the foregoing clause (i).

 

(b)                                  Corporate Status ” describes the status of a person as a current or former director or officer of the Company or current or former director, manager, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.

 

(c)                                   Enforcement Expenses ” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action.  Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.

 

(d)                                  Enterprise ” shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, officer, employee, agent or trustee.

 

(e)                                   Expenses ” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding.  Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.

 

(f)                                    Independent Counsel ” means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements); or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person

 

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who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.  The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(g)                                   The term “ Proceeding ” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company or is or was serving at the request of the Company as a director, manager, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as a director or officer of the Company or while serving at the request of the Company as a director, manager, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided, however, that the term “Proceeding” shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitee’s rights under this Agreement as provided for in Section 12(a) of this Agreement.

 

Section 3.                                            Indemnity in Third-Party Proceedings .  The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

 

Section 4.                                            Indemnity in Proceedings by or in the Right of the Company .  The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company.  No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery (the “ Delaware Court ”) shall determine upon application that, despite the

 

4



 

adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.

 

Section 5.                                            Indemnification for Expenses of a Party Who is Wholly or Partly Successful .  Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with each successfully resolved claim, issue or matter.  For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

Section 6.                                            Reimbursement for Expenses of a Witness or in Response to a Subpoena .  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

 

Section 7.                                            Exclusions .  Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:

 

(a)                                  to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise[; provided that the foregoing shall not affect the rights of Indemnitee or the Fund Indemnitors as set forth in Section 14(c)](2);

 

(b)                                  to indemnify for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law;

 

(c)                                   to indemnify for any reimbursement of, or payment to, the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (“ SOX ”) or any formal policy of the Company adopted by the Board (or a committee thereof), or any other remuneration paid to Indemnitee if it shall be

 


(2)  Note: to include for directors affiliated with funds.

 

5



 

determined by a final judgment or other final adjudication that such remuneration was in violation of law;

 

(d)                                  to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided, however, that this Section 7(d) shall not apply to counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee; or

 

(e)                                   to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).

 

Section 8.                                            Advancement of Expenses .  Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (which shall include invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice) from time to time, whether prior to or after final disposition of any Proceeding.  Advances shall be unsecured and interest free.  Advances shall be made without regard to Indemnitee’s ability to repay the expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement.  Indemnitee shall qualify for advances upon the execution and delivery to the Company of an undertaking to repay the advance if and to the extent it is ultimately determined that Indemnitee is not entitled to indemnification, in the form attached hereto as Exhibit A .  The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein.  Nothing in this Section 8 shall limit Indemnitee’s right to advancement pursuant to Section 12(e) of this Agreement.

 

Section 9.                                          Procedure for Notification and Defense of Claim .

 

(a)                                  To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.

 

(b)                                  In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld or delayed) upon the delivery to Indemnitee of written notice of the Company’s election to do so.  After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this

 

6



 

Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the reasonable fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.

 

(c)                                   In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.

 

(d)                                  The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed).  The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.

 

Section 10.                                     Procedure Upon Application for Indemnification .

 

(a)                                  To the extent that Indemnitee shall have been successful on the merits in any Proceeding to which it is a party or a participant or in defense of any claim, issue or matter therein, no determination shall be required to be made with respect to Indemnitee’s entitlement to indemnification hereunder.  In all other cases, a determination with respect to Indemnitee’s entitlement to indemnification hereunder shall be made in the specific case by one of the following methods:  (x) if a Change in Control shall have occurred, (i) by Independent Counsel in a written opinion to the Board or (ii) if the Indemnitee so requests in writing, by a majority vote of the disinterested directors, even though less than a quorum; or (y) if a Change in Control shall not have occurred: (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board; or (iv) if so directed by the Board, by the stockholders of the Company.  For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought.  In the case that such determination is made by Independent Counsel, a copy of Independent Counsel’s written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination.  Indemnitee shall cooperate with the Independent Counsel or the Company, as

 

7



 

applicable, in making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such counsel or the Company, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any out-of-pocket costs or expenses (including reasonable attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

 

(b)                                  If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board if a Change in Control shall not have occurred or, if a Change in Control shall have occurred, by Indemnitee.  Indemnitee or the Company, as the case may be, may, within ten (10) days after written notice of such selection, deliver to the Company or Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Counsel.  If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit.  If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate.  The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof.  Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

Section 11.                                   Presumptions and Effect of Certain Proceedings .

 

(a)                                  To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.  Neither (i) the failure of the Company or of Independent Counsel to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company or by Independent Counsel that Indemnitee has not met such applicable standard of

 

8



 

conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 

(b)                                  The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

 

(c)                                   The knowledge and/or actions, or failure to act, of any director, manager, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

 

Section 12.                                     Remedies of Indemnitee .

 

(a)                                  Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (which shall include any invoices received by Indemnitee but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement.  Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association.  Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement.  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 

(b)                                  In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all

 

9


 

respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.  In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.

 

(c)                                   If Indemnitee is entitled to indemnification pursuant to Section 10(a) of this Agreement, the Company shall be bound by such provision and/or determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

 

(d)                                  The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

 

(e)                                   The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought.  Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice.

 

(f)                                    Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding, including any appeal therein.

 

Section 13.                                   Non-exclusivity; Survival of Rights; Insurance; [Primacy of Indemnification;](3) Subrogation .

 

(a)                                  The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in

 


(3)  Note: to include for directors affiliated with funds.

 

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Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

(b)                                  To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, officer, employee, agent or trustee under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 

(c)                                   [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by [Name of Fund/Sponsor] and certain of its affiliates (collectively, the “ Fund Indemnitors ”).  The Company hereby agrees (i) that it is the indemnitor of first resort ( i.e. , its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Charter and/or Bylaws (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof.  The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company.  The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 8(c).](4)

 

(d)                                  [Except as provided in paragraph (c) above,] [I/i]n the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment

 


(4)  Note: to include for directors affiliated with funds.

 

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to all of the rights of recovery of Indemnitee [(other than against the Fund Indemnitors)], who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

(e)                                   [Except as provided in paragraph (c) above,] [T/t]he Company’s obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.

 

Section 14.                                     Duration of Agreement .  This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto.  This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators.  The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

 

Section 15.                                     Severability .  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

Section 16.                                     Enforcement .

 

(a)                                  The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve or continue to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

 

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(b)                                  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

 

Section 17.                                     Modification and Waiver .  No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.  No supplement, modification or amendment of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such supplement, modification or amendment.

 

Section 18.                                     Notice by Indemnitee .  Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder.  The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

 

Section 19.                                     Notices .  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (d) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

 

(a)                                  If to Indemnitee, at such address as Indemnitee shall provide to the Company.

 

(b)                                  If to the Company to:

 

Control4 Corporation

11734 South Election Road

Salt Lake City, UT  84020

Attention:    Greg Bishop, General Counsel &

                    Chief Compliance Officer

 

or to any other address as may have been furnished to Indemnitee by the Company.

 

Section 20.                                     Contribution .  To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount

 

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incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transactions.

 

Section 21.                                     Internal Revenue Code Section 409A .  The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the “ Code ”), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by the Indemnitee with respect to a bona fide claim against the Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by the Indemnitee in his capacity as a service provider of the Company.  The parties intend that this Agreement be interpreted and construed with such intent.

 

Section 22.                                     Applicable Law and Consent to Jurisdiction .  This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules.  Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

Section 23.                                     Headings .  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

Section 24.                                     Identical Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

 

CONTROL4 CORPORATION

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

 

 

 

 

[                                            ]

 

[Signature Page to Indemnification Agreement]

 



 

Exhibit A

 

Form of Undertaking

 

[Date]

 

Control4 Corporation

11734 South Election Road

Salt Lake City, UT  84020

 

Re:                              Request for Advancement of Expenses

 

Ladies and Gentlemen:

 

Reference is made to the Indemnification Agreement (the “ Agreement ”) by and between Control4 Corporation (the “ Company ”) and the undersigned,                                  (“ Indemnitee ”).  Capitalized terms not defined herein shall have those meanings as set forth in the Agreement.  Pursuant to Section 8 of the Agreement, Indemnitee hereby requests advancement of Expenses incurred as a result of Indemnitee being, or being threatened to be made, a party in the following Proceeding(s):                                                                   .

 

In accordance with Section 8 of the Agreement, Indemnitee undertakes to repay the advancement of Expenses if it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized by Section 145 of the General Corporation Law of the State of Delaware.

 

Very truly yours,

 

 

                                        , Indemnitee

 

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Exhibit 10.2

 

CONTROL4 CORPORATION

 

2003 EQUITY INCENTIVE PLAN

 

SECTION 1.                                    PURPOSE

 

The purpose of the Control4 Corporation 2003 Equity Incentive Plan is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of Control4 Corporation and its Related Companies by providing them the opportunity to acquire a proprietary interest in the Company and to link their interests and efforts to the long-term interests of the Company’s stockholders.

 

SECTION 2.                                    DEFINITIONS

 

As used in the Plan,

 

Acquired Entity ” means any entity acquired by the Company or a Related Company or with which the Company or a Related Company merges or combines.

 

Acquisition Price ” means the fair market value of the securities, cash or other property, or any combination thereof, receivable upon consummation of a Company Transaction in respect of a share of Common Stock.

 

Award ” means any awards of Options, Stock Appreciation Rights, Stock Awards, Restricted Stock or Stock Units, as may be designated by the Plan Administrator from time to time.

 

Board ” means the Board of Directors of the Company.

 

Cause ,” unless otherwise defined in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means dishonesty, fraud, serious misconduct, unauthorized use or disclosure of confidential information or trade secrets, or conduct prohibited by criminal law (except minor violations), in each case as determined by the Company’s chief human resources officer or other person performing that function or, in the case of directors and executive officers, the Board, each of whose determination shall be conclusive and binding.

 

Code ” means the Internal Revenue Code of 1986, as amended from time to time.

 

Common Stock ” means the common stock, par value $0.0001 per share, of the Company.

 

Company ” means Control4 Corporation, a Delaware corporation.

 

Company Transaction ” unless otherwise defined in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means consummation of

 



 

(a)                                  a merger or consolidation of the Company with or into any other company or other entity,

 

(b)                                  a sale in one transaction or a series of transactions undertaken with a common purpose of at least 50% of the Company’s outstanding voting securities, or

 

(c)                                   a sale, lease, exchange or other transfer in one transaction or a series of related transactions undertaken with a common purpose of all or substantially all of the Company’s assets;

 

provided, however, that a Company Transaction shall not include a Related Party Transaction.  Where a series of transactions undertaken with a common purpose is deemed to be a Company Transaction, the date of such Company Transaction shall be the date on which the last of such transactions is consummated.

 

Disability ” unless otherwise defined by the Plan Administrator or in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means a mental or physical impairment of the Participant that is expected to result in death or that has lasted or is expected to last for a continuous period of 12 months or more and that causes the Participant to be unable to perform his or her material duties for the Company or a Related Company and to be engaged in any substantial gainful activity, in each case as determined by the Company’s chief human resources officer or other person performing that function or, in the case of directors and executive officers, the Board, each of whose determination shall be conclusive and binding.

 

Effective Date ” has the meaning set forth in Section 18.

 

Eligible Person ” means any person eligible to receive an Award as set forth in Section 5.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time.

 

Fair Market Value ” means the per share fair market value of the Common Stock as established in good faith by the Plan Administrator or, if the Common Stock is publicly traded, the average of the high and low trading prices for the Common Stock on any given date during regular trading or, if not trading on that date, such price on the last preceding date on which the Common Stock was traded, unless determined otherwise by the Plan Administrator using such methods or procedures as it may establish.

 

Grant Date ” means the later of (a) the date on which the Plan Administrator completes the corporate action authorizing the grant of an Award or such later date specified by the Plan Administrator or (b) the date on which all conditions precedent to the Award have been satisfied, provided that conditions to the exercisability or vesting of Awards shall not defer the Grant Date.

 

Incentive Stock Option ” means an Option granted with the intention that it qualify as an “incentive stock option” as that term is defined in Section 422 of the Code or any successor provision.

 

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Nonqualified Stock Option ” means an Option other than an Incentive Stock Option.

 

Option ” means a right to purchase Common Stock granted under Section 7.

 

Option Expiration Date ” has the meaning set forth in Section 7.6.

 

Option Term ” means the maximum term of an Option as set forth in Section 7.3.

 

Participant ” means any Eligible Person to whom an Award is granted.

 

Plan ” means the Control4 Corporation 2003 Equity Incentive Plan.

 

Plan Administrator ” has the meaning set forth in Section 3.1.

 

Related Company ” means any entity that, directly or indirectly, is in control of, is controlled by or is under common control with the Company.

 

Related Party Transaction ” means (a) a merger or consolidation of the Company in which the holders of the outstanding voting securities of the Company immediately prior to the merger or consolidation hold at least a majority of the outstanding voting securities of the Successor Company immediately after the merger or consolidation; (b) a sale, lease, exchange or other transfer of all or substantially all of the Company’s assets to a majority-owned subsidiary company; (c) a transaction undertaken for the principal purpose of restructuring the capital of the Company, including, but not limited to, reincorporating the Company in a different jurisdiction, converting the Company to a limited liability company or creating a holding company; or (d) a corporate dissolution or liquidation.

 

Restricted Stock ” means an Award of shares of Common Stock granted under Section 10, the rights of ownership of which may be subject to restrictions prescribed by the Plan Administrator.

 

Retirement ,” unless otherwise defined in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means “ Retirement as defined for purposes of the Plan by the Plan Administrator or the Company’s chief human resources officer or other person performing that function or, if not so defined, means Termination of Service on or after the date the Participant reaches age 55 and has completed ten years of employment or service with the Company or a Related Company.

 

Securities Act ” means the Securities Act of 1933, as amended from time to time.

 

Stock Appreciation Right ” has the meaning set forth in Section 9.1.

 

Stock Award ” means an Award of shares of Common Stock granted under Section 10, the rights of ownership of which are not subject to restrictions prescribed by the Plan Administrator.

 

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Stock Unit ” means an Award denominated in units of Common Stock granted under Section 10.

 

Substitute Awards ” means Awards granted or shares of Common Stock issued by the Company in assumption of, or in substitution or exchange for, awards previously granted by an Acquired Entity.

 

Successor Company ” means the surviving company, the successor company, the acquiring company or its parent, as applicable, in connection with a Company Transaction.

 

Termination of Service ” means a termination of employment or service relationship with the Company or a Related Company for any reason, whether voluntary or involuntary, including by reason of death, Disability or Retirement.  Any question as to whether and when there has been a Termination of Service for the purposes of an Award and the cause of such Termination of Service shall be determined by the Company’s chief human resources officer or other person performing that function or, in the case of directors and executive officers, the Board, each of whose determination shall be conclusive and binding.  Transfer of a Participant’s employment or service relationship between the Company and any Related Company shall not be considered a Termination of Service for purposes of an Award.  Unless the Board determines otherwise, a Termination of Service shall be deemed to occur if the Participant’s employment or service relationship is with an entity that has ceased to be a Related Company.

 

Vesting Commencement Date ” means the Grant Date or such other date set forth in the instrument evidencing the Award as the date from which the Option begins to vest for purposes of Section 7.4.

 

SECTION 3.                                    ADMINISTRATION

 

3.1                                Administration of the Plan

 

The Plan shall be administered by the Board.  If and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in selecting the members of any committee acting as Plan Administrator, with respect to any persons subject or likely to become subject to Section 16 of the Exchange Act, the provisions regarding (a) “outside directors” as contemplated by Section 162(m) of the Code and (b) “non-employee directors” as contemplated by Rule 16b-3(b)(3) under the Exchange Act, or any successor provision thereto.  Members of any committee shall serve for such term as the Board may determine, subject to removal by the Board at any time.  All references in the Plan to the “ Plan Administrator ” shall be, as applicable, to the Board or any committee to whom the Board has delegated authority to administer the Plan.

 

3.2                                Administration and Interpretation by Plan Administrator

 

Except for the terms and conditions explicitly set forth in the Plan, the Plan Administrator shall have full power and exclusive authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board to the extent the Plan Administrator is a committee of the Board, to (a) select the Eligible Persons to whom Awards may from time to time be granted under the Plan; (b) determine the type or

 

4



 

types of Award to be granted to each Participant under the Plan; (c) determine the number of shares of Common Stock to be covered by each Award granted under the Plan; (d) determine the terms and conditions of any Award granted under the Plan; (e) approve the forms of agreements for use under the Plan; (f) determine whether, to what extent and under what circumstances Awards may be settled in cash, shares of Common Stock or other property or canceled or suspended; (g) determine whether, to what extent and under what circumstances cash, shares of Common Stock, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant; (h) interpret and administer the Plan and any instrument evidencing an Award; (i) establish such rules and regulations as it shall deem appropriate for the proper administration of the Plan; (j) delegate ministerial duties to such of the Company’s officers as it so determines; and (k) make any other determination and take any other action that the Plan Administrator deems necessary or desirable for administration of the Plan.  Decisions of the Plan Administrator shall be final, conclusive and binding on all persons, including the Company, any Participant, any stockholder and any Eligible Person.  A majority of the members of the Plan Administrator may determine its actions and fix the time and place of its meetings.

 

SECTION 4.                                    SHARES SUBJECT TO THE PLAN

 

4.1                                Authorized Number of Shares

 

Subject to adjustment from time to time as provided in Section 13.1, a maximum of 12,523,595 shares of Common Stock shall be available for issuance under the Plan.  Shares issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company as treasury shares.

 

4.2                                Share Usage

 

(a)                                  Shares of Common Stock covered by an Award shall not be counted as used unless and until they are actually issued and delivered to a Participant.  If any Award lapses, expires, terminates or is canceled prior to the issuance of shares thereunder or if shares of Common Stock are issued under the Plan to a Participant and thereafter are forfeited to or otherwise reacquired by the Company, the shares subject to such Awards and the forfeited or reacquired shares shall again be available for issuance under the Plan.  Any shares of Common Stock (i) tendered by a Participant or retained by the Company as full or partial payment to the Company for the purchase price of an Award or to satisfy tax withholding obligations in connection with an Award or (ii) covered by an Award that is settled in cash shall be available for Awards under the Plan.

 

(b)                                  The Plan Administrator shall have the authority to grant Awards as an alternative to or as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company.

 

(c)                                   Notwithstanding anything in the Plan to the contrary, the Plan Administrator may grant Substitute Awards under the Plan.  In the event that a written agreement pursuant to which a Company Transaction or a Related Party Transaction is completed is approved by the Board and said agreement sets forth the terms and conditions of the Substitute

 

5



 

Awards, said terms and conditions shall be deemed to be the action of the Plan Administrator without any further action by the Plan Administrator, except as may be required for compliance with Rule 16b-3 under the Exchange Act, and the persons holding such Substitute Awards shall be deemed to be Participants.

 

(d)                                  Notwithstanding the foregoing and, subject to adjustment provided in Section 13.1, the maximum number of shares that may be issued upon the exercise of Incentive Stock Options shall equal the aggregate share number stated in Section 4.1.

 

SECTION 5.                                    ELIGIBILITY

 

An Award may be granted to any employee, officer or director of the Company or a Related Company whom the Plan Administrator from time to time selects.  An Award may also be granted to any consultant, agent, advisor or independent contractor for bona fide services rendered to the Company or any Related Company that (a) are not in connection with the offer and sale of the Company’s securities in a capital-raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company’s securities.

 

SECTION 6.                                    AWARDS

 

6.1                                Form, Grant and Settlement of Awards

 

The Plan Administrator shall have the authority, in its sole discretion, to determine the type or types of Awards to be granted under the Plan.  Such Awards may be granted either alone, in addition to or in tandem with any other type of Award.  Any Award settlement may be subject to such conditions, restrictions and contingencies as the Plan Administrator shall determine.

 

6.2                                Evidence of Awards

 

Awards granted under the Plan shall be evidenced by a written (including electronic) instrument that shall contain such terms, conditions, limitations and restrictions as the Plan Administrator shall deem advisable and that are not inconsistent with the Plan.

 

6.3                                Vesting of Awards

 

The effect on the vesting of an Award of a Company-approved leave of absence or a Participant’s working less than full-time shall be determined by the Company’s chief human resources officer or other person performing that function or, in the case of directors and executive officers, the Board, each of whose determination shall be conclusive and binding.

 

6.4                                Deferrals

 

The Plan Administrator may permit or require a Participant to defer receipt of the payment of any Award.  If any such deferral election is permitted or required, the Plan Administrator, in its sole discretion, shall establish rules and procedures for such payment deferrals, which may include the grant of additional Awards or provisions for the payment or crediting of interest or dividend equivalents, including converting such credits to deferred stock unit equivalents.

 

6



 

SECTION 7.                                    OPTIONS

 

7.1                                Grant of Options

 

The Plan Administrator may grant Options designated as Incentive Stock Options or Nonqualified Stock Options.

 

7.2                                Option Exercise Price

 

The exercise price for shares purchased under an Option shall be as established by the Plan Administrator, but shall not be less than the minimum exercise price required by Section 8.3 with respect to Incentive Stock Options, except in the case of Substitute Awards.

 

7.3                                Term of Options

 

Subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the Option, the maximum term of an Option (the “ Option Term ”) shall be as established for that Option by the Plan Administrator or, if not so established, shall be ten years from the Grant Date.  For Incentive Stock Options, the Option Term shall be as specified in Section 8.4.

 

7.4                                Exercise of Options

 

The Plan Administrator shall establish and set forth in each instrument that evidences an Option the time at which, or the installments in which, the Option shall vest and become exercisable, any of which provisions may be waived or modified by the Plan Administrator at any time.  If not so established in the instrument evidencing the Option, the Option shall vest and become exercisable according to the following schedule, which may be waived or modified by the Plan Administrator at any time:

 

Period of Participant’s Continuous
Employment or Service With the
Company or Its Related Companies
From the Vesting Commencement Date

 

Portion of Total Option That
Is Vested and Exercisable

 

 

 

After 1 year

 

1/4

 

 

 

Each additional one-month period of continuous service completed thereafter

 

An additional 1/48

 

 

 

After 4 years

 

100%

 

To the extent an Option has vested and become exercisable, the Option may be exercised in whole or from time to time in part by delivery to the Company of a properly executed stock option exercise agreement or notice, in a form and in accordance with procedures established by the Plan Administrator, setting forth the number of shares with respect to which the Option is being exercised, the restrictions imposed on the shares purchased under such exercise agreement

 

7



 

or notice, if any, and such representations and agreements as may be required by the Plan Administrator, accompanied by payment in full as described in Section 7.5.  An Option may be exercised only for whole shares and may not be exercised for less than a reasonable number of shares at any one time, as determined by the Plan Administrator.

 

7.5                                Payment of Exercise Price

 

The exercise price for shares purchased under an Option shall be paid in full to the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased.  Such consideration must be paid before the Company will issue the shares being purchased and must be in a form or a combination of forms acceptable to the Plan Administrator for that purchase, which forms may include:

 

(a)                                  cash;

 

(b)                                  check or wire transfer;

 

(c)                                   tendering (either actually or, if the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by attestation) shares of Common Stock already owned by the Participant, which on the day prior to the exercise date have a Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option;

 

(d)                                  if the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, and to the extent permitted by law, delivery of a properly executed exercise agreement or notice, together with irrevocable instructions to a brokerage firm designated or approved by the Company to deliver promptly to the Company the aggregate amount of sale or loan proceeds to pay the Option exercise price and any withholding tax obligations that may arise in connection with the exercise, all in accordance with the regulations of the Federal Reserve Board; or

 

(e)                                   such other consideration as the Plan Administrator may permit.

 

In addition, to assist a Participant (including directors and executive officers) in acquiring shares of Common Stock pursuant to an Award granted under the Plan, the Plan Administrator, in its sole discretion, may authorize, either at the Grant Date or at any time before the acquisition of Common Stock pursuant to the Award, (i) the payment by a Participant of the purchase price of the Common Stock by a promissory note or (ii) the guarantee by the Company of a loan obtained by the Participant from a third party.  Such notes or loans must be full recourse to the extent necessary to avoid charges to the Company’s earnings for financial reporting purposes.  Subject to the foregoing, the Plan Administrator shall in its sole discretion specify the terms of any loans or loan guarantees, including the interest rate and terms of and security for repayment.

 

7.6                                Effect of Termination of Service

 

The Plan Administrator shall establish and set forth in each instrument that evidences an Option whether the Option shall continue to be exercisable, and the terms and conditions of such exercise, after a Termination of Service, any of which provisions may be waived or modified by the Plan Administrator at any time.  If not so established in the instrument evidencing the Option,

 

8



 

the Option shall be exercisable according to the following terms and conditions, which may be waived or modified by the Plan Administrator at any time:

 

(a)                                  Any portion of an Option that is not vested and exercisable on the date of a Participant’s Termination of Service shall expire on such date.

 

(b)                                  Any portion of an Option that is vested and exercisable on the date of a Participant’s Termination of Service shall expire on the earliest to occur of

 

(i)                                      if the Participant’s Termination of Service occurs for reasons other than Cause, Retirement, Disability or death, the date that is three months after such Termination of Service;

 

(ii)                                   if the Participant’s Termination of Service occurs by reason of Retirement, Disability or death, the one-year anniversary of such Termination of Service; and

 

(iii)                                the last day of the Option Term (the “ Option Expiration Date ”).

 

Notwithstanding the foregoing, if a Participant dies after the Participant’s Termination of Service but while an Option is otherwise exercisable, the portion of the Option that is vested and exercisable on the date of such Termination of Service shall expire upon the earlier to occur of (y) the Option Expiration Date and (z) the one-year anniversary of the date of death, unless the Plan Administrator determines otherwise.

 

Also notwithstanding the foregoing, in case a Participant’s Termination of Service occurs for Cause, all Options granted to the Participant shall automatically expire upon first notification to the Participant of such termination, unless the Plan Administrator determines otherwise.  If a Participant’s employment or service relationship with the Company is suspended pending an investigation of whether the Participant shall be terminated for Cause, all the Participant’s rights under any Option shall likewise be suspended during the period of investigation.  If any facts that would constitute termination for Cause are discovered after a Participant’s Termination of Service, any Option then held by the Participant may be immediately terminated by the Plan Administrator, in its sole discretion.

 

(c)                                   A Participant’s change in status from an employee to a consultant, advisor or independent contractor or a change in status from a consultant, advisor or independent contractor to an employee shall not be considered a Termination of Service for purposes of this Section 7.6.

 

SECTION 8.                                    INCENTIVE STOCK OPTION LIMITATIONS

 

Notwithstanding any other provisions of the Plan, the terms and conditions of any Incentive Stock Options shall in addition comply in all respects with Section 422 of the Code or any successor provision and any applicable regulations thereunder, including the following:

 

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8.1                                Dollar Limitation

 

To the extent the aggregate Fair Market Value (determined as of the Grant Date) of Common Stock with respect to which a Participant’s Incentive Stock Options become exercisable for the first time during any calendar year (under the Plan and all other stock option plans of the Company and its parent and subsidiary corporations) exceeds $100,000, such portion in excess of $100,000 shall be treated as a Nonqualified Stock Option.  In the event the Participant holds two or more such Options that become exercisable for the first time in the same calendar year, such limitation shall be applied on the basis of the order in which such Options are granted.

 

8.2                                Eligible Employees

 

Individuals who are not employees of the Company or one of its parent or subsidiary corporations may not be granted Incentive Stock Options.

 

8.3                                Exercise Price

 

The exercise price of an Incentive Stock Option shall be at least 100% of the Fair Market Value of the Common Stock on the Grant Date and, in the case of an Incentive Stock Option granted to a Participant who owns more than 10% of the total combined voting power of all classes of the stock of the Company or of its parent or subsidiary corporations (a “ 10% Stockholder ”), shall not be less than 110% of the Fair Market Value of the Common Stock on the Grant Date.  The determination of more than 10% ownership shall be made in accordance with Section 422 of the Code.

 

8.4                                Option Term

 

Subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the Option, the Option Term of an Incentive Stock Option shall not exceed ten years, and in the case of an Incentive Stock Option granted to a 10% Stockholder, shall not exceed five years.

 

8.5                                Exercisability

 

An Option designated as an Incentive Stock Option shall cease to qualify for favorable tax treatment as an Incentive Stock Option to the extent it is exercised (if permitted by the terms of the Option) (a) more than three months after the date of a Participant’s Termination of Service if termination was for reasons other than death or Disability, (b) more than one year after the date of a Participant’s Termination of Service if termination was by reason of Disability, or (c) after the Participant has been on leave of absence for more than 90 days, unless the Participant’s reemployment rights are guaranteed by statute or contract.

 

8.6                                Taxation of Incentive Stock Options

 

In order to obtain certain tax benefits afforded to Incentive Stock Options under Section 422 of the Code, the Participant must hold the shares acquired upon the exercise of an Incentive Stock Option for two years after the Grant Date and one year after the date of exercise.

 

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A Participant may be subject to the alternative minimum tax at the time of exercise of an Incentive Stock Option.  The Participant shall give the Company prompt notice of any disposition of shares acquired on the exercise of an Incentive Stock Option prior to the expiration of such holding periods.

 

8.7                                Promissory Notes

 

The amount of any promissory note delivered pursuant to Section 7.5 in connection with an Incentive Stock Option shall bear interest at a rate specified by the Plan Administrator, but in no case less than the rate required to avoid imputation of interest (taking into account any exceptions to the imputed interest rules) for federal income tax purposes.

 

8.8                                Code Definitions

 

For the purposes of this Section 8, “disability,” “parent corporation” and “subsidiary corporation” shall have the meanings attributed to those terms for purposes of Section 422 of the Code.

 

SECTION 9.                                    STOCK APPRECIATION RIGHTS

 

9.1                                Grant of Stock Appreciation Rights

 

The Plan Administrator may grant stock appreciation rights (“ Stock Appreciation Rights ” or “ SARs ”) to Participants at any time.  An SAR may be granted in tandem with an Option or alone (“ freestanding ”).  The grant price of a tandem SAR shall be equal to the exercise price of the related Option, and the grant price of a freestanding SAR shall be as established by the Plan Administrator.  An SAR may be exercised upon such terms and conditions and for the term as the Plan Administrator determines in its sole discretion; provided, however, that, subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the SAR, the term of a freestanding SAR shall be as established for that SAR by the Plan Administrator or, if not so established, shall be ten years, and in the case of a tandem SAR, (a) the term shall not exceed the term of the related Option and (b) the tandem SAR may be exercised for all or part of the shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option, except that the tandem SAR may be exercised only with respect to the shares for which its related Option is then exercisable.

 

9.2                                Payment of SAR Amount

 

Upon the exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: (a) the difference between the Fair Market Value of the Common Stock for the date of exercise over the grant price by (b) the number of shares with respect to which the SAR is exercised.  At the discretion of the Plan Administrator as set forth in the instrument evidencing the Award, the payment upon exercise of an SAR may be in cash, in shares of equivalent value, in some combination thereof or in any other manner approved by the Plan Administrator in its sole discretion.

 

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SECTION 10.                             STOCK AWARDS, RESTRICTED STOCK AND STOCK UNITS

 

10.1                         Grant of Stock Awards, Restricted Stock and Stock Units

 

The Plan Administrator may grant Stock Awards, Restricted Stock or Stock Units on such terms and conditions and subject to such repurchase or forfeiture restrictions, if any (which may be based on continuous service with the Company or a Related Company or the achievement of any performance criteria), as the Plan Administrator shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award.

 

10.2                         Issuance of Shares; Settlement of Awards

 

Upon the satisfaction of any terms, conditions and restrictions prescribed with respect to Restricted Stock or Stock Units, or upon a Participant’s release from any terms, conditions and restrictions of Restricted Stock or Stock Units, as determined by the Plan Administrator, and subject to the provisions of Section 11, (a) the shares of Restricted Stock covered by each Award of Restricted Stock shall become freely transferable by the Participant, and (b) Stock Units shall be paid in shares of Common Stock or, if set forth in the instrument evidencing the Award, in cash, shares of Common Stock or a combination of cash and shares of Common Stock as the Plan Administrator shall determine in its sole discretion.  Any fractional shares subject to such Awards shall be paid to the Participant in cash.

 

10.3                         Dividends and Distributions

 

Participants holding shares of Restricted Stock or Stock Units may, if the Plan Administrator so determines, be credited with dividends paid with respect to the underlying shares or dividend equivalents while they are so held in a manner determined by the Plan Administrator in its sole discretion.  The Plan Administrator may apply any restrictions to the dividends or dividend equivalents that the Plan Administrator deems appropriate.  The Plan Administrator, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, shares of Common Stock, Restricted Stock or Stock Units.

 

10.4                         Waiver of Restrictions

 

Notwithstanding any other provisions of the Plan, the Plan Administrator, in its sole discretion, may waive the repurchase or forfeiture period and any other terms, conditions or restrictions on any Restricted Stock or Stock Unit under such circumstances and subject to such terms and conditions as the Plan Administrator shall deem appropriate.

 

SECTION 11.                             WITHHOLDING

 

The Company may require the Participant to pay to the Company the amount of (a) any taxes that the Company is required by applicable federal, state, local or foreign law to withhold with respect to the grant, vesting or exercise of an Award (“ tax withholding obligations ”) and (b) any amounts due from the Participant to the Company or to any Related Company (“ other obligations ”).  The Company shall not be required to issue any shares of Common Stock or

 

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otherwise settle an Award under the Plan until such tax withholding obligations and other obligations are satisfied.

 

The Plan Administrator may permit or require a Participant to satisfy all or part of the Participant’s tax withholding obligations and other obligations by (a) paying cash to the Company, (b) having the Company withhold an amount from any cash amounts otherwise due or to become due from the Company to the Participant, (c) having the Company withhold a number of shares of Common Stock that would otherwise be issued to the Participant (or become vested in the case of Restricted Stock) having a Fair Market Value equal to the tax withholding obligations and other obligations, or (d) surrendering a number of shares of Common Stock the Participant already owns having a value equal to the tax withholding obligations and other obligations.  The value of the shares so withheld may not exceed the employer’s minimum required tax withholding rate, and the value of the shares so surrendered may not exceed such rate to the extent the Participant has owned the surrendered shares for less than six months if such limitation is necessary to avoid a charge to the Company for financial reporting purposes.

 

SECTION 12.                             ASSIGNABILITY

 

No Award or interest in an Award may be sold, assigned, pledged (as collateral for a loan or as security for the performance of an obligation or for any other purpose) or transferred by the Participant or made subject to attachment or similar proceedings otherwise than by will or by the applicable laws of descent and distribution, except to the extent a Participant designates one or more beneficiaries on a Company-approved form who may exercise the Award or receive payment under the Award after the Participant’s death.  During a Participant’s lifetime, an Award may be exercised only by the Participant.  Notwithstanding the foregoing and to the extent permitted by Section 422 of the Code, the Plan Administrator, in its sole discretion, may permit a Participant to assign or transfer an Award; provided, however, that any Award so assigned or transferred shall be subject to all the terms and conditions of the Plan and the instrument evidencing the Award.

 

SECTION 13.                             ADJUSTMENTS

 

13.1                         Adjustment of Shares

 

In the event, at any time or from time to time, a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to stockholders other than a normal cash dividend, or other change in the Company’s corporate or capital structure results in (a) the outstanding shares of Common Stock, or any securities exchanged therefor or received in their place, being exchanged for a different number or kind of securities of the Company or any other company or (b) new, different or additional securities of the Company or any other company being received by the holders of shares of Common Stock, then the Plan Administrator shall make proportional adjustments in (i) the maximum number and kind of securities available for issuance under the Plan; (ii) the maximum number and kind of securities issuable as Incentive Stock Options as set forth in Section 4.2(d); and (iii) the number and kind of securities that are subject to any outstanding Award and the per share price of such securities, without any change in the aggregate price to be paid therefor.

 

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The determination by the Plan Administrator as to the terms of any of the foregoing adjustments shall be conclusive and binding.

 

Notwithstanding the foregoing, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services rendered, or for other valid consideration, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding Awards.  Also notwithstanding the foregoing, a dissolution or liquidation of the Company or a Company Transaction shall not be governed by this Section 13.1 but shall be governed by the remaining provisions of this Section 13.

 

13.2                         Dissolution or Liquidation

 

To the extent not previously exercised or settled, and unless otherwise determined by the Plan Administrator in its sole discretion, Options, Stock Appreciation Rights and Stock Units shall terminate immediately prior to the dissolution or liquidation of the Company.  To the extent a forfeiture provision or repurchase right applicable to an Award has not been waived by the Plan Administrator, the Award shall be forfeited immediately prior to the consummation of the dissolution or liquidation.

 

13.3                         Company Transaction

 

13.3.1               Options, Stock Appreciation Rights and Stock Units

 

(a)                                  In the event of a Company Transaction, except as otherwise provided in the instrument evidencing the Award or in a written employment, services or other agreement between a Participant and the Company or a Related Company,

 

(i)                                      all Options and Stock Appreciation Rights outstanding and held by a Participant whose employment or service relationship has not terminated (other than Terminations of Service immediately prior to or in connection with the Company Transaction) as of the date of the Company Transaction shall, immediately prior to the Company Transaction, become fully vested and exercisable with respect to 100% of the unvested portion of the Award; and

 

(ii)                                   all Stock Units outstanding as of the date of the Company Transaction shall, immediately prior to the Company Transaction, become fully vested and shall be settled with respect to 100% of the unvested portion of the Award; provided, however, that

 

(iii)                                notwithstanding the foregoing, such accelerated vesting and exercisability or settlement of such Options, Stock Appreciation Rights and Stock Units shall not occur

 

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(A)                                if and to the extent any Successor Company assumes or continues such Options, Stock Appreciation Rights or Stock Units, or substitutes equivalent options, rights or units or

 

(B)                                if the Plan Administrator determines, in its sole discretion, that to the extent any Successor Company does not assume or continue such Options, Stock Appreciation Rights or Stock Units, or substitute equivalent options, rights or units, any portion of such Awards that is not assumed, continued or substituted for by the Successor Company shall terminate immediately prior to the Company Transaction in exchange for a cash payment at least equal to the amount, if any, by which the Acquisition Price multiplied by the number of shares of Common Stock subject to such Award, either to the extent the Award is vested and exercisable in accordance with its original terms or as such vesting and exercisability may be accelerated by the Plan Administrator, in its sole discretion, in connection with the Company Transaction, exceeds the aggregate exercise or grant price, if any, for such Award.

 

(iv)                               provided that the conditions set forth in Section 13.3.1(a)(iii)(A) are satisfied, if at any time during the six (6) month period following a Company Transaction, a Participant’s employment or service relationship with the Company is terminated by the Company or its Related Companies without Cause, or for Good Reason (as defined below), then fifty percent (50%) of the then unvested portion such Participant’s Options, Stock Appreciation Rights or Stock Units shall immediately become vested and exercisable.  For the purposes of this Section 13.3.1, “Good Reason” shall mean that the Participant’s employment or service relationship with the Company or its Related Companies was “constructively terminated” if within 90 days after the occurrence of one of the following Company actions (unless such action(s) applies generally to all of the Company’s management of the Company or unless Participant consents in writing to such action(s)), Participant resigns in writing from his employment with the Company: (x) a significant reduction in the Participant’s duties, position or responsibilities compared to the Participant’s duties, position or responsibilities immediately prior to such reduction; provided however that a reduction in position that occurs solely by virtue of the Company being acquired and made part of a larger entity shall not constitute “Good Reason” so long as Participant maintains a comparable level of duties and responsibilities with the acquiring entity as Participant held immediately prior to the acquisition; (y) a material reduction in Participant’s base salary as in effect immediately before such reduction; and (z) the relocation by the Company of Participant’s then current work site that has the effect of increasing the Participant’s then-current commute by more than 75 miles (not including any regular business travel consistent with the business travel requirements of the Participant’s position with the Company).

 

(b)                                  Immediately following a Company Transaction, all outstanding Options, Stock Appreciation Rights and Stock Units shall terminate and cease to be outstanding, except to the extent assumed, continued or substituted for by the Successor Company.

 

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13.3.2               Restricted Stock

 

In the event of a Company Transaction, except as otherwise provided in the instrument evidencing the Award or in a written employment, services or other agreement between a Participant and the Company or a Related Company, the restrictions applicable to all Restricted Stock outstanding as of the date of the Company Transaction shall, immediately prior to the Company Transaction, lapse, and such Restricted Stock shall become free of all restrictions and become fully vested and transferable to the full extent of the original Award.  Notwithstanding the foregoing, if and to the extent any Successor Company generally assumes or continues all or any portion of Options, Stock Appreciation Rights or Stock Units outstanding as of the date of the Company Transaction, or substitutes equivalent options, rights or units, the restrictions applicable to such Restricted Stock shall not lapse, any Company repurchase rights shall automatically be assigned to the Successor Company, and all such restrictions shall continue with respect to any shares of the Successor Company or other consideration that may be issued in exchange or in substitution for such Restricted Stock.

 

13.3.3               Assumption, Continuation or Substitution

 

For the purposes of this Section 13.3, an Award shall be considered assumed, continued or substituted for if, following the Company Transaction, the Substitute Award confers the right to purchase or receive, for each share of Common Stock subject to the Award immediately prior to the Company Transaction, the consideration (whether stock, cash, or other securities or property) received in the Company Transaction by holders of Common Stock for each share subject to the Award immediately prior to the Company 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) without any change in the aggregate exercise or grant price, if any, of such Award; provided, however, that if such consideration received in the Company Transaction is not solely common stock of the Successor Company, the Plan Administrator may, with the consent of the Successor Company, provide for the consideration to be received upon the exercise or settlement of the Award, for each share of Common Stock subject to the Award, to be solely common stock of the Successor Company substantially equal in fair market value to the per share consideration received by holders of Common Stock in the Company Transaction.  The determination of such substantial equality of value of consideration shall be made by the Plan Administrator, whose determination shall be conclusive and binding.

 

13.4                         Further Adjustment of Awards

 

Subject to Sections 13.2 and 13.3, the Plan Administrator shall have the discretion, exercisable at any time before a sale, merger, consolidation, reorganization, liquidation, dissolution or change in control of the Company, as defined by the Plan Administrator, to take such further action as it determines to be necessary or advisable with respect to Awards.  Such authorized action may include (but shall not be limited to) establishing, amending or waiving the type, terms, conditions or duration of, or restrictions on, Awards so as to provide for earlier, later, extended or additional time for exercise, lifting restrictions and other modifications, and the Plan Administrator may take such actions with respect to all Participants, to certain categories of Participants or only to individual Participants.  The Plan Administrator may take such action before or after granting Awards to which the action relates and before or after any public

 

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announcement with respect to such sale, merger, consolidation, reorganization, liquidation, dissolution or change in control that is the reason for such action.

 

13.5                         Limitations

 

The grant of Awards shall in no way affect the Company’s right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

 

13.6                         Fractional Shares

 

In the event of any adjustment in the number of shares covered by any Award, each such Award shall cover only the number of full shares resulting from such adjustment.

 

SECTION 14.                             FIRST REFUSAL AND REPURCHASE RIGHTS

 

14.1                         First Refusal Rights

 

Until the date on which the initial registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act first becomes effective, the Company shall have the right of first refusal with respect to any proposed sale or other disposition by a Participant of any shares of Common Stock issued pursuant to an Award.  Such right of first refusal shall be exercisable in accordance with the terms and conditions established by the Plan Administrator and set forth in the stock purchase agreement evidencing the purchase of the shares.

 

14.2                         Repurchase Rights for Vested Shares

 

Until the date on which the initial registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act first becomes effective, upon a Participant’s Termination of Service, all vested shares of Common Stock issued pursuant to an Award (whether issued before or after such Termination of Service) shall be subject to repurchase by the Company, at the Company’s sole discretion, at the Fair Market Value of such shares on the date of such repurchase.  The terms and conditions upon which such repurchase right shall be exercisable (including the period and procedure for exercise) shall be established by the Plan Administrator and set forth in the stock purchase agreement evidencing the purchase of the shares.

 

14.3                         General

 

The Company may not exercise its first refusal or repurchase rights under Section 14.1 or 14.2, respectively, earlier than six months and one day following the date the shares were purchased by a Participant (or any shorter period determined by the Company to be sufficient to avoid a charge to the Company’s earnings for financial reporting purposes or required by applicable law).

 

The Company’s first refusal and repurchase rights under this Section 14 are assignable by the Company at any time.

 

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SECTION 15.                             MARKET STANDOFF

 

In the event of an underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, no person may sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose of or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to any shares issued pursuant to an Award granted under the Plan without the prior written consent of the Company or its underwriters.  Such limitations shall be in effect for such period of time as may be requested by the Company or such underwriters; provided, however, that in no event shall such period exceed 180 days.  The limitations of this Section 15 shall in all events terminate two years after the effective date of the Company’s initial public offering.

 

In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Company’s outstanding Common Stock effected as a class without the Company’s receipt of consideration, any new, substituted or additional securities distributed with respect to the purchased shares shall be immediately subject to the provisions of this Section 15, to the same extent the purchased shares are at such time covered by such provisions.

 

In order to enforce the limitations of this Section 15, the Company may impose stop-transfer instructions with respect to the purchased shares until the end of the applicable standoff period.

 

SECTION 16.                             AMENDMENT AND TERMINATION

 

16.1                         Amendment, Suspension or Termination

 

The Board may amend, suspend or terminate the Plan or any portion of the Plan at any time and in such respects as it shall deem advisable; provided, however, that, to the extent required by applicable law, regulation or stock exchange rule, stockholder approval shall be required for any amendment to the Plan.  Subject to Section 16.3, the Board may amend the terms of any outstanding Award, prospectively or retroactively.

 

16.2                         Term of the Plan

 

The Plan shall have no fixed expiration date.  After the Plan is terminated, no future Awards may be granted, but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and the Plan’s terms and conditions.  Notwithstanding the foregoing, no Incentive Stock Options may be granted more than ten years after the earlier of (a) the adoption of the Plan by the Board and (b) the adoption by the Board of any amendment to the Plan that constitutes the adoption of a new plan for purposes of Section 422 of the Code.

 

16.3                         Consent of Participant

 

The amendment, suspension or termination of the Plan or a portion thereof or the amendment of an outstanding Award shall not, without the Participant’s consent, materially adversely affect any rights under any Award theretofore granted to the Participant under the

 

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Plan.  Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Participant, be made in a manner so as to constitute a “modification” that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option.  Notwithstanding the foregoing, any adjustments made pursuant to Sections 13.2 and 13.3 shall not be subject to these restrictions.

 

SECTION 17.                             GENERAL

 

17.1                         No Individual Rights

 

No individual or Participant shall have any claim to be granted any Award under the Plan, and the Company has no obligation for uniformity of treatment of Participants under the Plan.

 

Furthermore, nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate a Participant’s employment or other relationship at any time, with or without cause.

 

17.2                         Issuance of Shares

 

Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless, in the opinion of the Company’s counsel, such issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act or the laws of any state or foreign jurisdiction) and the applicable requirements of any securities exchange or similar entity.

 

The Company shall be under no obligation to any Participant to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under the laws of any state or foreign jurisdiction, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made.

 

As a condition to the exercise of an Option or any other receipt of Common Stock pursuant to an Award under the Plan, the Company may require (a) the Participant to represent and warrant at the time of any such exercise or receipt that such shares are being purchased or received only for the Participant’s own account and without any present intention to sell or distribute such shares and (b) such other action or agreement by the Participant as may from time to time be necessary to comply with the federal, state and foreign securities laws.  At the option of the Company, a stop-transfer order against any such shares may be placed on the official stock books and records of the Company, and a legend indicating that such shares may not be pledged, sold or otherwise transferred, unless an opinion of counsel is provided (concurred in by counsel for the Company) stating that such transfer is not in violation of any applicable law or regulation, may be stamped on stock certificates to ensure exemption from registration.  The Plan Administrator may also require the Participant to execute and deliver to the Company a purchase

 

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agreement or such other agreement as may be in use by the Company at such time that describes certain terms and conditions applicable to the shares.

 

To the extent the Plan or any instrument evidencing an Award provides for issuance of stock certificates to reflect the issuance of shares of Common Stock, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.

 

17.3                         Indemnification

 

Each person who is or shall have been a member of the Board, or a committee appointed by the Board to whom authority was delegated in accordance with Section 3.1 shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof, with the Company’s approval, or paid by such person in satisfaction of any judgment in any such claim, action, suit or proceeding against such person; provided, however, that such person shall give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person’s own behalf, unless such loss, cost, liability or expense is a result of such person’s own willful misconduct or except as expressly provided by statute.

 

The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company’s certificate of incorporation or bylaws, as a matter of law, or otherwise, or of any power that the Company may have to indemnify such person or hold such person harmless.

 

17.4                         No Rights as a Stockholder

 

Unless otherwise provided by the Plan Administrator or in the instrument evidencing the Award or in a written employment, services or other agreement, no Option, Stock Appreciation Right or Stock Unit shall entitle the Participant to any cash dividend, voting or other right of a stockholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award.

 

17.5                         Compliance With Laws and Regulations

 

In interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an “incentive stock option” within the meaning of Section 422 of the Code.

 

17.6                         Participants in Other Countries

 

The Plan Administrator shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with provisions of the laws of other countries in which the Company or any Related Company may operate to ensure the viability of

 

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the benefits from Awards granted to Participants employed in such countries, to comply with applicable foreign laws and to meet the objectives of the Plan.

 

17.7                         No Trust or Fund

 

The Plan is intended to constitute an “unfunded” plan.  Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.

 

17.8                         Successors

 

All obligations of the Company under the Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all the business and/or assets of the Company.

 

17.9                         Severability

 

If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Plan Administrator, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Plan Administrator’s determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.

 

17.10                  Choice of Law

 

The Plan, all Awards granted thereunder and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Delaware without giving effect to principles of conflicts of law.

 

17.11                  Appendix Provisions

 

Participants who are residents of the State of California shall be subject to the additional terms and conditions set forth in Appendix A to the Plan until such time as the Common Stock becomes a “listed” security under the Securities Act.

 

SECTION 18.                             EFFECTIVE DATE

 

The effective date (the “ Effective Date ”) is the date on which the Plan is adopted by the Board.  If the stockholders of the Company do not approve the Plan within 12 months after the Board’s adoption of the Plan, any Incentive Stock Options granted under the Plan will be treated as Nonqualified Stock Options.

 

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APPENDIX A

 

TO THE CONTROL4 CORPORATION
2003 EQUITY INCENTIVE PLAN

 

(For California Residents Only)

 

This Appendix to the Control4 Corporation 2003 Equity Incentive Plan (the “ Plan ) shall have application only to Participants who are residents of the State of California.  Capitalized terms contained herein shall have the same meanings given to them in the Plan, unless otherwise provided in this Appendix.  Notwithstanding any provision contained in the Plan to the contrary and to the extent required by applicable law, the following terms and conditions shall apply to all Awards granted to residents of the State of California, until such time as the Common Stock becomes a “listed security” under the Securities Act :

 

1.                                       Nonqualified Stock Options shall have an exercise price that is not less than 85% of the Fair Market Value of the Common Stock at the Grant Date, except that the exercise price shall be at least 110% of the Fair Market Value in the case of any person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary companies.

 

2.                                       The purchase price for any shares of Common Stock that may be purchased under the Plan (“ Stock Purchase Rights ”) shall be at least 85% of the Fair Market Value of the Common Stock at the time the Participant is granted the Stock Purchase Right or at the time the purchase is consummated.  Notwithstanding the foregoing, the purchase price shall be at least 100% of the Fair Market Value of the Common Stock at the time the Participant is granted the Stock Purchase Right or at the time the purchase is consummated in the case of any person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary companies.

 

3.                                       Options shall have a term of not more than ten years from the Grant Date.

 

4.                                       Awards shall be nontransferable other than by will or the laws of descent and distribution.  Notwithstanding the foregoing, and to the extent permitted by Section 422 of the Code, the Plan Administrator, in its discretion, may permit distribution of an Option to an inter vivos or testamentary trust in which the Option is to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to “immediate family” as that term is defined in Rule 16a-1(e) under the Exchange Act.

 

5.                                       Options shall become exercisable at the rate of at least 20% per year over five years from the date the Option is granted, subject to reasonable conditions such as continued employment.  However, in the case of an Option granted to officers, directors or consultants of the Company or a Related Company, the Option may become fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company or a Related Company.

 

Appendix A-1



 

6.                                       Unless employment or services are terminated for Cause, the right to exercise an Option in the event of Termination of Service, to the extent that the Participant is otherwise entitled to exercise an Option on the date of Termination of Service, shall be

 

a.                                       at least six months from the date of a Participant’s Termination of Service if termination was caused by death or Disability; and

 

b.                                       at least 30 days from the date of a Participant’s Termination of Service if termination of employment was caused by other than death or Disability;

 

c.                                        but in no event later than the Option Expiration Date.

 

7.                                       No Award may be granted to a resident of California more than ten years after the earlier of the date of adoption of the Plan and the date the Plan is approved by the stockholders.

 

8.                                       Any Award exercised before stockholder approval is obtained shall be rescinded if stockholder approval is not obtained within 12 months before or after the Plan is adopted.  Such shares shall not be counted in determining whether such approval is obtained.

 

9.                                       The Company shall provide annual financial statements of the Company to each California resident holding an outstanding Award under the Plan.  Such financial statements need not be audited and need not be issued to key employees whose duties at the Company assure them access to equivalent information.

 

10.                                Any right of repurchase on behalf of the Company in the event of a Participant’s Termination of Service shall be (a) at a purchase price that is not less than the Fair Market Value of the securities upon Termination of Service, and the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within 90 days of Termination of Service (or in the case of securities issued upon exercise of Options after the date of Termination of Service, within 90 days after the date of the exercise), and the right shall terminate when the Company’s securities become publicly traded; or (b) at the original purchase price, provided that the right to repurchase at the original purchase price lapses at the rate of at least 20% of the shares per year over five years from the date the Option or Stock Purchase Right is granted (without respect to the date the Option or Stock Purchase Right was exercised or became exercisable) and the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within 90 days of Termination of Service (or in the case of securities issued upon exercise of Options after the date of Termination of Service, within 90 days after the date of the exercise).  In addition to the restrictions set forth in clauses (a) and (b), the securities held by an officer, director or consultant of the Company or a Related Company may be subject to additional or greater restrictions.

 

Appendix A-2



 

CONTROL4 CORPORATION
2003 EQUITY INCENTIVE PLAN

 

STOCK OPTION GRANT NOTICE

 

Control4 Corporation (the “ Company ”) hereby grants to Participant an Option (the “ Option ”) to purchase shares of the Company’s Common Stock.  The Option is subject to all the terms and conditions set forth in this Stock Option Grant Notice (this “ Grant Notice ”) and in the Stock Option Agreement and the Company’s 2003 Equity Incentive Plan (the “ Plan ” which are attached to and incorporated into this Grant Notice in their entirety.

 

Participant:

 

 

Grant Date:

 

 

Vesting Commencement Date:

 

 

Number of Shares Subject to Option:

 

 

Exercise Price (per Share):

 

 

Option Expiration Date:

 

 

 

 

(subject to earlier termination in accordance with the terms of the Plan and the Stock Option Agreement)

Type of Option:

 

[Incentive / Non-Qualified] Stock Option

Vesting and Exercisability Schedule:

 

1/4 th  of the shares subject to the Option will vest and become exercisable on the one (1) year anniversary of the Vesting Commencement Date.

 

 

1/48 th  of the shares subject to the Option will vest and become exercisable each month thereafter over the remaining three (3) years following the one (1) year anniversary of the Vesting Commencement Date.

 

Additional Terms/Acknowledgement: The undersigned Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Stock Option Agreement and the Plan.  Participant further acknowledges that as of the Grant Date, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the Option and supersede all prior oral and written agreements on the subject.

 

CONTROL4 CORPORATION

 

PARTICIPANT

By:

 

 

By:

 

 

 

 

 

Signature

 

 

Date:

 

Attachments:

 

Address:

1. Stock Option Agreement

 

 

2. 2003 Equity Incentive Plan

 

Taxpayer ID:

 



 

CONTROL4 CORPORATION
2003 EQUITY INCENTIVE PLAN

 

STOCK OPTION AGREEMENT

 

Pursuant to your Stock Option Grant Notice (the “ Grant Notice ”) and this Stock Option Agreement, Control4 Corporation has granted you an Option under its 2003 Equity Incentive Plan (the “ Plan ”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice (the “ Shares ”) at the exercise price indicated in your Grant Notice.  Capitalized terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.

 

The details of the Option are as follows:

 

1.                                       Vesting and Exercisability .  Subject to the provisions contained herein, the Option will vest and become exercisable as provided in your Grant Notice, provided that vesting will cease upon the termination of your employment or service relationship with the Company or a Related Company and the unvested portion of the Option will terminate.

 

2.                                       Securities Law Compliance .  Notwithstanding any other provision of this Agreement, you may not exercise the Option unless the Shares issuable upon exercise are registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act.  The exercise of the Option must also comply with other applicable laws and regulations governing the Option, and you may not exercise the Option if the Company determines that such exercise would not be in material compliance with such laws and regulations.

 

3.                                       Incentive Stock Option Qualification .  If so designated in your Grant Notice, all or a portion of the Option is intended to qualify as an Incentive Stock Option under federal income tax law, but the Company does not represent or guarantee that the Option qualifies as such.

 

If the Option has been designated as an Incentive Stock Option and the aggregate Fair Market Value (determined as of the grant date) of the shares of Common Stock subject to the portions of the Option and all other Incentive Stock Options you hold that first become exercisable during any calendar year exceeds $100,000, any excess portion will be treated as a Nonqualified Stock Option, unless the Internal Revenue Service changes the rules and regulations governing the $100,000 limit for Incentive Stock Options.  A portion of the Option may be treated as a Nonqualified Stock Option if certain events cause exercisability of the Option to accelerate.

 

4.                                       Notice of Disqualifying Disposition .  To the extent the Option has been designated as an Incentive Stock Option, to obtain certain tax benefits afforded to Incentive Stock Options, you must hold the Shares issued upon the exercise of the Option for two years after the Grant Date and one year after the date of exercise.  You may be subject to the alternative minimum tax at the time of exercise.  You should obtain tax advice when exercising the Option and prior to the disposition of the Shares.  You will be responsible for any taxes or

 



 

duties arising from the exercise of this Option, and agree to indemnify and hold the Company harmless from any such taxes or duties.  By accepting the Option, you agree to promptly notify the Company if you dispose of any of the Shares within one year from the date you exercise all or part of the Option or within two years from the Grant Date.

 

5.                                       Method of Exercise .  You may exercise the Option by giving written notice to the Company in the form of the Notice of Exercise of Stock Option attached hereto as Exhibit A , or such other form as may be reasonably required by the Company from time to time (the “ Exercise Notice ”).  The Exercise Notice must be accompanied by full payment of the exercise price for the number of Shares you are purchasing.  You may make this payment in any combination of the following:  (a) by cash; (b) by check acceptable to the Company; (c) if permitted by the Plan Administrator, by using shares of Common Stock you have owned for at least six months; (d) if the Common Stock is registered under the Exchange Act, by instructing a broker to deliver to the Company the total payment required; or (e) by any other method permitted by the Plan Administrator.

 

6.                                       Repurchase and First Refusal Rights .  So long as the Common Stock is not registered under the Exchange Act, the Company may, in its sole discretion at the time of exercise, require you to sign a stock purchase agreement, in the form to be provided, pursuant to which you will grant to the Company certain repurchase and/or first refusal rights to purchase the Shares acquired by you upon exercise of the Option.  Upon request to the Company, you may review a current form of this agreement prior to exercise of the Option.

 

7.                                       Market Standoff .  By exercising the Option you agree that the Shares will be subject to the market standoff restrictions on transfer set forth in the Plan.

 

8.                                       Treatment Upon Termination of Employment or Service Relationship .  The unvested portion of the Option will terminate automatically and without further notice immediately upon termination of your employment or service relationship with the Company or a Related Company for any reason (“ Termination of Service ”).  You may exercise the vested portion of the Option as follows:

 

(a)                                  General Rule .  You must exercise the vested portion of the Option on or before the earlier of (i) three months after your Termination of Service and (ii) the Option Expiration Date;

 

(b)                                  Retirement or Disability .  If your employment or service relationship terminates due to Retirement or Disability, you must exercise the vested portion of the Option on or before the earlier of (i) one year after your Termination of Service and (ii) the Option Expiration Date.

 

(c)                                   Death .  If your employment or service relationship terminates due to your death, the vested portion of the Option must be exercised on or before the earlier of (i) one year after your Termination of Service and (ii) the Option Expiration Date.  If you die after your Termination of Service but while the Option is still exercisable, the vested portion of the Option may be exercised until the earlier of (x) one year after the date of death and (y) the Option Expiration Date; and

 

2



 

(d)                                  Cause .  The vested portion of the Option will automatically expire at the time the Company first notifies you of your Termination of Service for Cause, unless the Plan Administrator determines otherwise.  If your employment or service relationship is suspended pending an investigation of whether you will be terminated for Cause, all your rights under the Option likewise will be suspended during the period of investigation.  If any facts that would constitute termination for Cause are discovered after your Termination of Service, any Option you then hold may be immediately terminated by the Plan Administrator.

 

The Option must be exercised within three months after Termination of Service for reasons other than death or Disability and one year after Termination of Service due to Disability to qualify for the beneficial tax treatment afforded Incentive Stock Options.

 

It is your responsibility to be aware of the date the Option terminates.

 

9.                                       Change of Control .  Upon the consummation of any Company Transaction (as such term is defined in the Plan), any unvested portion of the Option shall be treated in the manner defined in the Plan.

 

10.                                Limited Transferability .  During your lifetime only you can exercise the Option.  The Option is not transferable except by will or by the applicable laws of descent and distribution, except that Nonqualified Stock Options may be transferred to the extent permitted by the Plan Administrator.  The Plan provides for exercise of the Option by a beneficiary designated on a Company-approved form or the personal representative of your estate.

 

11.                                Withholding Taxes .  As a condition to the exercise of any portion of an Option, you must make such arrangements as the Company may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise.

 

12.                                Option Not an Employment or Service Contract .  Nothing in the Plan or any Award granted under the Plan will be deemed to constitute an employment contract or confer or be deemed to confer any tight for you to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate your employment or other relationship at any time, with or without Cause.

 

13.                                No Right to Damages .  You will have no right to bring a claim or to receive damages if you are required to exercise the vested portion of the Option within three months (one year in the case of Retirement, Disability or death) of the Termination of Service or if any portion of the Option is cancelled or expires unexercised.  The loss of existing or potential profit in Awards will not constitute an element of damages in the event of your Termination of Service for any reason even if the termination is in violation of an obligation of the Company or a Related Company to you.

 

14.                                Binding Effect .  This Agreement will inure to the benefit of the successors and assigns of the Company and be binding upon you and your heirs, executors, administrators, successors and assigns.

 

3



 

EXHIBIT A

 

NOTICE OF EXERCISE OF STOCK OPTION

 

To:  Control4 Corporation

 

I, a resident of                                               , hereby exercise my [Incentive / Non-Qualified] Stock Option granted by Control4 Corporation (the “ Company ”) on                  , subject to all the terms and provisions thereof and of the 2003 Equity Incentive Plan referred to therein, and notify the Company of my desire to purchase                                      shares of Common Stock of the Company (the “ Securities ”) at the exercise price of $      per share.  I hereby represent and warrant that I have been furnished with a copy of the Plan.

 

I hereby represent and warrant that (1) I have been furnished with all information which I deem necessary to evaluate the merits and risks of the purchase of the Securities; (2) I have had the opportunity to ask questions and receive answers concerning the information received about the Securities and the Company; and (3) I have been given the opportunity to obtain any additional information I deem necessary to verify the accuracy of any information obtained concerning the Securities and the Company.

 

I am aware that the Securities have not been registered under the Federal Securities Act of 1933 (the “ 1933 Act ”) or any state securities laws, pursuant to exemption(s) from registration.  I understand that the reliance by the Company on such exemption(s) is predicated in part upon the truth and accuracy of the statements by me in this Notice of Exercise.

 

I hereby represent and warrant that I am purchasing the Securities for my own personal account for investment and not with a view to the sale or distribution of all or any part of the Securities.

 

I understand that because the Securities have not been registered under the 1933 Act, I must continue to bear the economic risk of the investment for an indefinite time and the Securities cannot be sold unless the Securities are subsequently registered or an exemption from registration is available.

 

I agree that I will in no event sell or distribute all or any part of the Securities unless (1) there is an effective registration statement under the 1933 Act and applicable state securities laws covering any such transaction involving the Securities or (2) the Company receives an opinion of my legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration.

 

I consent to the placing of a legend on my certificate (s) for the Securities stating that the Securities have not been registered and setting forth the restriction on transfer contemplated hereby and to the placing of a stop transfer order on the books of the Company and with any transfer agents against the Securities until the Securities may be legally resold or distributed.

 

I understand that at the present time I may not rely on Rule 144 of the Securities and Exchange Commission (the “ SEC ”) for the resale or distribution of the Securities.  I understand

 



 

that the Company has no obligation to me to register the Securities with the SEC and has not represented to me that it will register the Securities.

 

I am advised, prior to my purchase of the Securities, that neither the offering of the Securities nor any offering materials have been reviewed by any administrator under the Securities Act of 1933, the Utah State Securities Act or any other applicable securities act, law or regulation (the “ Acts ”), and that the Securities have not been registered under any of the Acts and therefore cannot be resold unless they are registered under the Acts or unless an exemption from such registration is available.

 

Dated:

 

 

 

 

 

(signature)

 

 

 

 

 

 

 

 

(print name)

 

 

 

 

 

Address:

 

 

 

Taxpayer I.D. Number

 

 

 

2




Exhibit 10.3

 

CONTROL4 CORPORATION

 

 

 

 

 

2013 STOCK OPTION AND INCENTIVE PLAN

 

SECTION 1.                             GENERAL PURPOSE OF THE PLAN; DEFINITIONS

 

The name of the plan is the Control4 Corporation 2013 Stock Option and Incentive Plan (the “ Plan ”).  The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and other key persons (including Consultants) of Control4 Corporation (the “ Company ”) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company.  It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

 

The following terms shall be defined as set forth below:

 

“Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

 

“Administrator” means either the Board or the compensation committee of the Board or a similar committee performing the functions of the compensation committee and which is comprised of not less than two Non-Employee Directors who are independent.

 

“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Units, Restricted Stock Awards, Unrestricted Stock Awards, Cash-Based Awards, Performance Share Awards and Dividend Equivalent Rights.

 

“Award Certificate” means a written or electronic document setting forth the terms and provisions applicable to an Award granted under the Plan.  Each Award Certificate is subject to the terms and conditions of the Plan.

 

“Board” means the Board of Directors of the Company.

 

“Cash-Based Award” means an Award entitling the recipient to receive a cash-denominated payment.

 

“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.

 

“Consultant” means any natural person that provides bona fide services to the Company, and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.

 



 

“Covered Employee” means an employee who is a “Covered Employee” within the meaning of Section 162(m) of the Code.

 

“Dividend Equivalent Right” means an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee.

 

“Effective Date” means the date on which the Plan is approved by stockholders as set forth in Section 21.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

 

“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that if the Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“ NASDAQ ”), NASDAQ Global Market or another national securities exchange, the determination shall be made by reference to market quotations.  If there are no market quotations for such date, the determination shall be made by reference to the last date preceding such date for which there are market quotations; provided further, however, that if the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on a national securities exchange, the Fair Market Value shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.

 

“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

 

“Initial Public Offering” means the consummation of the first fully underwritten, firm commitment public offering pursuant to an effective registration statement under the Act covering the offer and sale by the Company of its equity securities, or such other event as a result of or following which the Stock shall be publicly held.

 

“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.

 

“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

 

“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.

 

“Performance-Based Award” means any Restricted Stock Award, Restricted Stock Units, Performance Share Award or Cash-Based Award granted to a Covered Employee that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code and the regulations promulgated thereunder.

 

2



 

“Performance Criteria” means the criteria that the Administrator selects for purposes of establishing the Performance Goal or Performance Goals for an individual for a Performance Cycle.  The Performance Criteria (which shall be applicable to the organizational level specified by the Administrator, including, but not limited to, the Company or a unit, division, group, or Subsidiary of the Company) that will be used to establish Performance Goals are limited to the following:  earnings before interest, taxes, depreciation and amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the market price of the Stock, economic value-added, funds from operations or similar measure, sales or revenue, acquisitions or strategic transactions, operating income (loss), cash flow (including, but not limited to, operating cash flow and free cash flow), return on capital, assets, equity, or investment, stockholder returns, return on sales, gross or net profit levels, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of Stock, sales or market shares and number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group.

 

“Performance Cycle” means one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Criteria will be measured for the purpose of determining a grantee’s right to and the payment of a Restricted Stock Award, Restricted Stock Units, Performance Share Award or Cash-Based Award.  Each such period shall not be less than 12 months.

 

“Performance Goals” means, for a Performance Cycle, the specific goals established in writing by the Administrator for a Performance Cycle based upon the Performance Criteria.

 

“Performance Share Award” means an Award entitling the recipient to acquire shares of Stock upon the attainment of specified Performance Goals.

 

“Restricted Stock Award” means an Award entitling the recipient to acquire, at such purchase price (which may be zero) as determined by the Administrator, shares of Stock subject to such restrictions and conditions as the Administrator may determine at the time of grant.

 

“Restricted Stock Units” means an Award of phantom stock units to a grantee.

 

“Sale Event” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person or entity, or (iv) any other transaction in which the owners of the Company’s outstanding voting power prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

 

Sale Price ” means the value as determined by the Administrator of the consideration payable, or otherwise to be received by stockholders, per share of Stock pursuant to a Sale Event.

 

3



 

“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.

 

“Stock” means the Common Stock, par value $0.0001 per share, of the Company, subject to adjustments pursuant to Section 3.

 

“Stock Appreciation Right” means an Award entitling the recipient to receive shares of Stock having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.

 

“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has at least a 50 percent interest, either directly or indirectly.

 

“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation.

 

“Unrestricted Stock Award” means an Award of shares of Stock free of any restrictions.

 

SECTION 2.                             ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS

 

(a)                                  Administration of Plan .  The Plan shall be administered by the Administrator.

 

(b)                                  Powers of Administrator .  The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:

 

(i)                                      to select the individuals to whom Awards may from time to time be granted;

 

(ii)                                   to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Unrestricted Stock Awards, Cash-Based Awards, Performance Share Awards and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;

 

(iii)                                to determine the number of shares of Stock to be covered by any Award;

 

(iv)                               to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the forms of Award Certificates;

 

(v)                                  to accelerate at any time the exercisability or vesting of all or any portion of any Award;

 

4



 

(vi)                               subject to the provisions of Section 5(b), to extend at any time the period in which Stock Options may be exercised; and

 

(vii)                            at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.

 

All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.

 

(c)                                   Delegation of Authority to Grant Options .  Subject to applicable law, the Administrator, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Administrator’s authority and duties with respect to the granting of Options to individuals who are (i) not subject to the reporting and other provisions of Section 16 of the Exchange Act and (ii) not Covered Employees.  Any such delegation by the Administrator shall include a limitation as to the amount of Options that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price and the vesting criteria.  The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.

 

(d)                                  Award Certificate .  Awards under the Plan shall be evidenced by Award Certificates that set forth the terms, conditions and limitations for each Award which may include, without limitation, the term of an Award and the provisions applicable in the event employment or service terminates.

 

(e)                                   Indemnification .  Neither the Board nor the Administrator, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Administrator (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s articles or bylaws or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.

 

(f)                                    Foreign Award Recipients .  Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have employees or other individuals eligible for Awards, the Administrator, in its sole discretion, shall have the power and authority to:  (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent

 

5



 

the Administrator determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Administrator determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals.  Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.

 

SECTION 3.                             STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION

 

(a)                                  Stock Issuable .  The maximum number of shares of Stock reserved and available for issuance under the Plan shall be [ insert number equal to 10% of the outstanding shares post-IPO ] shares (the “ Initial Limit ”), subject to adjustment as provided in Section 3(c), plus on January 1, 2014 and each January 1 thereafter, the number of shares of Stock reserved and available for issuance under the Plan shall be cumulatively increased by 5 percent of the number of shares of Stock issued and outstanding on the immediately preceding December 31 (the “ Annual Increase ”).  Subject to such overall limitation, the maximum aggregate number of shares of Stock that may be issued in the form of Incentive Stock Options shall not exceed the Initial Limit cumulatively increased on January 1, 2014 and on each January 1 thereafter by the lesser of the Annual Increase for such year or [ insert number equal to 5% of the outstanding shares post-IPO ] shares of Stock, subject in all cases to adjustment as provided in Section 3(c).  For purposes of this limitation, the shares of Stock underlying any Awards that are forfeited, canceled, held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan.  In the event the Company repurchases shares of Stock on the open market, such shares shall not be added to the shares of Stock available for issuance under the Plan.  Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than [      ] shares of Stock may be granted to any one individual grantee during any one calendar year period, and no more than [     ] shares of the Stock, plus the number of shares added pursuant to the Annual Increase, may be issued in the form of Incentive Stock Options.  The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.

 

(b)                                  Effect of Awards .  The grant of any Award shall be deemed, for purposes of determining the number of shares of Stock available for issuance under Section 3(a), as an Award of one share of Stock for each such share of Stock actually subject to the Award.  Any forfeitures, cancellations or other terminations (other than by exercise) of such Awards shall be returned to the reserved pool of shares of Stock under the Plan in the same manner.

 

(c)                                   Changes in Stock .  Subject to Section 3(d) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are

 

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increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Incentive Stock Options, (ii) the number of Stock Options or Stock Appreciation Rights that can be granted to any one individual grantee and the maximum number of shares that may be granted under a Performance-Based Award, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price, if any, per share subject to each outstanding Restricted Stock Award, and (v) the exercise price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable.  The Administrator shall also make equitable or proportionate adjustments in the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration cash dividends paid other than in the ordinary course or any other extraordinary corporate event.  The adjustment by the Administrator shall be final, binding and conclusive.  No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.

 

(d)                                  Mergers and Other Transactions .  Except as the Administrator may otherwise specify with respect to particular Awards in the relevant Award Certificate, in the case of and subject to the consummation of a Sale Event, the parties thereto may cause the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree.  To the extent the parties to such Sale Event do not provide for the assumption, continuation or substitution of Awards, all Options and Stock Appreciation Rights that are not exercisable immediately prior to the effective time of the Sale Event shall become fully exercisable as of the effective time of the Sale Event, all other Awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the Sale Event and all Awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with a Sale Event in the Administrator’s discretion and upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate.  In the event of such termination, (i) the Company shall have the option (in its sole discretion) to make or provide for a cash payment to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the Sale Price multiplied by the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights (to the extent then exercisable  at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights; or (ii) each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as

 

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determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights (to the extent then exercisable) held by such grantee.

 

(e)                                   Substitute Awards .  The Administrator may grant Awards under the Plan in substitution for stock and stock based awards held by employees, directors or other key persons of another corporation in connection with the merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation.  The Administrator may direct that the substitute awards be granted on such terms and conditions as the Administrator considers appropriate in the circumstances.  Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 3(a).

 

SECTION 4.                             ELIGIBILITY

 

Grantees under the Plan will be such full or part-time officers and other employees, Non-Employee Directors and key persons (including Consultants) of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.

 

SECTION 5.                             STOCK OPTIONS

 

Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.

 

Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options.  Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code.  To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.

 

Stock Options granted pursuant to this Section 5 shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable.  If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish.

 

(a)                                  Exercise Price .  The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5 shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant.  In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date.

 

(b)                                  Option Term .  The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted.  In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant.

 

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(c)                                   Exercisability; Rights of a Stockholder .  Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the grant date.  The Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option.  An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.

 

(d)                                  Method of Exercise .  Stock Options may be exercised in whole or in part, by giving written or electronic notice of exercise to the Company, specifying the number of shares to be purchased.  Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Option Award Certificate:

 

(i)                                      In cash, by certified or bank check or other instrument acceptable to the Administrator;

 

(ii)                                   Through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the optionee on the open market or that have been beneficially owned by the optionee for at least six months and that are not then subject to restrictions under any Company plan.  Such surrendered shares shall be valued at Fair Market Value on the exercise date;

 

(iii)                                By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or

 

(iv)                               With respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price.

 

Payment instruments will be received subject to collection.  The transfer to the optionee on the records of the Company or of the transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award Certificate or applicable provisions of laws (including the satisfaction of any withholding taxes that the Company is obligated to withhold with respect to the optionee).  In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of attested shares.  In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Stock Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Stock Options may be permitted through the use of such an automated system.

 

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(e)                                   Annual Limit on Incentive Stock Options .  To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000.  To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.

 

SECTION 6.                             STOCK APPRECIATION RIGHTS

 

(a)                                  Exercise Price of Stock Appreciation Rights .  The exercise price of a Stock Appreciation Right shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant.

 

(b)                                  Grant and Exercise of Stock Appreciation Rights .  Stock Appreciation Rights may be granted by the Administrator independently of any Stock Option granted pursuant to Section 5 of the Plan.

 

(c)                                   Terms and Conditions of Stock Appreciation Rights .  Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Administrator.  The term of a Stock Appreciation Right may not exceed ten years.

 

SECTION 7.                             RESTRICTED STOCK AWARDS

 

(a)                                  Nature of Restricted Stock Awards .  The Administrator shall determine the restrictions and conditions applicable to each Restricted Stock Award at the time of grant.  Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives.  The terms and conditions of each such Award Certificate shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.

 

(b)                                  Rights as a Stockholder .  Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock and receipt of dividends; provided that if the lapse of restrictions with respect to the Restricted Stock Award is tied to the attainment of performance goals, any dividends paid by the Company during the performance period shall accrue and shall not be paid to the grantee until and to the extent the performance goals are met with respect to the Restricted Stock Award.  Unless the Administrator shall otherwise determine, (i) uncertificated Restricted Stock shall be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Stock are vested as provided in Section 7(d) below, and (ii) certificated Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company such instruments of transfer as the Administrator may prescribe.

 

(c)                                   Restrictions .  Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award Certificate.  Except as may otherwise be provided by the Administrator either in

 

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the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, if a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, any Restricted Stock that has not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price (if any) from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other service relationship), and thereafter shall cease to represent any ownership of the Company by the grantee or rights of the grantee as a stockholder.  Following such deemed reacquisition of unvested Restricted Stock that are represented by physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.

 

(d)                                  Vesting of Restricted Stock .  The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company’s right of repurchase or forfeiture shall lapse.  Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed “vested.”  Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the grantee’s termination of employment (or other service relationship) with the Company and its Subsidiaries and such shares shall be subject to the provisions of Section 7(c) above.

 

SECTION 8.                             RESTRICTED STOCK UNITS

 

(a)                                  Nature of Restricted Stock Units .  The Administrator shall determine the restrictions and conditions applicable to each Restricted Stock Unit at the time of grant.  Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives.  The terms and conditions of each such Award Certificate shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.  At the end of the deferral period, the Restricted Stock Units, to the extent vested, shall be settled in the form of shares of Stock.  To the extent that an award of Restricted Stock Units is subject to Section 409A, it may contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order for such Award to comply with the requirements of Section 409A.

 

(b)                                  Election to Receive Restricted Stock Units in Lieu of Compensation .  The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of future cash compensation otherwise due to such grantee in the form of an award of Restricted Stock Units.  Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator.  Any such future cash compensation that the grantee elects to defer shall be converted to a fixed number of Restricted Stock Units based on the Fair Market Value of Stock on the date the compensation would otherwise have been paid to the grantee if such payment had not been deferred as provided herein.  The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections

 

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and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate.  Any Restricted Stock Units that are elected to be received in lieu of cash compensation shall be fully vested, unless otherwise provided in the Award Certificate.

 

(c)                                   Rights as a Stockholder .  A grantee shall have the rights as a stockholder only as to shares of Stock acquired by the grantee upon settlement of Restricted Stock Units; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the phantom stock units underlying his Restricted Stock Units, subject to such terms and conditions as the Administrator may determine.

 

(d)                                  Termination .  Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

 

SECTION 9.                             UNRESTRICTED STOCK AWARDS

 

Grant or Sale of Unrestricted Stock .  The Administrator may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award under the Plan.  Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.

 

SECTION 10.                      CASH-BASED AWARDS

 

Grant of Cash-Based Awards .  The Administrator may, in its sole discretion, grant Cash-Based Awards to any grantee in such number or amount and upon such terms, and subject to such conditions, as the Administrator shall determine at the time of grant.  The Administrator shall determine the maximum duration of the Cash-Based Award, the amount of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Administrator shall determine.  Each Cash-Based Award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the Administrator.  Payment, if any, with respect to a Cash-Based Award shall be made in accordance with the terms of the Award and may be made in cash or in shares of Stock, as the Administrator determines.

 

SECTION 11.                      PERFORMANCE SHARE AWARDS

 

(a)                                  Nature of Performance Share Awards .  The Administrator may, in its sole discretion, grant Performance Share Awards independent of, or in connection with, the granting of any other Award under the Plan.  The Administrator shall determine whether and to whom Performance Share Awards shall be granted, the Performance Goals, the periods during which performance is to be measured, and such other limitations and conditions as the Administrator shall determine.

 

(b)                                  Rights as a Stockholder .  A grantee receiving a Performance Share Award shall have the rights of a stockholder only as to shares actually received by the grantee under the Plan and not with respect to shares subject to the Award but not actually received by the grantee.  A

 

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grantee shall be entitled to receive shares of Stock under a Performance Share Award only upon satisfaction of all conditions specified in the Performance Share Award Certificate (or in a performance plan adopted by the Administrator).

 

(c)                                   Termination .  Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 18 below, in writing after the Award is issued, a grantee’s rights in all Performance Share Awards shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

 

SECTION 12.                      PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES

 

(a)                                  Performance-Based Awards .  Any employee or other key person providing services to the Company and who is selected by the Administrator may be granted one or more Performance-Based Awards in the form of a Restricted Stock Award, Restricted Stock Units, Performance Share Awards or Cash-Based Award payable upon the attainment of Performance Goals that are established by the Administrator and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Administrator.  The Administrator shall define in an objective fashion the manner of calculating the Performance Criteria it selects to use for any Performance Cycle.  Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual.  The Administrator, in its discretion, may adjust or modify the calculation of Performance Goals for such Performance Cycle in order to prevent the dilution or enlargement of the rights of an individual (i) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development, (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or (iii) in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions provided however, that the Administrator may not exercise such discretion in a manner that would increase the Performance-Based Award granted to a Covered Employee.  Each Performance-Based Award shall comply with the provisions set forth below.

 

(b)                                  Grant of Performance-Based Awards .  With respect to each Performance-Based Award granted to a Covered Employee, the Administrator shall select, within the first 90 days of a Performance Cycle (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) the Performance Criteria for such grant, and the Performance Goals with respect to each Performance Criterion (including a threshold level of performance below which no amount will become payable with respect to such Award).  Each Performance-Based Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets.  The Performance Criteria established by the Administrator may be (but need not be) different for each Performance Cycle and different Performance Goals may be applicable to Performance-Based Awards to different Covered Employees.

 

(c)                                   Payment of Performance-Based Awards .  Following the completion of a Performance Cycle, the Administrator shall meet to review and certify in writing whether, and to

 

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what extent, the Performance Goals for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Performance-Based Awards earned for the Performance Cycle.  The Administrator shall then determine the actual size of each Covered Employee’s Performance-Based Award, and, in doing so, may reduce or eliminate the amount of the Performance-Based Award for a Covered Employee if, in its sole judgment, such reduction or elimination is appropriate.

 

(d)                                  Maximum Award Payable .  The maximum Performance-Based Award payable to any one Covered Employee under the Plan for a Performance Cycle is [       ] shares of Stock (subject to adjustment as provided in Section 3(c) hereof) or $5,000,000 in the case of a Performance-Based Award that is a Cash-Based Award.

 

SECTION 13.                      DIVIDEND EQUIVALENT RIGHTS

 

(a)                                  Dividend Equivalent Rights .  A Dividend Equivalent Right may be granted hereunder to any grantee as a component of an award of Restricted Stock Units, Restricted Stock Award or Performance Share Award or as a freestanding award.  The terms and conditions of Dividend Equivalent Rights shall be specified in the Award Certificate.  Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents.  Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any.  Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments.  A Dividend Equivalent Right granted as a component of an award of Restricted Stock Units or Restricted Stock Award with performance vesting or Performance Share Award shall provide that such Dividend Equivalent Right shall be settled only upon settlement or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award.

 

(b)                                  Interest Equivalents .  Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment.  Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.

 

(c)                                   Termination .  Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s rights in all Dividend Equivalent Rights or interest equivalents granted as a component of an award of Restricted Stock Units, Restricted Stock Award or Performance Share Award that has not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

 

SECTION 14.                      TRANSFERABILITY OF AWARDS

 

(a)                                  Transferability .  Except as provided in Section 14(b) below, during a grantee’s lifetime, his or her Awards shall be exercisable only by the grantee, or by the grantee’s legal representative or guardian in the event of the grantee’s incapacity.  No Awards shall be sold,

 

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assigned, transferred or otherwise encumbered or disposed of by a grantee other than by will or by the laws of descent and distribution or pursuant to a domestic relations order.  No Awards shall be subject, in whole or in part, to attachment, execution, or levy of any kind, and any purported transfer in violation hereof shall be null and void.

 

(b)                                  Administrator Action .  Notwithstanding Section 14(a), the Administrator, in its discretion, may provide either in the Award Certificate regarding a given Award or by subsequent written approval that the grantee (who is an employee or director) may transfer his or her Non-Qualified Options to his or her immediate family members, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award.  In no event may an Award be transferred by a grantee for value.

 

(c)                                   Family Member .  For purposes of Section 14(b), “family member” shall mean a grantee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the grantee’s household (other than a tenant of the grantee), a trust in which these persons (or the grantee) have more than 50 percent of the beneficial interest, a foundation in which these persons (or the grantee) control the management of assets, and any other entity in which these persons (or the grantee) own more than 50 percent of the voting interests.

 

(d)                                  Designation of Beneficiary .  Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death.  Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator.  If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.

 

SECTION 15.                      TAX WITHHOLDING

 

(a)                                  Payment by Grantee .  Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income.  The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee.  The Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on tax withholding obligations being satisfied by the grantee.

 

(b)                                  Payment in Stock .  Subject to approval by the Administrator, a grantee may elect to have the Company’s minimum required tax withholding obligation satisfied, in whole or in part, by authorizing the Company to withhold from shares of Stock to be issued pursuant to any

 

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Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.

 

SECTION 16.                      SECTION 409A AWARDS

 

To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “ 409A Award ”), the Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order to comply with Section 409A.  In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is then considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A.  Further, the settlement of any such Award may not be accelerated except to the extent permitted by Section 409A.

 

SECTION 17.                      TRANSFER, LEAVE OF ABSENCE, ETC.

 

For purposes of the Plan, the following events shall not be deemed a termination of employment:

 

(a)                                  a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or

 

(b)                                  an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.

 

SECTION 18.                      AMENDMENTS AND TERMINATION

 

The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s consent.  The Administrator is specifically authorized to exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect the repricing of such Awards through cancellation and re-grants.  To the extent required under the rules of any securities exchange or market system on which the Stock is listed, to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code, or to ensure that compensation earned under Awards qualifies as performance-based compensation under Section 162(m) of the Code, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders.  Nothing in this Section 18 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(c) or 3(d).

 

16



 

SECTION 19.                      STATUS OF PLAN

 

With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards.  In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.

 

SECTION 20.                      GENERAL PROVISIONS

 

(a)                                  No Distribution .  The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.

 

(b)                                  Delivery of Stock Certificates .  Stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company.  Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records).  Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel (to the extent the Administrator deems such advice necessary or advisable), that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded.  All Stock certificates delivered pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the Stock is listed, quoted or traded.  The Administrator may place legends on any Stock certificate to reference restrictions applicable to the Stock.  In addition to the terms and conditions provided herein, the Administrator may require that an individual make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems necessary or advisable in order to comply with any such laws, regulations, or requirements.  The Administrator shall have the right to require any individual to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.

 

(c)                                   Stockholder Rights .  Until Stock is deemed delivered in accordance with Section 20(b), no right to vote or receive dividends or any other rights of a stockholder will exist with respect to shares of Stock to be issued in connection with an Award, notwithstanding the exercise of a Stock Option or any other action by the grantee with respect to an Award.

 

17



 

(d)                                  Other Compensation Arrangements; No Employment Rights .  Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases.  The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.

 

(e)                                   Trading Policy Restrictions .  Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policies and procedures, as in effect from time to time.

 

(f)                                    Forfeiture of Awards under Sarbanes-Oxley Act .  If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, then any grantee who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 shall reimburse the Company for the amount of any Award received by such individual under the Plan during the 12-month period following the first public issuance or filing with the United States Securities and Exchange Commission, as the case may be, of the financial document embodying such financial reporting requirement.

 

SECTION 21.                      EFFECTIVE DATE OF PLAN

 

This Plan shall become effective upon stockholder approval in accordance with applicable state law, the Company’s bylaws and articles of incorporation, and applicable stock exchange rules or pursuant to written consent.  No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the Effective Date and no grants of Incentive Stock Options may be made hereunder after the tenth anniversary of the date the Plan is approved by the Board.

 

SECTION 22.                      GOVERNING LAW

 

This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.

 

DATE APPROVED BY BOARD OF DIRECTORS:

 

DATE APPROVED BY STOCKHOLDERS:

 

18


 

INCENTIVE STOCK OPTION AGREEMENT
UNDER THE CONTROL4 CORPORATION
2013 STOCK OPTION AND INCENTIVE PLAN

 

Name of Optionee:

 

 

 

 

 

No. of Option Shares:

 

 

 

 

 

Option Exercise Price per Share:

 

$

 

 

 

Grant Date:

 

 

 

 

 

Expiration Date:

 

 

 

Pursuant to the Control4 Corporation 2013 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Control4 Corporation (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.

 

1.                                       Exercisability Schedule .  No portion of this Stock Option may be exercised until such portion shall have become exercisable.  Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains an employee of the Company or a Subsidiary on such dates:

 

Incremental Number of
Option Shares Exercisable*

 

Exercisability Date

 

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

 


* Max. of $100,000 per yr.

 

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.

 



 

2.                                       Manner of Exercise .

 

(a)                                  The Optionee may exercise this Stock Option only in the following manner:  from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice.  This notice shall specify the number of Option Shares to be purchased.

 

Payment of the purchase price for the Option Shares may be made by one or more of the following methods:  (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; or (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or (iv) a combination of (i), (ii) and (iii) above.  Payment instruments will be received subject to collection.

 

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations.  In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

 

(b)                                  The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan.  The determination of the Administrator as to such compliance shall be final and binding on the Optionee.  The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company.  Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

 

2



 

(c)                                   The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

 

(d)                                  Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

 

3.                                       Termination of Employment .  If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

 

(a)                                  Termination Due to Death .  If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

 

(b)                                  Termination Due to Disability .  If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such disability, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.

 

(c)                                   Termination for Cause .  If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect.  For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.

 

(d)                                  Other Termination .  If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability, or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

 

The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.

 

3



 

4.                                       Incorporation of Plan .  Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

 

5.                                       Transferability .  This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.  This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

 

6.                                       Status of the Stock Option .  This Stock Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), but the Company does not represent or warrant that this Stock Option qualifies as such.  The Optionee should consult with his or her own tax advisors regarding the tax effects of this Stock Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements.  To the extent any portion of this Stock Option does not so qualify as an “incentive stock option,” such portion shall be deemed to be a non-qualified stock option.  If the Optionee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any Option Shares within the one-year period beginning on the date after the transfer of such shares to him or her, or within the two-year period beginning on the day after the grant of this Stock Option, he or she will so notify the Company within 30 days after such disposition.

 

7.                                       Tax Withholding .  The Optionee shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event.  The Company shall have the authority to cause the minimum required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due.

 

8.                                       No Obligation to Continue Employment .  Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

 

9.                                       Integration .  This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

 

10.                                Data Privacy Consent .  In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number,

 

4



 

home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”).  By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate.  The Grantee shall have access to, and the right to change, the Relevant Information.  Relevant Information will only be used in accordance with applicable law.

 

11.                                Notices .  Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

By:

 

 

 

Title:

 

 

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.  Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

 

Dated:

 

 

 

 

 

Optionee’s Signature

 

 

 

 

 

 

 

 

 

Optionee’s name and address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5


 

NON-QUALIFIED STOCK OPTION AGREEMENT
FOR COMPANY EMPLOYEES
UNDER THE CONTROL4 CORPORATION
2013 STOCK OPTION AND INCENTIVE PLAN

 

Name of Optionee:

 

 

 

 

 

No. of Option Shares:

 

 

 

 

 

Option Exercise Price per Share:

 

$

 

 

 

Grant Date:

 

 

 

 

 

Expiration Date:

 

 

 

Pursuant to the Control4 Corporation 2013 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Control4 Corporation (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.  This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

 

1.                                       Exercisability Schedule .  No portion of this Stock Option may be exercised until such portion shall have become exercisable.  Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as Optionee remains an employee of the Company or a Subsidiary on such dates:

 

Incremental Number of
Option Shares Exercisable

 

Exercisability Date

 

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

 

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.

 



 

2.                                       Manner of Exercise .

 

(a)                                  The Optionee may exercise this Stock Option only in the following manner:  from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice.  This notice shall specify the number of Option Shares to be purchased.

 

Payment of the purchase price for the Option Shares may be made by one or more of the following methods:  (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above.  Payment instruments will be received subject to collection.

 

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations.  In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

 

(b)                                  The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan.  The determination of the Administrator as to such compliance shall be final and binding on the Optionee.  The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been

 

2



 

entered as the stockholder of record on the books of the Company.  Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

 

(c)                                   The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

 

(d)                                  Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

 

3.                                       Termination of Employment .  If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

 

(a)                                  Termination Due to Death .  If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

 

(b)                                  Termination Due to Disability .  If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such disability, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.

 

(c)                                   Termination for Cause .  If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect.  For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.

 

(d)                                  Other Termination .  If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

 

3



 

The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.

 

4.                                       Incorporation of Plan .  Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in  Section 2(b) of the Plan.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

 

5.                                       Transferability .  This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.  This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

 

6.                                       Tax Withholding .  The Optionee shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event.  The Company shall have the authority to cause the minimum required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due.

 

7.                                       No Obligation to Continue Employment .  Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

 

8.                                       Integration .  This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

 

9.                                       Data Privacy Consent .  In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”).  By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate.  The Grantee shall have access to, and the right to change, the

 

4



 

Relevant Information.  Relevant Information will only be used in accordance with applicable law.

 

10.                                Notices .  Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

By:

 

 

 

Title:

 

 

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.  Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

 

Dated:

 

 

 

 

 

Optionee’s Signature

 

 

 

 

 

 

 

 

 

Optionee’s name and address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5


 

NON-QUALIFIED STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
UNDER THE CONTROL4 CORPORATION
2013 STOCK OPTION AND INCENTIVE PLAN

 

Name of Optionee:

 

 

 

 

 

No. of Option Shares:

 

 

 

 

 

Option Exercise Price per Share:

 

$

 

 

 

Grant Date:

 

 

 

 

 

Expiration Date:

 

 

 

Pursuant to the Control4 Corporation 2013 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Control4 Corporation (the “Company”) hereby grants to the Optionee named above, who is a Director of the Company but is not an employee of the Company, an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.  This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

 

1.                                       Exercisability Schedule .  No portion of this Stock Option may be exercised until such portion shall have become exercisable.  Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains in service as a member of the Board on such dates:

 

Incremental Number of
Option Shares Exercisable

 

Exercisability Date

 

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

 

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.

 



 

2.                                       Manner of Exercise .

 

(a)                                  The Optionee may exercise this Stock Option only in the following manner:  from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice.  This notice shall specify the number of Option Shares to be purchased.

 

Payment of the purchase price for the Option Shares may be made by one or more of the following methods:  (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above.  Payment instruments will be received subject to collection.

 

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations.  In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

 

(b)                                  The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan.  The determination of the Administrator as to such compliance shall be final and binding on the Optionee.  The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been

 

2



 

entered as the stockholder of record on the books of the Company.  Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

 

(c)                                   The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

 

(d)                                  Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

 

3.                                       Termination as Director . If the Optionee ceases to be a Director of the Company, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

 

(a)                                  Termination Due to Death .  If the Optionee’s service as a Director terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

 

(b)                                  Other Termination .  If the Optionee ceases to be a Director for any reason other than the Optionee’s death, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date the Optionee ceased to be a Director, for a period of 6 months from the date the Optionee ceased to be a Director or until the Expiration Date, if earlier.  Any portion of this Stock Option that is not exercisable on the date the Optionee ceases to be a Director shall terminate immediately and be of no further force or effect.

 

4.                                       Incorporation of Plan .  Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

 

5.                                       Transferability .  This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.  This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

 

6.                                       No Obligation to Continue as a Director .  Neither the Plan nor this Stock Option confers upon the Optionee any rights with respect to continuance as a Director.

 

7.                                       Integration .  This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

 

3



 

8.                                       Data Privacy Consent .  In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”).  By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate.  The Grantee shall have access to, and the right to change, the Relevant Information.  Relevant Information will only be used in accordance with applicable law.

 

9.                                       Notices .  Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

By:

 

 

 

Title:

 

 

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.  Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

 

Dated:

 

 

 

 

 

Optionee’s Signature

 

 

 

 

 

 

 

 

 

Optionee’s name and address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


 

RESTRICTED STOCK AWARD AGREEMENT
UNDER THE CONTROL4 CORPORATION
2013 STOCK OPTION AND INCENTIVE PLAN

 

Name of Grantee:

 

No. of Shares:

 

Grant Date:

 

Pursuant to the Control4 Corporation 2013 Stock Option and Incentive Plan (the “Plan”) as amended through the date hereof, Control4 Corporation (the “Company”) hereby grants a Restricted Stock Award (an “Award”) to the Grantee named above.  Upon acceptance of this Award, the Grantee shall receive the number of shares of Common Stock, par value $0.0001 per share (the “Stock”) of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan.  The Company acknowledges the receipt from the Grantee of consideration with respect to the par value of the Stock in the form of cash, past or future services rendered to the Company by the Grantee or such other form of consideration as is acceptable to the Administrator.

 

1.                                       Award .  The shares of Restricted Stock awarded hereunder shall be issued and held by the Company’s transfer agent in book entry form, and the Grantee’s name shall be entered as the stockholder of record on the books of the Company.  Thereupon, the Grantee shall have all the rights of a stockholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in Paragraph 2 below.  The Grantee shall (i) sign and deliver to the Company a copy of this Award Agreement and (ii) deliver to the Company a stock power endorsed in blank.

 

2.                                       Restrictions and Conditions .

 

(a)                                  Any book entries for the shares of Restricted Stock granted herein shall bear an appropriate legend, as determined by the Administrator in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the Plan.

 

(b)                                  Shares of Restricted Stock granted herein may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting.

 

(c)                                   If the Grantee’s employment with the Company and its Subsidiaries is voluntarily or involuntarily terminated for any reason (including death) prior to vesting of shares of Restricted Stock granted herein, all shares of Restricted Stock shall immediately and automatically be forfeited and returned to the Company.

 

3.                                       Vesting of Restricted Stock .  The restrictions and conditions in Paragraph 2 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or a Subsidiary on such Dates.  If a series

 



 

of Vesting Dates is specified, then the restrictions and conditions in Paragraph 2 shall lapse only with respect to the number of shares of Restricted Stock specified as vested on such date.

 

Incremental Number
of Shares Vested

 

Vesting Date

 

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

 

Subsequent to such Vesting Date or Dates, the shares of Stock on which all restrictions and conditions have lapsed shall no longer be deemed Restricted Stock.  The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 3.

 

4.                                       Dividends .  Dividends on shares of Restricted Stock shall be paid currently to the Grantee.

 

5.                                       Incorporation of Plan .  Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

 

6.                                       Transferability .  This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

 

7.                                       Tax Withholding .  The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event.  Except in the case where an election is made pursuant to Paragraph 8 below, the Company shall have the authority to cause the required minimum tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued or released by the transfer agent a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due.

 

8.                                       Election Under Section 83(b) .  The Grantee and the Company hereby agree that the Grantee may, within 30 days following the Grant Date of this Award, file with the Internal Revenue Service and the Company an election under Section 83(b) of the Internal Revenue Code.  In the event the Grantee makes such an election, he or she agrees to provide a copy of the election to the Company.  The Grantee acknowledges that he or she is responsible for obtaining the advice of his or her tax advisors with regard to the Section 83(b) election and that he or she is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with regard to such election.

 

2



 

9.                                       No Obligation to Continue Employment .  Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Grantee at any time.

 

10.                                Integration .  This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

 

11.                                Data Privacy Consent .  In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”).  By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate.  The Grantee shall have access to, and the right to change, the Relevant Information.  Relevant Information will only be used in accordance with applicable law.

 

3



 

12.                                Notices .  Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

By:

 

 

 

Title:

 

 

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.  Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

 

Dated:

 

 

 

 

 

Grantee’s Signature

 

 

 

 

 

 

 

 

 

Grantee’s name and address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


 

RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR COMPANY EMPLOYEES
UNDER THE CONTROL4 CORPORATION
2013 STOCK OPTION AND INCENTIVE PLAN

 

Name of Grantee:

 

No. of Restricted Stock Units:

 

Grant Date:

 

Pursuant to the Control4 Corporation 2013 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Control4 Corporation (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above.  Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.0001 per share (the “Stock”) of the Company.

 

1.                                       Restrictions on Transfer of Award .  This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.

 

2.                                       Vesting of Restricted Stock Units .  The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or a Subsidiary on such Dates.  If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.

 

Incremental Number of
Restricted Stock Units Vested

 

Vesting Date

 

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

 

The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.

 

3.                                       Termination of Employment .  If the Grantee’s employment with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal

 



 

representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.

 

4.                                       Issuance of Shares of Stock .  As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.

 

5.                                       Incorporation of Plan .  Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

 

6.                                       Tax Withholding .  The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event.  The Company shall have the authority to cause the required minimum tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Grantee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due.

 

7.                                       Section 409A of the Code.   This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.

 

8.                                       No Obligation to Continue Employment .  Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Grantee at any time.

 

9.                                       Integration .  This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

 

10.                                Data Privacy Consent .  In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”).  By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv)

 

2



 

authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate.  The Grantee shall have access to, and the right to change, the Relevant Information.  Relevant Information will only be used in accordance with applicable law.

 

11.                                Notices .  Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

By:

 

 

 

Title:

 

 

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.  Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

 

Dated:

 

 

 

 

 

Grantee’s Signature

 

 

 

 

 

 

 

 

 

Grantee’s name and address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


 

RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
UNDER THE CONTROL4 CORPORATION
2013 STOCK OPTION AND INCENTIVE PLAN

 

Name of Grantee:

 

No. of Restricted Stock Units:

 

Grant Date:

 

Pursuant to the Control4 Corporation 2013 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Control4 Corporation (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above.  Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.0001 per share (the “Stock”) of the Company.

 

1.                                       Restrictions on Transfer of Award .  This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.

 

2.                                       Vesting of Restricted Stock Units .  The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains in service as a member of the Board on such Dates.  If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.

 

Incremental Number of
Restricted Stock Units Vested

 

Vesting Date

 

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

                    (      %)

 

 

 

The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.

 

3.                                       Termination of Service .  If the Grantee’s service with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and

 



 

neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.

 

4.                                       Issuance of Shares of Stock .  As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.

 

5.                                       Incorporation of Plan .  Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

 

6.                                       Section 409A of the Code.   This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.

 

7.                                       No Obligation to Continue as a Director .  Neither the Plan nor this Award confers upon the Grantee any rights with respect to continuance as a Director.

 

8.                                       Integration .  This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

 

9.                                       Data Privacy Consent .  In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”).  By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate.  The Grantee shall have access to, and the right to change, the Relevant Information.  Relevant Information will only be used in accordance with applicable law.

 

2



 

10.                                Notices .  Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

By:

 

 

 

Title:

 

 

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.  Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

 

Dated:

 

 

 

 

 

Grantee’s Signature

 

 

 

 

 

 

 

 

 

Grantee’s name and address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3




Exhibit 10.4

 

August 20, 2011

 

Martin Plaehn

Dear Martin:

 

On behalf of Control4 Corporation (the “ Company ”), I am pleased to present you this offer of employment.  The terms of this offer, should you accept this opportunity, are as follows:

 

1.                                       Employment .  Effective as of October 17, 2011, or such earlier date as we may mutually agree (the “ Start Date ”), you will be appointed to serve in a full-time capacity as the Company’s President and Chief Executive Officer.  In such capacity, you will report directly to the Board of Directors of the Company (the “ Board ”).  Your employment with the Company will be for an unspecified duration and will constitute “ at-will ” employment, meaning either you or the Company may terminate your employment relationship at any time, and for any or no reason, with or without Cause subject to the terms and conditions of this Agreement.  The “ at-will ” nature of your employment may only he changed in a document signed by you and a duly authorized member of the Board.  Your position will be classified as “exempt” and you will not be eligible for overtime pay.

 

2.                                       Compensation .

 

(a)                                  Base Salary .  You will be paid a base salary at the annual rate of $360,000 (the “ Base Salary ”), less applicable deductions and withholdings, paid in accordance with the Company’s standard payroll procedures.  The Board will review your Base Salary annually, and, in its sole discretion, consider any increases it deems warranted at that time.

 

(b)                                  Equity Incentives .  The Company will request that the Board approve the grant to you of an option (the “ Option ”) to purchase shares of Company Common Stock equal to 2.7% of the Company’s fully diluted shares, calculated as of the Start Date.  The Option shall vest as follows:  25% of the shares purchasable upon exercise of the Option shall vest on the one-year anniversary of the Start Date, with the rest of the shares purchasable upon exercise of the Option to vest in equal monthly installments over the ensuing 36 months thereafter.  In addition to the Option, the Company will request that the Board approve a second grant to you of an option (the “ Milestone Option ”) to purchase additional shares of Company Common Stock equal to 0.6% of the Company’s fully diluted shares, calculated as of the Start Date.  The Milestone Option shall vest on the same time-based vesting schedule as the Option if, and only if, certain annual objectives (the “ Milestones ”), as mutually agreed by you and the Board, are achieved.  For the avoidance of doubt, upon the failure to achieve any given Milestone, the options related to such Milestone shall be immediately terminated and returned to the Company’s equity incentive plan and shall not be eligible for any vesting acceleration as set forth below in Section 5(d).

 

(c)                                   Bonus .  Beginning in 2012, you will be eligible to receive an annual performance bonus of up to 30% of your Base Salary, based upon criterion to be established by the Board in its sole discretion.

 



 

(d)                                  Business Expenses .  The Company will reimburse you for reasonable business expenses incurred by you from time to time in accordance with applicable Company travel and expense policies, including, if necessary, travel to the Company’s headquarters prior to the Start Date.

 

(e)                                   Relocation Expenses .  In connection your employment, you will move to the Salt Lake City, Utah area, and the Company will pay for in advance (or, for smaller expenses, reimburse you for upon presentation of reasonable documentation) reasonable and customary moving expenses associated with locating and purchasing or leasing housing (not including payment for such housing), transportation for your household goods and immediate family, and directly related expenses associated with this move (including taxes on any relocation payment or reimbursement that are taxable to you).

 

3.                                       Taxes and 409A Compliance .

 

(a)                                  The intent of the parties is that payments and benefits under this Agreement comply with Code Section 409A and the regulations and guidance promulgated thereunder (collectively “ Code Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.  In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on you by Code Section 409A or damages for failing to comply with Code Section 409A.

 

(b)                                  A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.”  Notwithstanding anything to the contrary in this Agreement, if you are deemed on the date of termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit that is considered deferred compensation under Code Section 409A payable on account of a “separation from service,” such payment or benefit shall not be made or provided until the date which is the earlier of (i) the expiration of the six (6)-month period measured from the date of your “separation from service,” and (ii) the date of your death, to the extent required under Code Section 409A.  Upon the expiration of the foregoing delay period, all payments and benefits delayed pursuant to this Section 3(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to you in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

 

(c)                                   To the extent that reimbursements or other in-kind benefits under this Agreement constitute “nonqualified deferred compensation” for purposes of Code Section 409A, (i) all expenses or other reimbursements hereunder shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by you, (ii) any right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) no such reimbursement, expenses eligible for reimbursement, or in-kind

 



 

benefits provided in any taxable year shall in any way affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year.

 

(d)                                  For purposes of Code Section 409A, your right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.  Whenever a payment under this Agreement specifics a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the sole discretion of the Company.

 

(e)                                   Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified deferred compensation” for purposes of Code Section 409A be subject to offset by any other amount unless otherwise permitted by Code Section 409A.

 

(f)                                    All payments and benefits provided herein shall be subject to withholding of taxes and other amounts as are required by law to be withheld.

 

(g)                                   Notwithstanding any provision of this Agreement to the contrary, the Company may unilaterally amend this Agreement to the extent it deems necessary to avoid the imposition of excise taxes, penalties or similar charges on the Company as a result of this Agreement being considered to be “discriminatory,” including, without limitation, any penalties under Section 4980D of the Code.

 

4.                                       Termination of Employment .  Upon the termination of your employment for any reason, you shall be entitled to the compensation, benefits and reimbursements then due and owing for the period ending as of the end of the effective date of the termination (the “ Termination Date ”) and the Company shall make the following payments to you (or your beneficiaries or estate if applicable) on your Termination Date: (i) all accrued but unpaid salary and any unpaid vacation that has accrued pursuant to the Company’s vacation accrual policy through the Termination Date, (ii) any earned but unpaid bonuses, (iii) any unreimbursed business expenses, and in addition (iv) you will continue to be able to exercise any vested and exercisable stock options then held by you pursuant to their terms and conditions (collectively, (i) through (iv) are the “ Accrued Benefits ”).  In addition, you may also be eligible for other post-employment payments and benefits as provided in this Agreement or pursuant to other agreements or plans with the Company that you enter into from time to time.

 

(a)                                  By Death .  Your employment shall terminate automatically upon your death.  The Company shall pay to your beneficiaries or estate, as appropriate, any compensation then due and owing, including the Accrued Benefits, and any other benefits provided hereunder, including without limitation the ability to exercise any vested and exercisable options held by you.  Thereafter, all obligations of the Company under this Agreement shall cease.

 

(b)                                  By Disability .  For purposes of this Agreement, “disability” means a mental or physical Impairment that is expected to result in death or that has lasted or is expected to last for a continuous period of three (3) months or more and that causes you to be unable to perform your duties under this Agreement and to be engaged in any substantial gainful activity.  If you experience such a disability, then, to the extent permitted by law, the Company may terminate

 



 

your employment upon sixty (60) days’ advance written notice.  Termination by disability shall be determined by a physician selected by the Board, if such physician is unable to schedule an appointment with you within ten business days of physician’s written request, the Board is authorized to determine whether your disability has occurred at its sole discretion.  The Company shall pay you all compensation to which you are entitled up through the last business day of the notice period, including all Accrued Benefits, and any other benefits provided hereunder, including without limitation the exercisability of any vested and exercisable option held by you; thereafter, all obligations of Company under this Agreement shall cease.  Nothing in this subsection shall affect your rights under any applicable Company disability plan.  Termination by disability shall not constitute termination without Cause or for resignation for Good Reason.

 

(c)                                   By Company Not For Cause or By You for Good Reason .  At any time, Company may terminate your employment without Cause by providing you written notice of such termination or you may terminate your employment.  In either event, the Company will pay to you the Accrued Benefits and all post-termination payments and benefits when due as provided in this Agreement.  As a condition to your receipt of such benefits, you will be required to comply with your continuing obligations (including without limitation the return of any Company properly and the non-competition and non-solicitation obligations set forth herein), resign from all positions you hold with the Company, and execute the Company’s standard form of release agreement attached as an exhibit to this Agreement (Exhibit A) in which you agree to fully release the Company and its representatives from any and all claims you may have, and such release must become effective no later than sixty (60) days following your termination.  Thereafter, all obligations of the Company under this Agreement will cease except as set forth herein.

 

(d)                                  By Company For Cause .  At any time, unless such actions are cured as described below, and without prior notice for actions that are not curable, the Company may terminate your employment for Cause.  In such event, the Company will pay to you the Accrued Benefits.  Thereafter, all obligations of the Company under this Agreement will cease except as set forth herein.

 

(e)                                   By You Without Good Reason .  At any time you may terminate your employment voluntarily and without Good Reason.  In such event, the Company will pay to you the Accrued Benefits.  Thereafter, all obligations of the Company under this Agreement will cease except as set forth herein.

 

5.                                       Severance Benefits .  Subject to the conditions set forth in Section 4(c) above, in the event your employment with the Company is terminated by the Company without Cause or by you for Good Reason, then you will be entitled to receive:

 

(a)                                  the continued payment of your Base Salary for six months (6) months, provided , however , (i) after the Company’s initial public offering, or (ii) if your termination without Cause or due to Good Reason occurs within ninety (90) days prior to or within 12 months after a Change of Control, the continued payment of your Base Salary shall be for twelve (12) months (the “ Cash Severance ”).  Notwithstanding the foregoing, if the Cash Severance constitutes deferred compensation for purposes of Code Section 409A as determined by the Company, such

 



 

payments shall commence upon the 60th date following your date of termination (and the first payment shall include payment of all amounts that otherwise would have been due prior thereto under the terms of this Agreement had such payments commenced immediately upon your termination, and any payments thereafter shall continue as provided herein);

 

(b)                                  Company paid group medical, dental and vision coverage for you and your dependents (at the same coverage levels that you had on the date of your termination) commencing as of the first day of the month immediately following your termination and continuing for the duration of twelve (12) months;

 

(c)                                   the Accrued Benefits;

 

(d)                                  if such termination without Cause or due to Good Reason occurs (i) during the first year of your employment and within ninety (90) days prior to or within twelve (12) months after a Change of Control, accelerated vesting of (A) 50% of the then unvested shares purchasable upon exercise of the Option and (B) 25% of the Milestone Option; and (ii) after the first year of your employment and within ninety (90) days prior to or within 12 months after a Change of Control, accelerated vesting of (A) 100% of the then unvested shares purchasable upon exercise of the Option, and (B) the greater of either, (x) 50% of the then unvested portion of the Milestone Option, or (y) 25% of the total Milestone Option.; and

 

(e)                                   a twelve (12) month period to purchase any or all vested shares through the exercise of your Option and Milestone Option.

 

For purposes of clarity, you will not be entitled to receive the foregoing benefits of subsection 5(a) through (c) should your employment terminate for Cause (as provided in Section 4(d) above) or should you terminate your employment other than for Good Reason (as provided in Section 4(e) above).

 

6.                                       Benefits .  You will be entitled to continue to participate in the Company’s basic employment benefits available to all Company employees, as currently in effect or as the Company may revise such benefits in the future, in its sole discretion.  As you know, participation in Company benefit programs may require payroll deductions and/or direct contributions by you.

 

7.                                       Vacation .  You will be entitled to accrue up to three (3) weeks of vacation leave consisting of fifteen (15) business days earned on an annual, pro-rata basis throughout each calendar year of employment, all in accordance with the Company’s standard vacation policy in effect from time to time and approved by the Board of Directors.  Employee’s vacation accrual will be pro-rated for the remainder of this calendar year.  Once the maximum vacation accrual is reached, no further vacation will accrue.  When some vacation is used, vacation will begin to accrue again and there will be no retroactive grant of vacation for the period of time the accrued vacation was at the maximum accrual balance.  Any accrued and unused vacation will be paid to you in cash upon your termination of employment.

 

8.                                       Confidentiality Agreement .  As a condition of employment, you agree to enter into the Company’s standard Confidential Information and Intellectual Property Assignment Agreement (the “ PIIA ”), a copy of which is attached hereto as Exhibit B .

 



 

9.                                       Noncompetition and Nondisparagement .

 

(a)                                  During the term of your employment with the Company and for eighteen (18) months after termination, for any reason, of your employment with the Company, you shall not directly or indirectly, own, manage, operate, join or control, be employed by or participate in the ownership, management, operation or control of, or be a consultant to or connected in any other manner with, any business, firm or corporation which is similar to or competes with a principal business of the Company or its subsidiaries; provided , however , that your ownership of securities of any company not in excess of one percent of any class of such securities shall not be a violation of this provision.  You acknowledge that the foregoing is in addition to your obligations under the PIIA.

 

(b)                                  From the date hereof and forever hereafter, you expressly agree not to disparage the Company, its past and present investors, officers, directors or employees or its affiliates and to keep all confidential and proprietary information about the past or present business affairs of the Company and its affiliates confidential unless a prior written release from the Company is obtained or unless disclosure is required by law.

 

10.                                Defined Terms : For purposes of this Agreement, the following terms will mean:

 

(a)                                  Cause ” shall be defined as (1) your repeated failure, in the reasonable judgment of the Board to perform one or more of your essential and material duties and responsibilities to the Company after formal written notice thereof from the Board to you describing your failure to perform such essential and material duties or responsibilities and, if such failure is remediable, your failure to remedy same within 10 business days of receiving written notice; (2) your refusal or failure to comply with the legal directives of the Board after formal written notice thereof to you describing your failure to comply and, if such failure is remediable, your failure to remedy same within 10 business days of receiving written notice; (3) your material violation of any material Company policy; (4) your commission or conviction of, or entry of a plea of nolo contendere to, any felony or any act of fraud, embezzlement, dishonesty, moral turpitude, misappropriation or any other misconduct that has caused or is reasonably expected to result in material injury to the Company or its affiliates; (5) your unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom the Company owes an obligation of nondisclosure as a result of a relationship with the Company; (6) your material breach of any obligations under any written agreement or covenant with the Company; or (7) your violation of a federal or state law or regulation applicable to the Company which violation was or is reasonably likely to be injurious to the Company; provided , however , that a finding of any of the above shall be predicated on a good faith determination by the Board.

 

(b)                                  Change of Control ” means a transaction or series of related transactions that constitutes a “ Deemed Liquidation ” in accordance with the Company’s then-current Certificate of incorporation, as amended from time to time (proved that such amendment shall not be formulated with the intention of denying the benefits of this paragraph to you).

 

(c)                                   Code ” means the Internal Revenue Code of 1986, as amended.

 



 

(d)                                  Disability ” means you have a mental or physical impairment that is expected to result in death or that has lasted or is expected to last for a continuous period of three months or more and that causes you to be unable to perform your duties under this Agreement and to be engaged in any substantial gainful activity.

 

(e)                                   Good Reason ” for your resignation shall mean that your continuous status as an employee was “constructively terminated” by the Company if within 90 days after the occurrence of one of the following Company actions (unless you consent in writing to such action(s)), and after providing the Company with a reasonable opportunity to cure such action(s), you resign in writing from your employment with the Company: (1) a material reduction in your base salary as in effect immediately before such reduction; or (2) the relocation by the Company of your then-current work site that has the effect of increasing your then-current commute by more than 50 miles (not including any regular business travel consistent with the business travel requirements of the your position with the Company).

 

11.                                Governing Law .  This Agreement will be construed in accordance with, and governed by, the laws of the State of Utah without regard to its conflicts of law principles.  Please note that this Agreement (together with the PIIA, and the documentation memorializing the Option and the Milestone Option) represent the entire agreement and understanding between you and the Company regarding your employment with the Company and supersede any and all prior representations, promises or agreements, whether written or oral.  To the extent that the practices, policies or procedures of Company or any other document referenced in this Agreement, now or in the future, apply to you, are inconsistent with the terms of this Agreement, the provisions of this Agreement will control.

 

***********************

 

If you are in agreement with the above, please execute a copy of this Agreement where indicated below, and return an executed copy to the Company via fax or email PDF.

 

***********************

 

 

 

Sincerely,

 

 

 

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

ACCEPTED AND AGREED:

 

 

 

 

 

 

 

 

/s/ Martin Plaehn

 

 

Martin Plaehn

 

 

Aug 20, 2011

 

 

 



 

EXHIBIT A

 

Standard Release upon Employment Termination

 



 

SEPARATION AGREEMENT AND RELEASE

 

This Separation Agreement and Release (“Agreement”) is made and entered into as of the          day of                       20    , by and between (“Employee”) and Control4 Corporation (“Employer”), who shall be referred to collectively as the “Parties” and each individually as a “Party.”

 

DEFINITIONS

 

1.                                       “Employee” shall include Employee and Employee’s heirs, assigns, and legal representatives.

 

2.                                       The phrase “employer Released Parties” shall mean Control4 Corporation and any and all of its business units, committees and groups, as well as its present, former or future parents, affiliates, subsidiaries, directors, officers, attorneys, successors, predecessors, and assigns.

 

3.                                       The “Released Claims” shall mean any type or manner of suits, claims, demands, allegations, charges, damages, or causes of action whatsoever in law or in equity under federal, state, municipal or local statute law, ordinance, regulation, constitution, or common law, whether known or unknown, which Employee has ever had or now has against the Employer Released Parties.  This includes but is not limited to any action for costs, interest or attorney’s fees, which arise in whole or in part (i) from Employee’s employment relationship with Employer, (ii) from the ending of that relationship, and (iii) from any other conduct by or dealings of any kind between Employee and the Employer Released Parties, which occurred prior to the execution of this Agreement.  This also includes but is not limited to any and all claims, rights, demands, allegations and causes of action for alleged wrongful discharge, breach of alleged employment contract, breach of the covenant of good faith and fair dealing, termination in violation of public policy, intentional or negligent infliction of emotional distress, fraud, misrepresentation, defamation, interference with prospective economic advantage, failure to pay wages due or other monies owed, failure to pay pension benefits, conversion, breach of duty, interference with existing economic relations, punitive damages, retaliation, discrimination on the basis of age in violation of the Age Discrimination and Employment Act of 1967, as amended (“ADEA”), harassment or discrimination on the basis of sex, race, color, citizenship, religion, age, national origin, or disability, or other protected classification under the federal, state, municipal or local laws of employment, including those arising under the common law, and any alleged violation of the Employee Retirement Income Security Act of 1974 (“ERISA”), the Family and Medical Leave Act, the Fair Labor Standards Act (“FLSA”), the Occupational Safety and Health Act (“OSHA”), Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, the Washington State Law Against Discrimination, the Utah Antidiscrimination Act, the California Fair Employment and Housing Act and any other state law to similar effect, the California Family Rights Act, as well as any other federal, state or local laws or regulations concerning discrimination or harassment, wages or compensation or wrongful termination.  The “Released Claims” shall not mean (i) any rights of indemnity against Employer that Employee may have as a former employee of Employer, or (ii) any claims that may not be released by law.

 



 

RECITALS

 

A.                                     The Parties desire to settle and compromise the Released Claims and to enter into this Agreement.

 

B.                                     This Agreement releases any claims Employee may have against the Employer Released Parties under the Age Discrimination in Employment Act.  Employer is providing Employee with 21 days to review this Agreement and seek advice and counsel.  If Employee chooses to sign this Agreement, Employee will have seven days to revoke this Agreement, if Employee chooses, and this Agreement will not become effective and enforceable until the seven day revocation period has passed without Employee revoking this Agreement.  Employer advises Employee to consult an attorney of his own choosing before signing this Agreement.

 

COVENANTS

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the mutual covenants set forth in this Agreement the Parties agree as follows:

 

1.                                       Employee’s employment with Employer is terminated effective                      (the “Termination Date”).  All employment compensation due to Employee has been paid to Employee by Employer.

 

2.                                       Employer, shall grant Employee the severance benefits set forth in Section 5 of that certain employment agreement between Employer and Employee, dated as of August      , 2011, as may be amended from time to time.  Employer will pay such severance benefits to Employee within fifteen business days after this Agreement becomes effective as provided in Paragraph 15 hereof, and only if this Agreement becomes effective as provided therein.  The foregoing amount is consideration for Employee’s release of all of the Released Claims, including attorney’s fees, costs, interest and all other expenses which may have been incurred.  Employee assumes full and sole responsibility for any tax consequences related to this Agreement.  Employee acknowledges that this consideration listed in this paragraph constitutes consideration for this Agreement and is separate from and in addition to anything Employee is entitled to receive from Employer.  Employee acknowledges that Employee has been fully compensated by the terms of this Agreement for releasing the Released Claims.

 

3.                                       Employee shall not pursue, or authorize anyone on Employee’s behalf to pursue, the Released Claims in any way in any court.  Employee represents that Employee has not filed and there is not pending with any governmental agency or any state or federal court, any other claims, complaints, charges, or lawsuits of any kind against the Employer Released Parties.  Employee agrees that Employee will not make any filings with any court at any time hereafter for any matter, claim or incident, known or unknown, which occurred or arose out of occurrences on or prior to the date of this Agreement; provided, however, this shall not limit either of the Parties from filing a lawsuit for the sole purpose of enforcing its rights under this Agreement.  Each of the Parties shall bear its own costs and attorneys’ fees in this dispute.

 

4.                                       Employee hereby waives, releases, remises and discharges each and every one of the Employer Released Parties from liability with respect to the Released Claims.  Employee

 



 

acknowledges that Employee understands that Employee is prohibited from receiving any further relief on the Released Claims.  Employee hereby promises and covenants never to institute any suit or action at law or in equity against the Employer Released Parties regarding or relating to the Released Claims.  Specifically and without limitation, Employee understands and agrees that that Employee is waiving and forever discharging the Employer Released Parties from any and all claims, causes of action or complaints that Employee may have or have ever had, which have or may have arisen prior to the execution of this Agreement.

 

5.                                       Employee represents and warrants that Employee is the sole owner of the Released Claims, that the Released Claims have not been assigned, transferred, or disposed of in fact, by operation of law or in any manner whatsoever, and that Employee has the full right and power to grant, execute and deliver the full and complete releases, undertakings, and agreements herein contained.

 

6.                                       It is the intention of Employee and Employer that this Agreement is a general release that will be effective as a bar to each and every claim, demand, or cause of action it releases.  Employee recognizes that Employee may have some claim, demand, or cause of action against Employer or one or more of the Employer Released Parties of which Employee is totally unaware and unsuspecting which Employee is giving up by execution of this Agreement.  It is the intention of Employee in executing this Agreement that it will deprive Employee of each such claim, demand or cause of action and prevent Employee from asserting it against the Employer Released Parties.  In furtherance of this intention.  Employee expressly waives any rights or benefits conferred by the provisions of Section 1542 of the Civil Code of the State of California (or any other law of any other jurisdiction of similar import), which provides as follows:

 

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

 

Employee understands the statutory language of Section 1542 of the California Civil Code but nevertheless elects to and hereby does release the Employer Released Parties from all claims Employee may have against the Employer Released Parties, or any of them, whether known or unknown, as herein provided, and specifically waives any rights which Employee may have under said Civil Code Section (or any other law of any other jurisdiction of similar import).  Employee fully understands that if the facts with respect to this Agreement are found hereafter to be other than or different from the facts now believed by Employee to be true, Employee expressly accepts and assumes the risk of such possible difference in fact and agrees that this Agreement will be and remain effective, notwithstanding any such difference.

 

7.                                       Each of Employee and the Company agrees that the existence and terms of this Agreement shall be and remain confidential.  The Parties acknowledges that this confidentiality provision is an essential element of the consideration provided for entering into this Agreement.  Therefore, each of Employee and the Company agrees not to discuss or describe any information concerning of the terms of this Agreement to anyone, except as required by subpoena or permitted herein, except that Employee may discuss the same with Employee’s immediate

 



 

family, attorneys and tax and financial advisors provided Employee first informs them of their obligation of confidentiality regarding the same and the Company may disclose the existence of this Agreement and the terms hereof to its agents, employees, and advisors and as deemed in good faith to be required by law.  Each of Employee and the Company agrees to reveal only that the matter has been resolved.  This paragraph shall not apply to any action by the Parties to enforce this Agreement.  If any provision of this paragraph is breached, the Parties shall be untitled to such legal or equitable relief as may be available by law.

 

8.                                       This Agreement is entered into by the Parties solely to avoid the expenses associated with litigation and does not constitute and shall not be construed as an admission by the Employer Released Parties of any breach of any alleged agreements or duties, or of any wrongdoing toward any person, including any alleged breach of contract or violation of any federal, state, or local law, regulation, or ordinance.  The Employer Released Parties specifically disclaim any liability to Employee for wrongdoing of any kind.

 

9.                                       The Parties agree that this Agreement may be used in evidence in a subsequent proceeding in which any of the Parties alleges a breach of this Agreement.

 

10.                                The Parties affirm they are not relying on any representations or statements made by each other which are not specifically included in this Agreement.  The Parties acknowledge they have been informed in writing by this Agreement that they have the right to consult with legal counsel regarding this release and confirm that they have consulted with counsel to the extent desired concerning the meaning and consequences of this Agreement.

 

11.                                This Agreement constitutes the entire agreement between the Parties with relation to the subject matter hereof.  Any prior negotiations or correspondence relating to the subject mailer hereof shall be deemed to have been merged into this Agreement and to the extent inconsistent herewith shall be deemed to be of no force or effect.  This Agreement may not be modified, nor any provision waived unless such modification or waiver is made in writing referring to this Agreement and signed by each Party.  This Agreement shall be binding upon and inure to the benefit of each of the Party’s respective successors, heirs, executors, administrators and assigns, as the case may be.

 

12.                                This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be an original, but all of such counterparts shall constitute one and the same instrument.

 

13.                                This Agreement shall be interpreted and enforced in accordance with the laws of the State of, and/or when applicable, of the United States.

 

14.                                The provisions of this Agreement are severable, and if any part of it is found to be unenforceable, the other parts and/or paragraphs shall remain fully valid and enforceable.  Should any provisions of this Agreement be determined by any court or administrative body to be invalid, the validity of the remaining provisions is not affected thereby and the invalidated part shall be deemed not a part of this Agreement.  Any court or administrative body shall construe and interpret this Agreement as enforceable to the full extent available under applicable law.  This Agreement shall survive the termination of any arrangements contained in it.

 



 

15.                                Employee and Employer acknowledge and understand this is a legal contract and that they each sign this Agreement knowingly, freely and voluntarily and have not been threatened, coerced or intimidated into making the same.  Employee and Employer acknowledge that they have had ample and reasonable time to consider this Agreement and the effects and import of it and that they have fully dwelt on it in their minds and have had such counsel and advice, legal or otherwise, as they desire in order to make this Agreement.  EMPLOYER AND EMPLOYER, BY SIGNING TIHS AGREEMENT, ACKNOWLEDGE IT CONTAINS A RELEASE OF KNOWN AND UNKNOWN CLAIMS.  Employee and Employer have read and fully considered this Agreement and understand and desire to enter into it.  The terms of this Agreement were derived through mutual compromise and are fully understood.  Employee acknowledges that Employee has been offered at least 21 days to consider the impact of this Agreement and its release of Employee’s rights to bring suit against the Employer Released Parties and after due consideration has decided to enter into this Agreement at this time.  Employee further understands that Employee may revoke this Agreement for a period of up to seven (7) days following signature and execution of the same.  This Agreement will not become effective and enforceable until such seven-day period has passed without revocation of this Agreement by the Employee.  Any revocation within this period must be signed and submitted in writing to the undersigned representative of Employer and must state, “I hereby revoke my acceptance of the Agreement.”  Employee understands that if Employee revokes this Agreement, Employee is not entitled to receive the consideration provided by this Agreement.

 

16.                                As of the effectiveness of this Agreement (as provided in the preceding paragraph) the Company represents and warrants to Employee that is not aware of claims that it could reasonably levy against Employee prior to the date hereof other than as expressly disclosed to Employee in writing.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above.

 

 

EMPLOYEE

 

 

 

 

 

 

 

CONTROL4 CORPORATION

 

 

 

 

 

By:

 

 

Its:

 

 




Exhibit 10.5

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (this “ Agreement ”) is made and entered into as of July 28, 2003, by and between Control4 Corporation, a Delaware corporation (the “ Company ”), and William B. West (“ Employee ”).

 

RECITALS

 

A.                                     Employee is a founder of the Company and had been serving as the Company’s Chief Executive Officer and President since its inception.

 

B.                                     As conditions to the Company’s proposed Series A Preferred Stock financing (the “ Series A Financing ”), the investors in such Series A financing have requested that:

 

1.                                       the Company and Employee enter into a Stock Restriction Agreement in the form attached hereto as Exhibit A (the “ Stock Restriction Agreement ”); and

 

2.                                       the Company secure Employee’s continued service on the terms and conditions set forth herein.

 

AGREEMENT

 

NOW THEREFORE, for and in consideration of the mutual promises and covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

 

1.                                       Effective Date .  This Agreement, and the terms and conditions set forth herein, shall become effective simultaneously with the first closing of the Series A Financing (the “ Effective Date ”).

 

2.                                       Employment .  Employee shall continue to serve as a full-time employee of the Company as Chief Executive Officer and President.  Employee’s office shall continue to be located at 5983 South Redwood Road, Salt Lake City, Utah 84123, or such other location as may be established from time to time, subject to the limitations set forth in Section 5(f)(ii) of this Agreement.  Employee’s employment with the Company shall be for no certain duration but will be “at-will” employment.  Although the Company’s personnel policies and procedures may change from time to time, the “at-will” nature of Employee’s employment may only be changed in a document signed by Employee and a duly authorized member of the Company’s Board of Directors.

 

3.                                       Compensation .

 

(a)                                  Base Salary .  Employee’s salary shall initially be set at $13,333.33 per month, which is equivalent to $160,000 on an annual basis, less applicable deductions and withholdings, paid in accordance with the Company’s standard payroll procedures.  Employee’s position will be classified as “exempt” and Employee will not be eligible for overtime pay.

 



 

(b)                                  Stock Options .  Employee may receive stock options, and/or similar stock-related incentives or performance bonuses, as may be granted by the Board of Directors from time to time in accordance with applicable corporate approval procedures.

 

(c)                                   Performance Bonus .  At such time, if any, as the Board of Directors determines in its sole discretion that the Company has achieved requisite development, revenue and/or profitability milestones, the Board of Directors will determine Employee’s eligibility to receive an incentive bonus, less applicable deductions and withholdings, subject to the attainment of Company and individual performance objectives as determined by the Board of Directors and subject to any other terms and conditions determined by the Board of Directors.

 

(d)                                  Other Benefits .  The Compan y shall provide Employee with the opportunity to participate in the Company’s standard benefits plans available to other similarly situated employees and approved by the Board of Directors, subject to any eligibility requirements imposed by such plans or programs.

 

(e)                                   Business Expenses .  The Company shall reimburse business expenses incurred by Employee from time to time, which shall include, without limitation, mobile telephone, home office telephone and home office high-speed Internet access expenses, in accordance with the Company’s standard policies and procedures relating thereto as approved from time to time by the Board of Directors.

 

(f)                                    Vacation .  Employee will be entitled to accrue up to four (4) weeks of vacation leave consisting of twenty (20) business days earned on an annual, pro-rata basis throughout each calendar year of employment, all in accordance with the Company’s standard vacation policy in effect from time to time and approved by the Board of Directors.  Employee’s vacation accrual will be pro-rated for the remainder of this calendar year.  Once the maximum vacation accrual is reached, no further vacation will accrue.  When some vacation is used, vacation will begin to accrue again.  There will be no retroactive grant of vacation for the period of time the accrued vacation was at the maximum accrual balance.

 

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4.                                       Noncompetition .  During the term of Employee’s employment with the Company and for twelve (12) months after termination, for any reason, of Employee’s employment with the Company, Employee shall not directly or indirectly, own, manage, operate, join or control, be employed by or participate in the ownership, management, operation or control of, or be a consultant to or connected in any other manner with, any business, firm or corporation which is similar to or competes with a principal business of the Company or its subsidiaries (a “ Competitive Activity ”); provided , however , that Employee’s ownership of securities of any company not in excess of one percent of any class of such securities shall not be considered to be competition with the Company or its subsidiaries.  Employee acknowledges that the foregoing is in addition to Employee’s obligations under that certain Confidential Information and Intellectual Property Assignment Agreement between the Company and Employee, including without limitation Section 4 thereof, attached hereto as Exhibit B (the “ Confidentiality Agreement ”).

 

5.                                       Termination .

 

(a)                                  By Death .  Employee’s employment shall terminate automatically upon his death.  The Company shall pay to Employee’s beneficiaries or estate, as appropriate, any compensation then due and owing, including payment for accrued bonus, unused vacation, expense reimbursement, if any, and any other benefits provided under this Agreement, including without limitation the ability to exercise any vested and exercisable options held by Employee.  Thereafter, all obligations of the Company under this Agreement shall cease.  Nothing in this Section 5(a) shall affect any entitlement of Employee’s heirs to the benefits of any life insurance plan or other applicable benefits.

 

(b)                                  By Disability .  For purposes of this Agreement, disability” means a mental or physical impairment that is expected to result in death or that has lasted or is expected to last for a continuous period of three (3) months or more and that causes Employee to be unable to perform his duties under this Agreement and to be engaged in any substantial gainful activity.  If Employee experiences such a disability, then, to the extent permitted by law, the Company may terminate Employee’s employment upon sixty (60) days’ advance written notice.  Termination by disability shall be determined by a physician selected by the Board of Directors.  If such physician is unable to schedule an appointment with Employee within ten business days of physician’s written request, the Board of Directors are authorized to determine whether Employee’s disability has occurred at its sole discretion.  The Company shall pay Employee all compensation to which he is entitled up through the last business day of the notice period, including payment for accrued unused vacation, expense reimbursement, if any, and any other benefits provided under this Agreement, including without limitation the exercisability of any vested and exercisable option held by Employee; thereafter, all obligations of Company under this Agreement shall cease.  Nothing in this Section 5(b) shall affect Employee’s rights under any applicable Company disability plan.  Termination by disability shall not constitute termination without Cause or for Good Reason.

 

(c)                                   For Cause or Without Good Reason .  If Employee’s employment is terminated by the Company for Cause (as defined below) or by Employee for other than Good Reason (as defined below), the Company shall pay Employee all wages earned through the date of termination at the rate in effect at the time notice of termination is given and the Company shall have no further obligations to Employee under this Agreement.

 

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(d)                                  Without Cause or For Good Reason .  In no way limiting the Company’s policy of employment at-will, if Employee’s employment is terminated by the Company without Cause or by Employee for Good Reason, and other than as a result of Employee’s death or disability, the Company will offer certain severance benefits to Employee as specified below.  As a condition to Employee’s receipt of such benefits, Employee is required to comply with Employee’s continuing obligations (including without limitation the return of any Company property and the non-competition and non-solicitation obligations), resign from all positions Employee holds with the Company, and execute the Company’s standard form of release agreement releasing any and all claims Employee may have against the Company.

 

(i)                                      In addition to paying Employee all wages earned through the date of termination, the Company shall pay Employee severance equal to six (6) months of his then-current regular base salary in effect at the time notice of termination is given, paid out over the Company’s regular payroll schedule following the effective date of the release, as well as all other unpaid amounts, if any, that Employee has earned as of the date of termination under any compensation plan or program of the Company, at the time such payments are or become due;

 

(ii)                                                                                   For the first six (6) months after Employee’s date of termination, the Company shall continue, to the extent permitted under the terms of the applicable plans, to maintain in full force and effect, and cover the premium costs of, the insurance benefits set forth in Section 3(d) of this Agreement; provided, that if (i) the Employee becomes reemployed after the date of termination and (ii) his new employer offers medical and dental insurance plans or programs under which he will be eligible to participate, any such continuing medical and dental coverage shall be secondary to such new employer’s coverage.

 

(iii)                                                                                In addition to all of Employee’s stock and stock options that were vested on the date of termination, that number of shares subject to any option (collectively, the “ Options ”) and that number of shares subject to a right of repurchase in favor of the Company (collectively, the “ Restricted Stock ”) determined as follows:

 

(x)                                  if such termination without Cause or For Good Reason occurs before a Change of Control (as defined below), then that number of shares determined with respect to each Option or grant of Restricted Stock equal to the greater of:

 

(A)                                                                                the product of the total shares originally subject to the Option or the original grant of the Restricted Stock times 50%; or

 

(B)                                the number of shares subject to the Options and the Restricted Stock that would otherwise have vested and been exercisable or released from the right of repurchase as of the date that is six months from the date of termination shall immediately vest, and any repurchase right of the Company with respect to such Options and Restricted Stock shall immediately lapse, and the Options shall remain exercisable for ninety (90) days after the date of termination (but not beyond their original expiration dates); provided, however, that the foregoing provision is in addition to, and is not intended to limit or amend, any provisions set forth in the Company’s stock option plan pursuant to which such options were granted; and

 

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(y)                                  if such termination without Cause or For Good Reason occurs either (A) within 60 days prior to a Change of Control and in direct contemplation of such Change of Control or (B) within 12 months after a Change of Control, then all of Employee’s remaining Options and Restricted Stock shall fully vest.  “ Change of Control ” shall mean a transaction or series of related transactions that constitutes a “Deemed Liquidation” in accordance with the Company’s then current Certificate of Incorporation, as amended from time to time.

 

(e)                                   Priority .  The compensation and benefits, if any, payable under this Section 5 shall be in addition to any vested accrued compensation or benefits to which the Employee may be entitled under the Company’s (or any of its subsidiaries’) employee benefit plans and arrangements; provided, however, that the severance benefits provided by this Agreement shall supercede, and Employee shall not also be entitled to, any compensation or benefits under any other severance plan or arrangement of the Company or any of its subsidiaries to which Employee would otherwise be entitled under the terms thereof, whether now existing or hereafter adopted.

 

(f)                                    Certain Definitions .

 

(i)                                      Cause ” shall be defined as (1) Employee’s repeated failure, in the reasonable judgment of the Board of Directors, to perform one or more of his essential duties and responsibilities to the Company after written notice thereof from the Board of Directors to Employee describing Employee’s failure to perform such duties or responsibilities and, if such failure is remediable, his failure to remedy same within 10 days of receiving written notice; (2) Employee’s refusal or failure to comply with the legal directives of the Board of Directors after written notice thereof from the Board of Directors to Employee describing Employee’s failure to comply and, if such failure is remediable, his failure to remedy same within 10 days of receiving written notice; (3) Employee’s material violation of any Company policy; (4) Employee’s commission or conviction of, or entry of a plea of nolo contendere to, any felony or any act of fraud, embezzlement, dishonesty, moral turpitude, misappropriation or any other misconduct that has caused or is reasonably expected to result in material injury to the Company or its affiliates; (5) Employee’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom he owes an obligation of nondisclosure as a result of his relationship with the Company; (6) Employee’s material breach of any of his obligations under any written agreement or covenant with the Company; or (7) Employee’s violation of a federal or state law or regulation applicable to the Company which violation was or is reasonably likely to be injurious to the Company; provided , however , that a finding of any of the above shall be predicated on a good faith determination by the Board of Directors.

 

(ii)                                   Good Reason ” for Employee’s resignation shall mean that Employee’s continuous status as an employee was “constructively terminated” by the Company if within 90 days after the occurrence of one of the following Company actions (unless such action(s) applies generally to all of the Company’s management of the Company or unless Employee consents in writing to such action(s)), Employee resigns in writing from his employment with the Company: (x) a significant reduction in the Employee’s duties, position or responsibilities compared to the Employee’s duties, position or responsibilities immediately prior to such reduction; provided however that a reduction in position that occurs solely by virtue of

 

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the Company being acquired and made part of a larger entity (as”, for example, when a chief financial officer of an acquired company remains as such following a Change of Control but is not made the chief financial officer of the acquiring corporation) shall not constitute “Good Reason” so long as Employee maintains a comparable level of duties and responsibilities with the acquiring entity as Employee held immediately prior to the acquisition; (y) a material reduction in Employee’s base salary as in effect immediately before such reduction; and (z) the relocation by the Company of Employee’s then current work site that has the effect of increasing the Employee’s then-current commute by more than 50 miles (not including any regular business travel consistent with the business travel requirements of the Employee’s position with the Company).

 

6.                                       Confidentiality Agreement .  Employee represents that he has signed and returned to the Company, or that prior to the Effective Date he shall sign and return to the Company, the Confidentiality Agreement.

 

7.                                       Stock Restriction Agreement .  On or prior to the Effective Date, Employee shall sign and return to the Company the Stock Restriction Agreement in the form attached hereto as Exhibit A .

 

8.                                       Attorneys Fees .  If any legal action or other proceeding, including an arbitration, is brought for the enforcement of this Agreement, or because of an alleged dispute, breach or default thereof, the successful or prevailing party shall be entitled to recover attorneys’ fees and other costs incurred in such proceeding, in addition to any other relief to which it may be entitled.

 

9.                                       Indemnification .  The Company and Employee will enter into the Company’s standard form of indemnification agreement for its directors and officers.

 

10.                                Governing Law .  This Agreement shall be construed in accordance with, and governed by, the laws of the State of Utah without regard to its conflicts of law principles.

 

11.                                Arbitration .  Any claims arising under this Agreement shall be resolved in binding arbitration with a duly authorized representative of the American Arbitration Association (“ AAA ”) in accordance with the provisions hereof and thereof.  Either the Company or Employee may submit the matter to binding arbitration before the AAA in Salt Lake County, Utah, which arbitration shall be final and binding on the parties and the exclusive method, absent agreement between the Company and Employee, for purposes of determining the ability of the Company to satisfy such claim.  All claims shall be settled by a single arbitrator appointed in accordance with the Commercial Arbitration Rules then in effect of the AAA (the “ AAA Rules ”).  The arbitrator shall render a final decision pursuant to the AAA Rules within thirty (30) days after filing of the claim.  The final decision of the arbitrator shall be furnished to Employee and the Company in writing and shall constitute the conclusive determination of the issue in question binding upon Employee and the Company, and shall not be contested by any of them.  Such decision may be used in a court of law only for the purpose of seeking enforcement of the arbitrator’s decision.  The prevailing part; shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief that such party may be entitled.  For purposes of this Agreement, the prevailing party shall be that party in whose favor final

 

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judgment is rendered or who substantially prevails, if both parties are awarded judgment.  Notwithstanding the foregoing, any party may pursue any equitable remedies that it may have under this Agreement for any breach or threatened breach by another party of this Agreement (including without limitation specific performance) in a court of law.

 

12.                                Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one agreement.

 

13.                                Entire Agreement .  This is the full and complete agreement between the parties with regard to the subject matter hereof and supersedes any and all prior understandings or agreements.

 

[Remainder of page intentionally left blank; signature page to follow.]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first set forth above.

 

“EMPLOYEE”

 

CONTROL4 CORPORATION

 

 

 

 

 

 

/s/ William B. West

 

By:

/s/ W. Eric Smith

William B. West

 

 

 

 

 

Title:

W. Eric Smith, Secretary

 


 

EXHIBIT A

 

CONTROL4 CORPORATION
STOCK RESTRICTION AGREEMENT

 

This Stock Restriction Agreement (this “ Agreement ”) is entered into as of July 28, 2003, by and between Control4 Corporation, a Delaware corporation (the “ Company ”), and William B. West (the “ Founder ”).

 

RECITALS

 

WHEREAS, the Company and the Founder previously entered into a Restricted Stock Purchase Agreement, dated March 27, 2003 (a copy of which is attached hereto as Appendix A , the “ Existing Agreement ”) pursuant to which Founder purchased 2,150,000 shares of the Company’s Common Stock (reflecting the 21,500-for-l forward stock split effected on or before the date hereof, as appropriately adjusted further for stock splits, stock dividends, combinations and other recapitalizations after the date hereof, the “ Purchased Shares ”);

 

WHEREAS, certain potential investors in the Company’s proposed Series A Preferred Stock financing request that the Founder agree to certain restrictions on the Purchased Shares, including the imposition of vesting provisions on a portion of the Purchased Shares upon the terms herein provided; and

 

WHEREAS, the Company and the Founder are concurrently entering into an Employment Agreement of even date herewith (the “ Employment Agreement ”) to which this Agreement is attached as Exhibit A.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Company and the Founder hereby agree as follows.  Capitalized terms not defined above are defined in Article 5 of this Agreement.

 

AGREEMENT

 

ARTICLE 1
RIGHT OF REPURCHASE

 

1.1                                Scope of Repurchase Right .  All Purchased Shares shall initially be Restricted Shares and shall be subject to an irrevocable, exclusive right (but not an obligation) of repurchase by the Company. The Founder shall not transfer, assign, encumber or otherwise dispose of any Restricted Shares, except as provided in the following sentence and in compliance with any other agreements by which the Founder or the Purchased Shares are bound. The Founder may transfer Restricted Shares to a trust established by the Founder for the benefit of the Founder, and may transfer Restricted Shares for which the Company’s Right of Repurchase has lapsed (i) by beneficiary designation, will or intestate succession or (ii) to the Founder’s spouse, children or grandchildren or to a trust established by the Founder for the benefit of the Founder or the Founder’s spouse, children or grandchildren, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement and any other agreements by which the Founder or the Purchased Shares are

 



 

bound. If the Founder transfers any Restricted Shares, then this Section 1 shall apply to the Transferee to the same extent as to the Founder.

 

1.2                                Condition Precedent to Exercise. The Right of Repurchase shall be exercisable only during the 60-day period next following the date when the Founder’s Service terminates for any reason, with or without Cause, including (without limitation) death or disability.

 

1.3                                Lapse of Repurchase Right. The Right of Repurchase shall lapse with respect to the first 25% of the Restricted Shares when the Founder completes 12 months of continuous Service following January 1, 2003, and thereafter the Right of Repurchase shall lapse with respect to an additional l/48th of the Restricted Shares when the Founder completes each month of continuous Service.

 

1.4                                Repurchase Cost. If the Company exercises the Right of Repurchase, it shall pay the Founder an amount in cash or cash equivalents equal to the Purchase Price for each of the Restricted Shares being repurchased.

 

1.5                                Exercise of Repurchase Right. The Right of Repurchase shall be exercisable only by written notice delivered to the Founder prior to the expiration of the 60-day period specified in Section 1.2 above. The notice shall set forth the date on which the repurchase is to be effected. Such date shall not be more than 30 days after the date of the expiration of such 60-day period. The Company shall pay to the Founder the purchase price determined according to Section 1.4 above. Payment shall be made in cash or cash equivalents or by cancelling indebtedness to the Company incurred by the Founder in the purchase of Restricted Shares. Upon delivery of such notice and payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Restricted Shares being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Restricted Shares being repurchased by the Company, without further action by the Founder. The Right of Repurchase shall terminate with respect to any Restricted Shares for which it has not been timely exercised pursuant to this Section 1.5.

 

1.6                                Additional Shares or Substituted Securities. In the event of the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities or other property (including money paid other than as an ordinary cash dividend), that by reason of such transaction are distributed with respect to any Restricted Shares or into which such Restricted Shares thereby become convertible, shall immediately be subject to the Right of Repurchase. Appropriate adjustments to reflect the distribution of such securities or property shall be made to the number and/or class of the Restricted Shares. After each such transaction, appropriate adjustments shall also be made to the price per share to be paid upon the exercise of the Right of Repurchase in order to reflect any change in the Company’s outstanding securities effected without receipt of consideration therefor; provided, however, that the aggregate purchase price payable for the Restricted Shares shall remain the same.

 

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1.7                                Termination of Rights as Stockholder. If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Restricted Shares to be repurchased in accordance with this Article 1, then after such time the person from whom such Restricted Shares are to be repurchased shall no longer have any rights as a holder of such Restricted Shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such Restricted Shares shall be deemed to have been repurchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor has or have been delivered as required by this Agreement.

 

1.8                                Escrow. Upon issuance, the certificates for Purchased Shares shall be deposited in escrow with the Company to be held in accordance with the provisions of this Agreement. Any new, substituted or additional securities or other property described in Section 1.6 above shall immediately be delivered to the Company to be held in escrow, but only to the extent the Purchased Shares are at the time Restricted Shares. All regular cash dividends on Purchased Shares (or other securities at the time held in escrow) shall be paid directly to the Founder and shall not be held in escrow. Purchased Shares, together with any other assets or securities held in escrow hereunder, shall be (i) surrendered to the Company for repurchase and cancellation upon the Company’s exercise of its Right of Repurchase or Right of First Refusal or (ii) released to the Founder upon the Founder’s request to the extent the Purchased Shares are no longer Restricted Shares (but not more frequently than once every six months). In any event, all Purchased Shares that have vested (and any other vested assets and securities attributable thereto) shall be released within 60 days after the Founder’s cessation of Service.

 

1.9                                Market Stand-Off Agreement. Founder hereby agrees that he will not, without the prior written consent of the managing underwriters), during the period commencing on the date of the final prospectus relating to the Company’s initial public offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty days) (i) lend, 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, directly or indirectly, any Purchased Shares, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Purchased Shares, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. Founder further agrees to execute and enter into an agreement (such agreement to be in the form as may be requested by the managing underwriters)) with the managing underwriter(s) of such initial public offering to reflect the foregoing. The foregoing provisions of this Section 1.9 shall apply only to the Company’s initial public offering of equity securities, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to Founder if all officers, directors and greater than one percent stockholders of the Company enter into similar agreements; provided, however, that if any provision of such agreement is waived or terminated with respect to any of the securities of any such officer, director or greater than one percent stockholder (in any such case of waiver or termination, such securities being the “ Released Securities ”), the foregoing provisions shall be waived or terminated, as applicable, to the same extent with respect to the same percentage of securities of Founder as the percentage the Released Securities represent with respect to the securities held by the applicable officer, director or greater than one percent stockholder. The underwriters in connection with the Company’s initial public offering are intended third party

 

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beneficiaries of this Section 1.9 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Purchased Shares until the end of such period.

 

ARTICLE 2
NO RETENTION RIGHTS

 

Nothing in this Agreement shall confer upon the Founder any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Founder) or of the Founder, which rights are hereby expressly reserved by each, to terminate the Founder’s Service at any time and for any reason, with or without cause.

 

ARTICLE 3
TAX ELECTION

 

The subjection of the Purchased Shares to the Right of Repurchase may result in adverse tax consequences that may be avoided or mitigated by filing an election under Code Section 83(b). Such election may be filed only within 30 days after the date the Purchased Shares are subjected to the Right of Repurchase. The form for making the Code Section 83(b) election is attached hereto as Appendix B. The Founder should consult with the Founder’s tax advisor to determine the tax consequences of subjecting the Purchased Shares to the Right of Repurchase and the advantages and disadvantages of filing the Code Section 83(b) election. THE FOUNDER ACKNOWLEDGES THAT IT IS THE FOUNDER’S SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(B), EVEN IF THE FOUNDER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE FOUNDER’S BEHALF.

 

ARTICLE 4
CHOICE OF LAW

 

This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and to be performed entirely within such State.

 

ARTICLE 5
DEFINITIONS

 

5.1                                Board of Directors ” shall mean the board of Directors of the Company, as constituted from time to time.

 

5.2                                Cause ” shall have the same meaning as provided in 5(f)(i) of the Employment Agreement.

 

5.3                                Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

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5.4                                Consultant ” shall mean an individual who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors.

 

5.5                                Employee ” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.

 

5.6                                Outside Director ” shall mean a member of the Board of Directors who is not an Employee.

 

5.7                                Parent ” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

5.8                                Purchase Price ” shall mean $0.0001 per share (reflecting the 21,500-for-l forward stock split, effected on or before the date hereof, as appropriately adjusted further for stock splits, stock dividends, combinations and other recapitalizations after the date hereof).

 

5.9                                Restricted Share ” shall mean a Purchased Share that is subject to the Right of Repurchase.

 

5.10                         Right of First Refusal ” shall mean the Company’s right of first refusal described in that certain Right of First Refusal and Co-Sale Agreement by and between the Company and certain stockholders of the Company, of even date herewith and as amended from time to time.

 

5.11                         Right of Repurchase ” shall mean the Company’s right of repurchase described in Article 1.

 

5.12                         Service ” shall mean service as an Employee, Outside Director or Consultant.

 

5.13                         Subsidiary ” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

5.14                         Transferee ” shall mean any person to whom the Founder has directly or indirectly transferred any Purchased Share no longer subject to the Company’s Right of Repurchase.

 

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IN WITNESS WHEREOF, the parties year first above written.

 

FOUNDER:

 

CONTROL4 CORPORATION

 

 

 

By:

/s/ William B. West

 

By:

/s/ W. Eric Smith

 

 

 

Print Name:

William B. West

 

Print Name:

W. Eric Smith

 

 

 

Address:

 

 

Title:

 

 

 

 

 

 

 

Address:

 

 

SIGNATURE PAGE TO

STOCK RESTRICTION AGREEMENT

 



 

Appendix A

 

RESTRICTED STOCK PURCHASE AGREEMENT

 

THIS RESTRICTED STOCK PURCHASE AGREEMENT is entered into as of March 27, 2003, by Control4 Corporation, a Delaware corporation (the “ Company ”), and William B. West (the “ Purchaser ”).

 

ARTICLE 1
ACQUISITION OF SHARES

 

1.1 Sale and Purchase . On the terms and conditions set forth in this Agreement, the Company agrees to sell to the Purchaser, and the Purchaser agrees to purchase, the Purchased Shares (as defined herein). The sale and purchase shall occur at the offices of the Company on the date set forth above or at such other place and time as the parties may agree.

 

1.2 Consideration . The Purchaser agrees to pay $2.15 for each Purchased Share. The Purchase Price is agreed to be the fair market value of the Purchased Shares. Payment shall be made on the transfer date in cash or cash equivalents payable to the order of the Company in an amount equal to the Purchase Price for all of the Purchased Shares.

 

1.3 Defined Terms . Capitalized terms not defined above are defined in Article 8 of this Agreement.

 

ARTICLE 2
OTHER RESTRICTIONS ON TRANSFER

 

2.1 Purchaser Representations . In connection with the issuance and acquisition of Shares under this Agreement, the Purchaser hereby represents and warrants to the Company as follows:

 

(a)          The Purchaser is acquiring and will hold the Purchased Shares for investment for the Purchaser’s account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act.

 

(b)          The Purchaser understands that the Purchased Shares have not been registered under the Securities Act by reason of a specific exemption therefrom and that the Purchased Shares must be held indefinitely, unless they are subsequently registered under the Securities Act or the Purchaser obtains an opinion of counsel, in form and substance reasonably satisfactory to the Company and its counsel, that such registration is not required. The Purchaser further acknowledges and understands that the Company is under no obligation to register the Purchased Shares.

 

(c)           The Purchaser is aware of the adoption of Rule 144 by the Securities and Exchange Commission under the Securities Act, which permits limited public resales of securities acquired in a non-public offering, subject only to the satisfaction of certain conditions. The Purchaser acknowledges and understands that the conditions for resale set

 



 

forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future

 

(d)          The Purchaser will not sell, transfer or otherwise dispose of the Purchased Shares in violation of the Securities Act, the Securities Exchange Act of 1934, or the rules promulgated thereunder, including Rule 144 under the Securities Act. The Purchaser agrees that the Purchaser will not dispose of the Purchased Shares unless and until the Purchaser has complied with all requirements of this Agreement applicable to the disposition of Purchased Shares and the Purchaser has provided the Company with written assurances, in substance and form satisfactory to the Company, that (A) the proposed disposition does not require registration of the Purchased Shares under the Securities Act or all appropriate action necessary for compliance with the registration requirements of the Securities Act or with any exemption from registration available under the Securities Act (including Rule 144) has been taken and (B) the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Purchased Shares under the Rules of the California Corporations Commissioner.

 

(e)           The Purchaser has been furnished with, and has had access to, such information as the Purchaser considers necessary or appropriate for deciding whether to invest in the Purchased Shares, and the Purchaser has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the issuance of the Purchased Shares.

 

(f)            The Purchaser is aware that the Purchaser’s investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss. The Purchaser is able, without impairing the Purchaser’s financial condition, to hold the Purchased Shares for an indefinite period and to suffer a complete loss of the Purchaser’s investment in the Purchased Shares.

 

2.2 Securities Law Restrictions . Regardless of whether the offering and sale of Shares under this Agreement have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of the Purchased Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any state or any other law.

 

2.3 Righ ts of the Company .  The Company shall not be required to (i) transfer on its books any Purchased Shares that have been sold or transferred in contravention of this Agreement or (ii) treat as the owner of Purchased Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom Purchased Shares have been transferred in contravention of this Agreement.

 

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ARTICLE 3
SUCCESSORS AND ASSIGNS

 

Except as otherwise expressly provided to the contrary, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and be binding upon the Purchaser and the Purchaser’s heirs, assigns and transferees by operation of law, whether or not any such person has become a party to this Agreement or has agreed in writing to join herein and to be bound by the terms, conditions and restrictions hereof.

 

ARTICLE 4
LEGENDS

 

Legends . All certificates evidencing Purchased Shares shall bear the following (or substantially similar) legends:

 

“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”

 

“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

If required by the authorities of any state in connection with the issuance of the Purchased Shares, the legend or legends required by such state authorities shall also be endorsed on all such certificates.

 

ARTICLE 5
NOTICE

 

Any notice required by the terms of this Agreement shall be given in writing and shall be deemed effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid. Notice shall be addressed to the Company at its principal executive office and to the Purchaser at the address that he or she most recently provided to the Company.

 

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ARTICLE 6
ENTIRE AGREEMENT

 

This Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. It supersedes any other agreements, representations or understandings (whether oral or written and whether express or implied) relating to the subject matter hereof.

 

ARTICLE  7
CHOICE OF LAW

 

This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and to be performed entirely within such State.

 

ARTICLE 8
DEFINITIONS

 

8.1 Agreement shall mean this Restricted Stock Purchase Agreement.

 

8.2 Board of Directors shall mean the board of directors of the Company, as constituted from time to time.

 

8.3 Parent shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

8.4 Purchased Shares shall mean 100 Shares.

 

8.5 Purchase Price shall mean the amount for which one Share may be purchased pursuant to this Agreement, as specified in Subsection 1.2.

 

8.6 Securities Act shall mean the Securities Act of 1933, as amended.

 

8.7 “ Share shall mean one share of Stock.

 

8.8 “ Stock shall mean the Common Stock of the Company.

 

8.9 Subsidiary shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

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PURCHASER:

 

CONTROL4 CORPORATION

 

 

 

 

 

 

 

 

 

 

By:

/s/ William B. West

 

By:

/s/ W. Eric Smith

 

 

 

 

 

Print Name:

William B. West

 

Print Name:

W. Eric Smith

 

 

 

 

 

Address:

 

 

Title:

CTO & Secretary

 

 

 

 

 

 

 

 

Address:

 

 

 

 

 

 

 

SIGNATURE PAGE TO

RESTRICTED STOCK PURCHASE AGREEMENT

 



 

EXHIBIT B

 

CONTROL4 CORPORATION
CONFIDENTIAL INFORMATION AND
INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT

 

As a condition of my relationship with Control4 Corporation, its subsidiaries, affiliates, successors or assigns (together the “ Company ”), and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, I agree to the following terms under this Confidential Information and Intellectual Property Assignment Agreement (the “ Intellectual Property Agreement ”):

 

1.                                       Confidential Information .

 

(a)                                  Company Information .  I agree at all times during the term of my relationship with the Company whether commenced prior to or upon the date of this Agreement (my “ Relationship with the Company ”) and thereafter to hold in strictest confidence, and not to use except for the benefit of the Company or to disclose to any person, firm or corporation without written authorization of the Board of Directors of the Company, any Confidential Information of the Company.  I understand that “ Confidential Information ” means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, suppliers, prices and costs, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the term of my Relationship with the Company), markets, works of original authorship, photographs, negatives, digital images, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment.  I understand that Confidential Information includes, but is not limited to, information pertaining to any aspect of the Company’s business which is either information not known by actual or potential competitors of the Company or other third parties not under confidentiality obligations to the Company, or is otherwise proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise.  I further understand that Confidential Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved.

 

(b)                                  Other Employer Information .  I agree that I will not, during my Relationship with the Company, improperly use or disclose any proprietary information or trade secrets of any former or concurrent employer or other person or entity and that I will not bring onto the premises of the Company any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity.

 

(c)                                   Third Party Information .  I recognize that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it

 



 

only for certain limited purposes.  I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company’s agreement with such third party.

 

2.                                       Intellectual Property .

 

(a)                                  Assignment of Intellectual Property .  I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title, and interest in and to any original works of authorship, inventions, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of my Relationship with the Company (collectively referred to as “ Intellectual Property ”) and which (i) are developed using the equipment, supplies, facilities or Confidential Information of the Company, (ii) result from or are suggested by work performed by me for the Company, or (iii) relate to the business, or to the actual or demonstrably anticipated research or development of the Company.  The Intellectual Property will be the sole and exclusive property of the Company.  I further acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company and which are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act.  To the extent any Intellectual Property is not deemed to be work for hire, then I will and hereby do assign all my right, title and interest in such Intellectual Property to the Company, except as provided in Section 2(e).

 

(b)                                  Patent and Copyright Registrations .  I agree to assist the Company, or its designee, at the Company’s (or its designee’s) expense, in every proper way to secure the Company’s (or its designee’s) rights in the Intellectual Property and any copyrights, patents or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company or its designee of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company or its designee shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company (or its designee), its successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Intellectual Property, and any copyrights, patents or other intellectual property rights relating thereto.  I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of my Relationship with the Company.  If the Company or its designee is unable because of my mental or physical incapacity or for any other reason to secure my assistance in perfecting the rights transferred in this Intellectual Property Agreement, then I hereby irrevocably designate and appoint the Company or its designee and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me.  The designation and appointment of the Company or its designee and its duly authorized officers and agents as my agent and attorney in fact shall be deemed to be coupled with an interest and therefore

 

2


 

irrevocable.  I hereby waive and irrevocably quitclaim to the Company or its designee any and all claims, of any nature whatsoever, which I now or hereafter have for infringement of any and all proprietary rights assigned to the Company or such designee.

 

(c)                                   Maintenance of Records .  I agree to keep and maintain adequate and current written records of all Intellectual Property made by me (solely or jointly with others) during the term of my Relationship with the Company.  The records will be in the form of notes, sketches, drawings, and works of original authorship, photographs, negatives, digital images or any other format that may be specified by the Company.  I agree not to remove such records from the Company’s place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company’s business.  The records will be available to and remain the sole property of the Company at all times.

 

(d)                                  Intellectual Property Retained and Licensed .  I provide below a list of all original works of authorship, inventions, developments, improvements, and trade secrets which were made by me prior to my Relationship with the Company (collectively referred to as “ Prior Intellectual Property ”), which belong to me (solely or jointly), which relate in any way to the Company’s proposed business, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there is no such Prior Intellectual Property.  If in the course of my Relationship with the Company, I incorporate into Company property any Prior Intellectual Property owned by me or in which I have an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right of sublicense) to make, have made, modify, use and sell such Prior Intellectual Property as part of or in connection with such Company property.

 

Prior Intellectual Property:

 

Title

 

Date

 

Identifying Number
or Brief Description

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(e)                                   Exception to Assignments .  I understand that the provisions of this Intellectual Property Agreement requiring assignment of Intellectual Property to the Company are limited by the Employment Inventions Act, Utah Code Annotated Section 34-39-3, which is attached hereto as Appendix A , and do not apply to any intellectual property that (i) I develop entirely on my own time; and (ii) is not an “employment invention” as such term is defined in the Employment Inventions Act, which I understand to be any invention or part thereof that I conceive, develop, reduce to practice, or create: (x) within the scope of my employment, on the Company’s time, or with the aid, assistance, or use of any of the Company’s property, equipment, facilities, supplies, resources, or intellectual property; or (y) as the result of any work, services, or duties that I perform for the Company that are related to the Company’s industry or trade, or that are related to the Company’s current or demonstrably anticipated business, research, or development.  Any such intellectual property will be owned entirely by

 

3



 

me, even if developed by me during the time period in which I am employed by the Company.  I will advise the Company promptly in writing of any intellectual property that I believe meet the criteria for exclusion set forth herein and are not otherwise disclosed pursuant to Section 2(d) above.

 

(f)                                    Company Property; Return of Company Documents .  I acknowledge and agree that I have no expectation of privacy with respect to the Company’s telecommunications, networking or information processing systems (including, without limitation, stored company files, e-mail messages and voice messages) and that my activity and any files or messages on or using any of those systems may be monitored at any time without notice.  I further agree that any property situated on the Company’s premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice.  I agree that, at the time of leaving the employ of the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all works of original authorship, photographs, negatives, digital images, devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to my Relationship with the Company or otherwise belonging to the Company, its successors or assigns.  In the event of the termination of my Relationship with the Company, I agree to sign and deliver the “ Termination Certificate ” attached hereto as Appendix B .

 

3.                                       Notification of New Employer .  I hereby grant consent to notification by the Company to my concurrent employer, or in the event that I leave the employ of the Company, my new employer or consulting client about my rights and obligations under this Intellectual Property Agreement.

 

4.                                       No Solicitation of Employees, Consultants and Other Parties .  I agree that during the period of my Relationship with the Company and for a period of twelve (12) months thereafter I shall not directly or indirectly solicit, induce, recruit or encourage or take away any person who shall then be employed by the Company (as an employee or consultant) or who shall have been employed by the Company (as an employee or consultant) within the prior nine (9) month period, on behalf of myself or any other person, firm, corporation, association or other entity, directly or indirectly.  Further, during my Relationship with the Company and at any time following termination of my Relationship with the Company for any reason, with or without cause, I shall not use any Confidential Information of the Company to attempt to negatively influence any of the Company’s clients, suppliers or customers from purchasing Company products or services or providing goods or services to the Company or to solicit or influence or attempt to influence any client, customer or other person either directly or indirectly, to direct his or its purchase of products and/or services or his or its provision of products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company.

 

5.                                       Representations .  I represent that my performance of all the terms of this Intellectual Property Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to my Relationship with the Company.  I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict

 

4



 

herewith.  I agree to execute any proper oath or verify any proper document required to carry out the terms of this Intellectual Property Agreement.  I represent that my performance of all terms of this Agreement as an employee of the Company has not breached and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me prior or subsequent to the commencement of my Relationship with the Company.  I acknowledge and agree that I have attached as Exhibit A hereto all agreements (e.g., non-competition agreements, non-solicitation of customers agreements, non-solicitation of employees agreements, confidentiality agreements, inventions agreements, etc.) with a current or former employer, or any other person or entity, that may restrict my ability to accept employment with the Company or my ability as an employee or consultant to recruit or engage customers or service providers on behalf of the Company, or otherwise relate to or restrict my ability to perform my duties as an employee of the Company or any obligation I may have to the Company.

 

6.                                       Arbitration and Equitable Relief .

 

(a)                                  Arbitration .  Except as provided in Section 6(b) below, I agree that any dispute or controversy arising out of or relating to any interpretation, construction, performance or breach of this Intellectual Property Agreement, shall be settled by arbitration to be held in Salt Lake City, Utah, in accordance with the rules then in effect of the American Arbitration Association.  The arbitrator may grant injunctions or other relief in such dispute or controversy.  The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration.  Judgment may be entered on the arbitrator’s decision in any court having jurisdiction.  The Company and I shall each pay one-half of the costs and expenses of such arbitration, and each of us shall separately pay our counsel fees and expenses.

 

(b)                                  Equitable Remedies .  Each of the Company and I agree that disputes relating to or arising out of a breach of the covenants contained in this Intellectual Property Agreement would likely require injunctive relief to maintain the status quo of the parties pending the appointment of an arbitrator pursuant to this Intellectual Property Agreement.  The parties hereto also agree that it would be impossible or inadequate to measure and calculate the damages from any breach of the covenants contained in this Intellectual Property Agreement prior to resolution of any dispute pursuant to arbitration.  Accordingly, if either party claims that the other party has breached any covenant of this Intellectual Property Agreement, that party will have available, in addition to any other right or remedy, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and/or to specific performance of any such provision of this Intellectual Property Agreement pending resolution of the dispute through arbitration.  The parties further agree that no bond or other security shall be required in obtaining such equitable relief and hereby consents to the issuance of such injunction and to the ordering of specific performance.  However, upon appointment of an arbitrator, the arbitrator shall review any interim, injunctive relief granted by a court of competent jurisdiction and shall have the discretion, jurisdiction, and authority to continue, expand, or dissolve such relief pending completion of the arbitration of such dispute or controversy.  The parties agree that any orders issued by the arbitrator may be enforced by any court of competent jurisdiction if necessary to ensure compliance by the parties.

 

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7.                                       General Provisions .

 

(a)                                  Governing Law; Consent to Personal Jurisdiction .  This Intellectual Property Agreement will be governed by the laws of the State of Utah as they apply to contracts entered into and wholly to be performed within such State.  I hereby expressly consent to the nonexclusive personal jurisdiction and venue of the state and federal courts located in the federal District of Utah for any lawsuit filed there by either party arising from or relating to this Intellectual Property Agreement.

 

(b)                                  Entire Agreement .  This Intellectual Property Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us.  No modification of or amendment to this Intellectual Property Agreement, nor any waiver of any rights under this Intellectual Property Agreement, will be effective unless in writing signed by the party to be charged.  Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Intellectual Property Agreement.

 

(c)                                   Severability .  If one or more of the provisions in this Intellectual Property Agreement is deemed void by law, then the remaining provisions will continue in full force and effect.

 

(d)                                  Successors and Assigns .  This Intellectual Property Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.

 

(e)                                   At Will Relationship .  I understand and acknowledge that my Relationship with the Company is and shall continue to be at-will, as defined under applicable law, meaning that either I or the Company may terminate the Relationship at any time for any reason or no reason, without further obligation or liability.

 

(f)                                    ADVICE OF COUNSEL .  I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY.  TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT.  THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.

 

(g)                                   Not an IRS “Confidential Transaction” .  Notwithstanding anything in this Agreement or in any other written or oral understanding or agreement to which the parties hereto are parties or by which they are bound, either the Company or I (or either of our representatives, agents or employees) may consult any tax advisor regarding the tax treatment and tax structure of the transaction contemplated by this Agreement and may at any time disclose to any person, without limitation of any kind, the tax treatment and tax structure of such transaction and all materials (including opinions or other tax analyses) that are provided relating to such treatment or structure.  The preceding sentence is intended to satisfy the requirements for the transaction contemplated herein to avoid classification as a “confidential transaction” in accordance with Treasury Regulations Section 1.6011-4(b)(3) and shall be interpreted consistent with such intent. 

 

6



 

This authorization is not intended to permit disclosure of any other information relating to any transaction contemplated by the Relationship, including (without limitation) (i) any portion of any materials to the extent not related to the tax treatment or tax structure of any such transaction, (ii) the identities of participants or potential participants in any such transaction, (iii) the existence or status of any negotiations, (iv) any pricing or financial information (except to the extent such pricing or financial information is related to the tax treatment or tax structure of any such transaction), or (v) any other term or detail not relevant to the tax treatment or the tax structure of any such transaction.

 

(h)                                  Survival .  The provisions of this Agreement shall survive the termination of the Relationship and the assignment of this Agreement by the Company to any successor in interest or other assignee.

 

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IN WITNESS WHEREOF, the undersigned has executed this Confidential Information and Intellectual Property Assignment Agreement as of March 27, 2003.

 

 

 

By:

/s/ William B. West

 

 

 

 

 

Name:

William B. West

 

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

Witness

 

 

 

 

 

By:

/s/ W. Eric Smith

 

 

 

 

 

Name:

W. Eric Smith

 

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 



 

APPENDIX A

 

Utah Code Annotated Section 34-39-3.  Scope of act — When agreements between an employee and employer are enforceable or unenforceable with respect to employment inventions — Exceptions.

 

(1)                                  An employment agreement between an employee and his employer is not enforceable against the employee to the extent that the agreement requires the employee to assign or license, or to offer to assign or license, to the employer any right or intellectual property in or to an invention that is:

 

(a)                                  created by the employee entirely on his own time; and

 

(b)                                  not an employment invention.

 

(2)                                  An agreement between an employee and his employer may require the employee to assign or license, or to offer to assign or license, to his employer any or all of his rights and intellectual property in or to an employment invention.

 

(3)                                  Subsection (1) does not apply to:

 

(a)                                  any right, intellectual property or invention that is required by law or by contract between the employer and the United States government or a state or local government to be assigned or licensed to the United States; or

 

(b)                                  an agreement between an employee and his employer which is not an employment agreement.

 

(4)                                  Notwithstanding Subsection (1), an agreement is enforceable under Subsection (1) if the employee’s employment or continuation of employment is not conditioned on the employee’s acceptance of such agreement and the employee receives a consideration under such agreement which is not compensation for employment.

 

(5)                                  Employment of the employee or the continuation of his employment is sufficient consideration to support the enforceability of an agreement under Subsection (2) whether or not the agreement recites such consideration.

 

(6)                                  An employer may require his employees to agree to an agreement within the scope of Subsection (2) as a condition of employment or the continuation of employment.

 

(7)                                  An employer may not require his employees to agree to anything unenforceable under Subsection (1) as a condition of employment or the continuation of employment.

 

(8)                                  Nothing in this chapter invalidates or renders unenforceable any employment agreement or provisions of an employment agreement unrelated to employment inventions.

 

Enacted by Chapter 217, 1989 General Session

 



 

APPENDIX B

 

CONTROL4 CORPORATION

 

Termination Certificate

 

This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to Control4 Corporation, its subsidiaries, affiliates, successors or assigns (together, the “ Company ).

 

I further certify that I have complied with all the terms of the Company’s Confidential Information and Intellectual Property Assignment Agreement signed by me (the “ Intellectual Property Agreement ”), including the reporting of any Intellectual Property (as defined therein), conceived or made by me (solely or jointly with others) covered by the Intellectual Property Agreement.

 

I further agree that, in compliance with the Intellectual Property Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees.

 

I further agree that for nine (9) months from this date, I shall not solicit the employment of any person who shall then be employed by the Company (as an employee or consultant) or who shall have been employed by the Company (as an employee or consultant) within the prior nine (9) month period, on behalf of myself or any other person, firm, corporation, association or other entity, directly or indirectly, all as provided more fully with the Intellectual Property Agreement.

 

Date:

 

,

 

 

 

 

 

 

(Signature)

 


 

CONTROL4 CORPORATION

 

EMPLOYMENT AMENDMENT AGREEMENT

 

This Employment Amendment Agreement (this “ Amendment ”) is made as of June 17, 2004, by and among Control4 Corporation, a Delaware corporation (the “ Company ”), and William B. West (the “ Employee ”).  Capitalized terms not defined herein shall have the meaning assigned to them in the Employment Agreement and/or the Employee PIIA, as applicable (such terms as defined below).

 

RECITALS

 

WHEREAS, the Company and the Employee are parties to that certain Employment Agreement dated as of July 29, 2003 (the “ Employment Agreement ”) and the Confidential Information and Intellectual Property Assignment Agreement attached as Exhibit B thereto (the “ Employee PIIA ”), and

 

WHEREAS, the Company and Employee desire to amend the Employment Agreement and the Employee PIIA as set forth herein;

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the undersigned hereby agree as follows:

 

SECTION 1

 

1.1                                Section 4 of the Employment Agreement is hereby amended and restated in its entirety to read as follows:

 

“4.                                 Noncompetition .  During the term of Employee’s employment with the Company and for twenty-four (24) months after termination, for any reason, of Employee’s employment with the Company, Employee shall not directly or indirectly, own, manage, operate, join or control, be employed by or participate in the ownership, management, operation or control of, or be a consultant to or connected in any other manner with, any business, firm or corporation which is similar to or competes with a principal business of the Company or its subsidiaries (a “ Competitive Activity ”); provided , however , that Employee’s ownership of securities of any company not in excess of one percent of any class of such securities shall not be considered to be competition with the Company or its subsidiaries.  Employee acknowledges that the foregoing is in addition to Employee’s obligations under mat certain Confidential information and Intellectual Property Assignment Agreement between the Company and Employee, including without limitation Section 4 thereof, attached hereto as Exhibit B (the “ Confidentiality Agreement ”).

 

1.2                                Section 5(d)(i) of the Employment Agreement is hereby amended and restated in its entirety to read as follows:

 

“(i)                                In addition to paying Employee all wages earned through the date of termination, the Company shall pay Employee severance equal to twelve (12) months of his then-current regular base salary in effect at the time notice of termination is given, paid out over the

 



 

Company’s regular payroll schedule following the effective date of the release, as well as all other unpaid amounts, if any, that Employee has earned as of the date of termination under any compensation plan or program of the Company, at the time such payments are or become due;”

 

1.3                                The Employment Agreement is hereby amended to include Section 14 to read as follows:

 

“14.                          Separate Covenants .  The parties expressly agree that the character, duration and geographical scope of this Agreement are reasonable in light of the circumstances as they exist on the date upon which this Agreement has been executed.  However, should a determination nonetheless be made by a court of competent jurisdiction at a later date that the character, duration or geographical scope of this Agreement is unreasonable in light of the circumstances as they then exist, then it is the intention and the agreement of Employee that this Agreement shall be construed by the court in such a manner as to impose only those restrictions on the conduct of Employee that are reasonable in light of the circumstances as they then exist and as are necessary to assure the Company of the intended benefit of this Agreement.  If, in any judicial proceeding, a court shall refuse to enforce all of the separate covenants deemed included herein because, taken together, they are more extensive than necessary to assure the Company of the intended benefit of this Agreement, it is expressly understood and agreed among the parties hereto that those of such covenants that, if eliminated, would permit the remaining separate covenants to be enforced in such proceeding shall, for the purpose of such proceeding, be deemed eliminated from the provisions hereof.”

 

1.4                                The Employment Agreement is hereby amended to include Section 15 to read as follows:

 

“15.                          Severability .  If any of the provisions of this Agreement shall otherwise contravene or be invalid under the laws of any state, country or other jurisdiction where this Agreement is applicable but for such contravention or invalidity, such contravention or invalidity shall not invalidate all of the provisions of this Agreement but rather it shall be construed, insofar as the laws of that state, country or jurisdiction are concerned, as not containing the provision or provisions contravening or invalid under the laws of that state or jurisdiction, and the rights and obligations created hereby shall be construed and enforced accordingly.”

 

1.5                                Section 4 of the Employee PIIA is hereby amended and restated in its entirety to read as follows:

 

“4.                                 No Solicitation of Employees, Consultants and Other Parties .  I agree that during the period of my Relationship with the Company and for a period of twenty-four (24) months thereafter I shall not directly or indirectly solicit, induce, recruit or encourage or take away any person who shall then be employed by the Company (as an employee or consultant) or who shall have been employed by the Company (as an employee or consultant) within the prior nine (9) month period, on behalf of myself or any other person, firm, corporation, association or other entity, directly or indirectly.  Further, during my Relationship with the Company and at any time following termination of my Relationship with the Company for any reason, with or without cause, I shall not use any Confidential Information of the Company to attempt to negatively influence any of the Company’s clients, suppliers or customers from purchasing Company

 

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products or services or providing goods or services to the Company or to solicit or influence or attempt to influence any client, customer or other person either directly or indirectly, to direct his or its purchase of products and/or services or his or its provision of products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company.”

 

SECTION 2

 

2.1                                Except as set forth in Section 1 of this Amendment, the Employment Agreement and all exhibits attached thereto, including, without limitation, the Employee PIIA shall continue in full force and effect.

 

2.2                                This Amendment shall be interpreted, construed, and enforced in all respects in accordance with the laws of the State of Utah, without reference to its choice of law rules.

 

2.3                                This Amendment may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts together shall constitute one and the same instrument.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties have executed this Employment Amendment Agreement as of the date first above written.

 

 

 

COMPANY:

 

 

 

 

 

CONTROL4 CORPORARTION

 

 

 

 

 

 

 

 

By:

/s/ William B. West

 

 

 

William B. West, Chief Executive Officer

 

 

 

 

 

 

 

 

EMPLOYEE:

 

 

 

 

 

/s/ William B. West

 

 

(signature)

 

 

 

 

 

William B. West

 

 

(printed name)

 

 

 

 

 

 

Address:

 

 

SIGNATURE PAGE TO EMPLOYMENT AMENDMENT AGREEMENT

 



 

August 3, 2011

 

William B. West

Dear Will:

 

As of August 3, 2011 this letter (the “ Agreement ”) memorializes your employment relationship with Control4 Corporation (the “ Company ”) as follows:

 

1.                                       Employment.  You will continue to be employed in a full-time capacity as the Company’s Chief Executive Officer until such time as your successor (the “ New CEO ”) is appointed by the Board of Directors (the “ Board ”).  As you know, the Board has engaged in a process to identify and recruit a New CEO.  Upon his or her appointment in such role, your title will initially become the Company’s Chief Strategy Officer (with your specific role and responsibilities to be decided upon by the New CEO and Board in consultation with you).  You will also be appointed the Chairman of the Board provided, however, that the latter appointment as Chairman may terminate at the discretion of the then current Board (collectively, your “ New Rote ”).  Your employment with the Company prospectively from the date hereof will be for an unspecified duration and is intended to constitute “at-will” employment.

 

2.                                       Compensation.

 

(a)                                  Base Salary.  Effective as of the date of this Agreement, your annual base salary will be increased from $280,000 (the “ Prior Base Salary ”) to $300,000 per year, less applicable deductions and withholdings, paid in accordance with the Company’s standard payroll procedures.  Your position as of today and when you assume the New Role will be classified as “exempt” and you will not be eligible for overtime pay.

 

(b)                                  Equity Incentives.  You are currently the record holder of 1,650,000 shares of Company Common Stock and William and Lisa West Holdings, LTD is currently the record holder of 500,000 shares of Company Common Stock (collectively “ Your Shares ”).  You are also the holder of record of an option to purchase 1,749,795 shares of Company Common Stock (“ Current Option ”).  In addition, the Company will request that its Board approve the grant to you of an additional option (a “ New Option ”) to purchase an additional 500,000 shares of Company Common Stock.  Such New Option shall vest during so long as you remain employed by the Company as follows: 25% of the New Option shares will vest on the one-year anniversary of the date of its grant; and the remaining New Option shares will vest in equal monthly installments over the subsequent 36 months.  In addition but not contradicting the foregoing or the other terms and conditions set forth herein, the terms and conditions of such New Option will be governed by the Company’s Equity Incentive Plan, as currently in effect (the “ Plan ”).

 

(c)                                   Bonus.  You will continue to be eligible to receive a 2011 performance bonus based upon previously determined criteria as defined by the Board.  You will also be eligible to participate in future executive bonus programs as determined by the Board in its sole discretion and based upon milestones related to your operating role.

 



 

(d)                                  Stay Bonus.  If you remain continuously employed with the Company from the date hereof through the 180 day period following the hire date of the New CEO, you shall receive a $50,000 bonus, less applicable deductions and withholdings, to be paid in accordance with the Company’s standard payroll procedures.

 

(e)                                   Business Expenses: The Company will continue to reimburse you for reasonable business expenses incurred by you from time to time in accordance with applicable Company travel and expense policies.

 

3.                                       Taxes and 409A Compliance.

 

(a)                                  The intent of the parties is that payments and benefits under this Agreement comply with Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively “ Code Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.  In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on you by Code Section 409A.

 

(b)                                  A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Treas. Reg. Section 1.409A-3(a)(l) and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.” Notwithstanding anything to the contrary in this Agreement, if you are deemed on the date of termination to be a “specified employee” within the meaning of that term under Treas. Reg. Section 1.409A-l(i), then with regard to any payment or the provision of any benefit that is considered deferred compensation under Code Section 409A payable on account of a “separation from service,” such payment or benefit shall not be made or provided until the date which is the earlier of (i) the expiration of the six (6)-month period measured from the date of your “separation from service,” and (ii) the date of your death, to the extent required under Code Section 409A.  Upon the expiration of the foregoing delay period, all payments and benefits delayed pursuant to this Section 3(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to you in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

 

(c)                                   To the extent that business expense reimbursements or other in-kind benefits under this Agreement constitute “nonqualified deferred compensation” for purposes of Code Section 409A, (i) all such expenses or other reimbursements hereunder shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by you, (ii) any right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year shall in any way affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year.

 

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(d)                                  For purposes of Code Section 409A, your right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.  Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the sole discretion of the Company.

 

(e)                                   Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified deferred compensation” for purposes of Code Section 409A be subject to offset by any other amount unless otherwise permitted by Code Section 409A.

 

4.                                       Termination of Employment.  Upon the termination of your employment for any reason, you shall be entitled to the compensation, benefits and reimbursements then due and owing for the period ending as of the end of the effective date of the termination (the “ Termination Date ”) and the Company shall make the following payments to you (or your beneficiaries or estate if applicable) on your Termination Date (“ Accrued Benefits ”): (i) ail accrued but unpaid salary and any unpaid vacation that has accrued pursuant to the Company’s vacation accrual policy through the Termination Date, (ii) any earned but unpaid bonuses, (iii) any unreimbursed business expenses, and in addition (iv) you will continue to be able to exercise any vested and exercisable stock options then held by you pursuant to their terms and conditions.  In addition, you may also be eligible for other post-employment payments and benefits as provided in this Agreement or pursuant to other agreements or plans with the Company that you enter into from time to time.

 

(a)                                  By Death.  Your employment shall terminate automatically upon your death.  The Company shall pay to your beneficiaries or estate, as appropriate, the Accrued Benefits.  Thereafter, all obligations of the Company under this Agreement shall cease.

 

(b)                                  By Disability.  For purposes of this Agreement, “disability” means a mental or physical impairment that is expected to result in death or that has lasted or is expected to last for a continuous period of three (3) months or more and that causes you to be unable to perform your duties under this Agreement and to be engaged in any substantial gainful activity.  If you experience such a disability, then, to the extent permitted by law, the Company may terminate your employment upon sixty (60) days’ advance written notice.  Termination by disability shall be determined by a physician selected by the Board.  If such physician is unable to schedule an appointment with you within ten business days of physician’s written request, the Board is authorized to determine whether your disability has occurred at its sole discretion.  The Company shall pay you all compensation to which you are entitled up through the last business day of the notice period, and the Accrued Benefits.  Thereafter, all obligations of Company under this Agreement shall cease.  Nothing in this subsection shall affect your rights under any applicable Company disability plan.  Termination by disability shall not constitute termination without Cause or for resignation for Good Reason.

 

(c)                                   By Company Not For Cause or By You for Good Reason.  At any time, Company may terminate your employment without Cause by providing you written notice of such termination or you may terminate your employment for Good Reason.  In either event, the Company will pay to you the Accrued Benefits and all post-termination payments and benefits

 

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when due as provided in this Agreement.  As a condition to your receipt of such benefits, you will be required to comply with your continuing obligations (including without limitation the return of any Company property and the non-competition and non-solicitation obligations set forth herein), resign from all positions you hold with the Company, and execute the Company’s standard form of release agreement (which the Company will provide to you within one (1) week of your termination) in which you agree to fully release the Company and its representatives from any and all claims you may have and such release must become effective no later than sixty (60) days after your termination.  Thereafter, all obligations of the Company under this Agreement will cease except as set forth herein.

 

(d)                                  By Company For Cause.  At any time, unless such actions are cured as described below, and without prior notice for actions that are not curable, the Company may terminate your employment for Cause.  In such event, the Company will pay to you the Accrued Benefits.  Thereafter, all obligations of the Company under this Agreement will cease.

 

(e)                                   By You Without Good Reason.  At any time you may terminate your employment voluntarily and without Good Reason.  In such event, the Company will pay to you the Accrued Benefits.  Thereafter, all obligations of the Company under this Agreement will cease.

 

5.                                       Severance Benefits.  Subject to the conditions set forth in Section 4(c) above, in the event your employment with the Company is terminated by the Company without Cause or by you for Good Reason, then you will be entitled to receive:

 

(a)                                  the continued payment of your Prior Base Salary for twelve months (12) months (the “ Initial Cash Severance ”) plus, thereafter, additional payments equal to the lesser of $25,000 per month or your then current monthly base salary for up to twelve (12) additional months to be calculated as follows: one (1) additional month for each full month your employment with the Company continues after the date hereof (the “ Additional Cash Severance ”); provided, however, that should the Company consummate an initial public offering, otherwise become a public reporting company under the Securities Exchange Act of 1934, as amended, or undergo a “change of control” as defined in the Plan, there shall be no Additional Cash Severance and the Initial Cash Severance shall be paid at a monthly rate equal to the greater of $25,000 or your monthly base salary in effect immediately prior to such termination.  Notwithstanding the foregoing, if the foregoing Initial Cash Severance and, if applicable Additional Cash Severance constitute deferred compensation for purposes of Code Section 409A (as defined below) as determined by the Company, such payments shall commence upon the 60th date following your date of termination (and the first payment shall include payment of all amounts that otherwise would have been due prior thereto under the terms of this Agreement had such payments commenced immediately upon your termination, and any payments thereafter shall continue as provided herein);

 

(b)                                  In the event that you choose to exercise the your right under COBRA to continue your participation in the Company’s group medical, dental and vision insurance plan and make all timely and proper elections with respect to same under COBRA, the Company shall pay the full amount of the costs for such coverage during the severance period, to the same extent that such insurance is provided to persons then currently employed by the Company.

 

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Should the Severance Period extend beyond the period in which you are eligible to make a COBRA election, the Company will use commercially reasonable efforts to provide comparable continued group medical, dental and vision coverage for you and your dependents (i.e., comparable coverage levels that you had on the date of your termination) which coverage will continue until the earlier of the duration of the Severance Period or until you become eligible to receive such benefits by another employer.  Notwithstanding any provision of this Agreement to the contrary, the Company may unilaterally amend this Agreement to the extent it deems it necessary in order to avoid the imposition of excise taxes, penalties or similar charges on the Company as a result of this Agreement being considered to be “discriminatory,” including, without limitation, any penalties under Section 4980D of the Code, and in such event the Company will use its commercially reasonable efforts to provide comparable coverage.

 

(c)                                   The Accrued Benefits;

 

(d)                                  Accelerated vesting of a portion of the unvested shares purchasable upon exercise of the New Option as equals the number of shares that would otherwise vest over one (1) month for each full month that your employment with the Company continues from the date of this Agreement; provided, however, that in no event shall such accelerated vesting exceed the acceleration of that number of shares as would otherwise vest over a twelve (12) month period; and provided further that should your employment terminate prior to the six (6) month anniversary of this Agreement, you shall be deemed vested in 12.5% of the shares purchasable upon exercise of the New Option;

 

(e)                                   In the event of your termination within 180 days of the New CEO commencing employment with the Company, you will receive the Stay Bonus of $50,000 as provided in Section 2(d) above; and

 

(f)                                    Extension of the post-termination exercise period for your Current Option and New Option to twelve (12) months.

 

For purposes of clarity, you will not be entitled to receive the foregoing benefits of subsection 5(a) through (f) should your employment terminate for Cause (as provided in Section 4(d) above) or should you terminate your employment other than for Good Reason (as provided in Section 4(e) above).

 

6.                                       Benefits.  You will be entitled to continue to participate in the Company’s full employment benefits available to Company executives, as currently in effect or as the Company may revise such benefits in the future, in its sole discretion.  As you know, participation in Company benefit programs may require payroll deductions and/or direct contributions by you.  In addition, each year you will continue to accrue paid time off in the same manner as you have prior to the date of this Agreement.  Any unused vacation will be paid to you in cash upon your termination of employment.

 

7.                                       Confidentiality Agreement.  The Confidential Information and Intellectual Property Assignment Agreement, as amended pursuant to the terms of that certain Employment Amendment Agreement, dated as of June 17, 2004, a copy of which is attached hereto as Exhibit A (the “ PIIA ”), remains in full force and effect.

 

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8.                                       Noncompetition and Nondisparagement.

 

(a)                                  During the term of your employment with the Company and for twenty-four (24) months after termination, for any reason, of your employment with the Company, you shall not directly or indirectly, own, manage, operate, join or control, be employed by or participate in the ownership, management, operation or control of, or be a consultant to or connected in any other manner with, any business, firm or corporation which is similar to or competes with a principal business of the Company or its subsidiaries; provided , however , that your ownership of securities of any company not in excess of one percent of any class of such securities shall not be a violation of this provision.  You acknowledge that the foregoing is in addition to your obligations under the PIIA.

 

(b)                                  From the date hereof and forever hereafter, you expressly agree not to disparage the Company, its past and present investors, officers, directors or employees or its affiliates and to keep all confidential and proprietary information about the past or present business affairs of the Company and its affiliates confidential unless a prior written release from the Company is obtained or unless disclosure is required by law.

 

9.                                       Indemnification.  The Company and you hereby acknowledge and ratify that certain Indemnification Agreement dated as of March 24, 2011, between you and the Company (the “ Indemnification Agreement ”) and such Indemnification Agreement remains in full force and effect.

 

10.                                Defined Terms: For purposes of this Agreement, the following terms will mean:

 

(a)                                  Cause ” shall be defined as (1) your repeated failure, in the reasonable judgment of the New CEO or Board, to perform one or more of your essential duties and responsibilities to the Company after written notice thereof from the New CEO or Board to you describing your failure to perform such duties or responsibilities and, if such failure is remediable, your failure to remedy same within 10 days of receiving written notice; (2) your refusal or failure to comply with the legal directives of the New CEO or Board after written notice thereof to you describing your failure to comply and, if such failure is remediable, your failure to remedy same within 10 days of receiving written notice; (3) your material violation of any Company policy; (4) your commission or conviction of, or entry of a plea of nolo contendere to, any felony or any act of fraud, embezzlement, dishonesty, moral turpitude, misappropriation or any other misconduct that has caused or is reasonably expected to result in material injury to the Company or its affiliates; (5) your unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom he owes an obligation of nondisclosure as a result of his relationship with the Company; (6) your material breach of any of his obligations under any written agreement or covenant with the Company; or (7) your violation of a federal or state law or regulation applicable to the Company which violation was or is reasonably likely to be injurious to the Company; provided , however , that a finding of any of the above shall be predicated on a good faith determination by the New CEO or Board.

 

(b)                                  Code ” means the Internal Revenue Code of 1986, as amended.

 

(c)                                   Company ” means Control4 Corporation, a Delaware corporation.

 

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(d)                                  Disability ” means you have a mental or physical impairment that is expected to result in death or that has lasted or is expected to last for a continuous period of three months or more and that causes you to be unable to perform your duties under this Agreement and to be engaged in any substantial gainful activity.

 

(e)                                   Good Reason ” for your resignation shall mean that, within 90 days after the occurrence of one or more of the following condition(s) or Company actions (unless such conditions) or Company action(s) applies generally to all of the Company’s management of the Company or unless you consent in writing to such action(s)), you resign in writing from your employment with the Company: (1) a material reduction in your base salary as in effect immediately before such reduction; (2) the relocation by the Company of your then-current work site that has the effect of increasing your then-current commute by more than 50 miles (not including any regular business travel consistent with the business travel requirements of the your position with the Company), or (3) your employment continues but you no longer serve in an executive operating role (which for clarification purposes shall mean you no longer report directly to the Company’s Chief Executive Officer).  In order to qualify for Good Reason, your resignation must be preceded by your delivery to the Company of written notice of the existence of the foregoing condition(s) or Company action(s), which notice shall require the Company to remedy such condition(s) or Company action(s) within 30 days of such notice.

 

(f)                                    Prior Agreement ” means that certain employment agreement between you and the Company, dated as of July 28, 2003, as amended by that certain Employment Amendment Agreement, dated as of June 17, 2004 (a copy of which is attached hereto as Exhibit B ).

 

11.                                Governing Law.  This Agreement will be construed in accordance with, and governed by, the laws of the State of Utah without regard to its conflicts of law principles.  Please note that this Agreement (together with the surviving provisions of the Prior Agreement, the PIIA, and the documentation memorializing the purchase of Your Shares, your Current Option and your New Option (as amended from time to time), and the Indemnification Agreement) represent the entire agreement and understanding between you and the Company regarding your employment with the Company and supersede any and all prior representations, promises or agreements, whether written or oral.  To the extent that the practices, policies or procedures of Company or any other document referenced in this Agreement, now or in the future, apply to you, are inconsistent with the terms of this Agreement, the provisions of this Agreement will control.

 

***********************

 

If you are in agreement with the above, please execute a copy of this Agreement where indicated below, and return an executed copy to the Company via fax or email PDF.

 

***********************

 

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On behalf of the Board, we look forward to your continuing leadership.

 

 

 

Sincerely,

 

 

 

 

 

CONTROL4 CORPORATION

 

 

 

 

 

 

 

 

By:

/s/ Len Jordan

 

 

Name:

Len Jordan

 

 

Title:

Chairman of the Board

 

 

 

ACCEPTED AND AGREED:

 

 

 

 

 

 

 

 

/s/ William B. West

 

 

William B. West

 

 

 

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Exhibit 10.6

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (this “ Agreement ”) is made and entered into as of                      , 2007, by and between Control4 Corporation, a Delaware corporation (the “ Company ”), and Dan Strong (“ Employee ”).

 

RECITALS

 

WHEREAS , the Company desires to obtain Employee’s continued service and Employee agrees to employment with the Company in accordance with the following terms and conditions.

 

AGREEMENT

 

NOW THEREFORE , for and in consideration of the mutual promises and covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

 

1.                                       Employment .  Employee shall serve as a full-time employee of the Company as its Chief Financial Officer.  Employee’s employment with the Company shall be for no certain duration but will be “at-will” employment.  Although the Company’s personnel policies and procedures may change from time to time, the “at-will” nature of Employee’s employment may only be changed in a document signed by Employee and a duly authorized member of the Company’s Board of Directors.

 

2.                                       Compensation .

 

(a)                                  Base Salary .  Employee’s salary shall initially be set at $17,333.34 per month, which is equivalent to $208,000.00 on an annual basis, less applicable deductions and withholdings, paid in accordance with the Company’s standard payroll procedures.  Employee’s position will be classified as “exempt” and Employee will not be eligible for overtime pay.

 

(b)                                  Signing Bonus .  Employee shall receive a bonus of $40,000.00 upon the execution of this Agreement and the related Company agreements.  Employee agrees to refund this bonus to the Company in the event that he terminates his employment with the Company within 12 months of the date of this Agreement (other than a termination for Good Reason, as defined below).

 

(c)                                   Stock Options .  The Company will request that its Board of Directors approve a grant of 722,564 Company stock options to Employee, which number represents one percent (1%) of the fully diluted capital stock of the Company (which includes all outstanding shares of Common Stock and Preferred Stock, as well as the shares purchasable upon exercise of all outstanding options and warrants, as well as those additional shares of Common Stock reserved for issuance under the Company’s 2003 Stock Incentive Plan).  The terms and conditions of the option grant will be as set forth in the Company’s 2003 Equity Incentive Plan and the vesting of the option grant shall be as approved by the Company’s Board of Directors.

 



 

(d)                                  Performance Bonus .  At such time, if any.  as the Board of Directors determines in its sole discretion that the Company has achieved requisite development, revenue and/or profitability milestones, the Board of Directors will determine Employee’s eligibility to receive an incentive bonus up to 50% of Employee’s Base Salary, less applicable deductions and withholdings, subject to the attainment of Company and individual performance objectives as determined by the Board of Directors and subject to any other terms and conditions determined by the Board of Directors.

 

(e)                                   Other Benefits .  The Company shall provide Employee with the opportunity to participate in the Company’s standard benefits plans available to other similarly situated employees and approved by the Board of Directors, subject to any eligibility requirements imposed by such plans or programs.

 

(f)                                    Business Expenses .  The Company shall reimburse business expenses incurred by Employee from time to time, which shall include, without limitation, mobile telephone, home office telephone and home office high-speed Internet access expenses, in accordance with the Company’s standard policies and procedures relating thereto as approved from time to time by the Board of Directors.

 

(g)                                   Vacation .  Employee will be entitled to accrue up to three (3) weeks of vacation leave consisting of fifteen (15) business days earned on an annual, pro-rata basis throughout each calendar year of employment, all in accordance with the Company’s standard vacation policy in effect from time to time and approved by the Board of Directors.  Employee’s vacation accrual will be pro-rated for the remainder of this calendar year.  Once the maximum vacation accrual is reached, no further vacation will accrue.  When some vacation is used, vacation will begin to accrue again.  There will be no retroactive grant of vacation for the period of time the accrued vacation was at the maximum accrual balance.

 

3.                                       Noncompetition .  During the term of Employee’s employment with the Company and for twelve (12) months after termination, for any reason, of Employee’s employment with the Company, Employee shall not directly or indirectly, own, manage, operate, join or control, be employed by or participate in the ownership, management, operation or control of, or be a consultant to or connected in any other manner with, any business, firm or corporation which is similar to or competes with a principal business of the Company or its subsidiaries (a “ Competitive Activity ”); provided, however , that Employee’s ownership of securities of any company not in excess of one percent of any class of such securities shall not be considered to be competition with the Company or its subsidiaries.  Employee acknowledges that the foregoing is in addition to Employee’s obligations under that certain Confidential Information and Intellectual Property Assignment Agreement between the Company and Employee, including without limitation Section 4 thereof, attached hereto as Exhibit A (the “ Confidentiality Agreement ”).

 

4.                                       Termination .

 

(a)                                  By Death .  Employee’s employment shall terminate automatically upon his death.  The Company shall pay to Employee’s beneficiaries or estate, as appropriate, any compensation then due and owing, including payment for accrued bonus, unused vacation,

 

2



 

expense reimbursement, if any, and any other benefits provided under this Agreement, including without limitation the ability to exercise any vested and exercisable options held by Employee.  Thereafter, all obligations of the Company under this Agreement shall cease.  Nothing in this Section 4(a) shall affect any entitlement of Employee’s heirs to the benefits of any life insurance plan or other applicable benefits.

 

(b)                                  By Disability .  For purposes of this Agreement, “disability” means a mental or physical impairment that is expected to result in death or that has lasted or is expected to last for a continuous period of three (3) months or more and that causes Employee to be unable to perform his duties under this Agreement and to be engaged in any substantial gainful activity.  If Employee experiences such a disability, then, to the extent permitted by law, the Company may terminate Employee’s employment upon sixty (60) days’ advance written notice.  Termination by disability shall be determined by a physician selected by the Board of Directors.  If such physician is unable to schedule an appointment with Employee within ten business days of physician’s written request, the Board of Directors are authorized to determine whether Employee’s disability has occurred at its sole discretion.  The Company shall pay Employee all compensation to which he is entitled up through the last business day of the notice period, including payment for accrued unused vacation, expense reimbursement, if any, and any other benefits provided under this Agreement, including without limitation the exercisability of any vested and exercisable option held by Employee; thereafter, all obligations of Company under this Agreement shall cease.  Nothing in this Section 4(b) shall affect Employee’s rights under any applicable Company disability plan.  Termination by disability shall not constitute termination without Cause or for Good Reason.

 

(c)                                   For Cause or Without Good Reason .  If Employee’s employment is terminated by the Company for Cause (as defined below) or by Employee for other than.  Good Reason (as defined below), the Company shall pay Employee all wages earned through the date of termination at the rate in effect at the time notice of termination is given and the Company shall have no further obligations to Employee under this Agreement.

 

(d)                                  Without Cause or For Good Reason .  In no way limiting the Company’s policy of employment at-will, if Employee’s employment is terminated by the Company without Cause or by Employee for Good Reason, and other than as a result of Employee’s death or disability, the Company will offer certain severance benefits to Employee as specified below.  As a condition to Employee’s receipt of such benefits, Employee is required to comply with Employee’s continuing obligations (including without limitation the return of any Company property and the non-competition and non-solicitation obligations), resign from all positions Employee holds with the Company, and execute the Company’s standard form of release agreement releasing any and all claims Employee may have against the Company.

 

(i)                                      In addition to paying Employee all wages earned through the date of termination, the Company shall pay Employee severance equal to six (6) months of his then-current regular base salary in effect at the time notice of termination is given, paid out over the Company’s regular payroll schedule following the effective date of the release, as well as all other unpaid amounts, if any, that Employee has earned as of the date of termination under any compensation plan or program of the Company, at the time such payments are or become due;

 

3



 

(ii)                                   For the first six (6) months after Employee’s date of termination, the Company shall continue, to the extent permitted under the terms of the applicable plans, to maintain in full force and effect, and cover the premium costs of, the insurance benefits set forth in Section 2(d) of this Agreement; provided , that if (A) the Employee becomes reemployed after the date of termination and (B) his new employer offers medical and dental insurance plans or programs under which he will be eligible to participate, any such continuing medical and dental coverage shall, be secondary to such new employer’s coverage.

 

(iii)                                In addition to all of Employee’s stock and stock options that were vested on the date of termination, if such termination without Cause or for Good Reason occurs either (A) within 60 days prior to a Change of Control and in direct contemplation of such Change of Control or (B) within 12 months after a Change of Control, then 75% of Employee’s remaining unvested Options shall fully vest.

 

Change of Control ” shall mean a transaction or series of related transactions that constitutes a “Deemed Liquidation” in accordance with the Company’s then current Certificate of Incorporation, as amended from, time to time.

 

(e)                                   Priority .  The compensation and benefits, if any, payable under this Section 4 shall be in addition to any vested accrued compensation or benefits to which the Employee may be entitled under the Company’s (or any of its subsidiaries’) employee benefit plans and arrangements; provided, however , that the severance benefits provided by this Agreement shall supercede, and Employee shall not also be entitled to, any compensation or benefits under any other severance plan or arrangement of the Company or any of its subsidiaries to which Employee would otherwise be entitled under the terms thereof, whether now existing or hereafter adopted.

 

(f)                                    Certain Definitions .

 

(i)                                      Cause ” shall be defined as (1) Employee’s repeated failure, in the reasonable judgment of the Board of Directors, to perform one or more of his essential duties and responsibilities to the Company after written notice thereof from the Board of Directors to Employee describing Employee’s failure to perform such duties or responsibilities and, if such failure is remediable, his failure to remedy same within 10 days of receiving written notice; (2) Employee’s refusal or failure to comply with the legal directives of the Board of Directors after written notice thereof from the Board of Directors to Employee describing Employee’s failure to comply and, if such failure is remediable, his failure to remedy same within 10 days of receiving written notice; (3) Employee’s material violation of any Company policy; (4) Employee’s commission or conviction of, or entry of a plea of nolo contendere to, any felony or any act of fraud, embezzlement, dishonesty, moral turpitude, misappropriation or any other misconduct that has caused or is reasonably expected to result in material injury to the Company or its affiliates; (5) Employee’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other patty to whom, he owes an obligation of nondisclosure as a result of his relationship with the Company; (6) Employee’s material breach of any of his obligations under any written agreement or covenant with the Company; or (7) Employee’s violation of a federal or state law or regulation applicable to the Company which violation was or

 

4



 

is reasonably likely to be injurious to the Company; provided, however , that a finding of any of the above shall be predicated on a good faith determination by the Board of Directors.

 

(ii)                                   Good Reason ” for Employee’s resignation shall mean that Employee’s continuous status as an employee was “constructively terminated” by the Company if within 90 days after the occurrence of one of the following Company actions (unless such action(s) applies generally to all of the Company’s management of the Company or unless Employee consents in writing to such action(s)), Employee resigns in writing from his employment with the Company: (x) a significant reduction in the Employee’s duties, position or responsibilities compared to the Employee’s duties, position or responsibilities immediately prior to such reduction; provided, however , that a reduction in position that occurs solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when a chief financial officer of an acquired company remains as such following a Change of Control but is not made the chief financial officer of the acquiring corporation) shall not constitute “Good Reason” so long as Employee maintains a comparable level of duties and responsibilities with the acquiring entity as Employee held immediately prior to the acquisition; (y) a material reduction in Employee’s base salary as in effect immediately before such reduction; and (z) the relocation by the Company of Employee’s then current work site that has the effect of increasing the Employee’s then-current commute by more than 50 miles (not including any regular business travel consistent with the business travel requirements of the Employee’s position with the Company).

 

5.                                       Confidentiality Agreement .  Employee represents that he has signed and returned to the Company the Confidentiality Agreement.

 

6.                                       Attorneys’ Fees .  If any legal action or other proceeding, including an arbitration, is brought for the enforcement of this Agreement, or because of an alleged dispute, breach or default thereof, the successful or prevailing party shall be entitled to recover attorneys’ fees and other costs incurred in such proceeding, in addition, to any other relief to which it may be entitled.

 

7.                                       Indemnification .  The Company and Employee will enter into the Company’s standard form of indemnification agreement for its directors and officers.

 

8.                                       Governing Law .  This Agreement shall be construed in accordance with, and governed by, the laws of the State of Utah without regard to its conflicts of law principles,

 

9.                                       Arbitration .  Any claims arising under this Agreement shall be resolved in binding arbitration with a duly authorized representative of the American Arbitration Association (“ AAA ”) in accordance with the provisions hereof and thereof.  Either the Company or Employee may submit the matter to binding arbitration before the AAA in Salt Lake County, Utah, which arbitration shall be final and binding on the parties and the exclusive method, absent agreement between the Company and Employee, for purposes of determining the ability of the Company to satisfy such claim.  All claims shall be settled by a single arbitrator appointed in accordance with the Commercial Arbitration Rules then in effect of the AAA (the “ AAA Rules ”).  The arbitrator shall render a final decision pursuant to the AAA Rules within thirty (30) days after filing of the claim.  The final decision of the arbitrator shall, be furnished to

 

5



 

Employee and the Company in writing and shall constitute the conclusive determination of the issue in question binding upon Employee and the Company, and shall not be contested by any of them.  Such decision may be used in a court of law only for the purpose of seeking enforcement of the arbitrator’s decision.  The prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief that such party may be entitled.  For purposes of this Agreement, the prevailing party shall be that party in whose favor final judgment is rendered or who substantially prevails, if both parties are awarded judgment.  Notwithstanding the foregoing, any party may pursue any equitable remedies that it may have under this Agreement for any breach, or threatened breach by another party of this Agreement (including without limitation specific performance) in a court of law.

 

10.                                Separate Covenants .  The parties expressly agree that the character, duration and geographical scope of this Agreement are reasonable in light of the circumstances as they exist on the date upon which this Agreement has been executed.  However, should a determination nonetheless be made by a court of competent jurisdiction at a later date that the character, duration or geographical scope of this Agreement is unreasonable in light of the circumstances as they then exist, then it is the intention and the agreement of Employee that this Agreement shall be construed by the court in such a manner as to impose only those restrictions on the conduct of Employee that are reasonable in light of the circumstances as they then exist and as are necessary to assure the Company of the intended benefit of this Agreement.  If, in any judicial proceeding, a court shall refuse to enforce all of the separate covenants deemed included herein, because, taken together, they are more extensive than necessary to assure the Company of the intended benefit of this Agreement, it is expressly understood and agreed among the parties hereto that those of such covenants that, if eliminated, would permit the remaining separate covenants to be enforced in such proceeding shall, for the purpose of such proceeding, be deemed eliminated from the provisions hereof.

 

11.                                Severability .  If any of the provisions of this Agreement shall otherwise contravene or be invalid under the laws of any state, country or other jurisdiction where this Agreement is applicable but for such, contravention or invalidity, such contravention or invalidity shall not invalidate all of the provisions of this Agreement but rather it shall be construed, insofar as the laws of that state, country or jurisdiction are concerned, as not containing the provision or provisions contravening or invalid under the laws of that state or jurisdiction, and the rights and obligations created hereby shall be construed and enforced accordingly.

 

12.                                Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one agreement.

 

13.                                Entire Agreement .  This is the full and complete agreement between the parties with regard to the subject matter hereof and supersedes any and all prior understandings or agreements.

 

[Remainder of page intentionally left blank; signature page to follow.]

 

6



 

IN WITNESS WHEREOF , the parties have caused this Agreement to be executed as of the date first set forth above.

 

“EMPLOYEE”

 

CONTROL4 CORPORATION

 

 

 

 

 

 

/s/ Dan Strong

 

By:

/s/ William B. West

Dan Strong

 

 

William B. West

 

 

 

CEO

 

Signature Page to Dan Strong Employment Agreement

 


 

EXHIBIT A

 

CONFIDENTIAL INFORMATION AND
INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT

 

Confidential Information and Proprietary Inventions Agreement

 

As a condition of my relationship with Control4 Corporation, its subsidiaries, affiliates, successors or assigns (together the “ Company ”), and for ether valuable consideration, the receipt and sufficiency of which is hereby acknowledged, I agree to the renewing terms under this Confidential Information and Proprietary Inventions Agreement (this “ Agreement ”):

 

1.                                       Confidential Information . I agree at all times during the term of my relationship (my “ Relationship with the Company ”) and thereafter to hold in strictest confidence, and not to use except for the benefit of the Company, or to disclose to any person or entity without written authorization of the President of the Company, any Confidential Information of the Company. I understand that “ Confidential Information ” means any Company proprietary information, technical data or research, trade secrets, customer information or know-how. I further understand that Confidential Information does not include any information that has become publicly known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations concerning the item or items involved.  I agree that I will not, during my Relationship with the Company, improperly use or disclose any proprietary information or trade secrets of any other person or entity.

 

2.                                       Intellectual Property .  Any original works of authorship, inventions, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, that I solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the service of the Company (collectively referred to as “ Intellectual Property ”) and which (i) are developed using the equipment, supplies, facilities or Confidential Information of the Company, (ii) result from or are suggested by work performed by me for the Company, or (iii) relate to the business, or to the anticipated research or development of the Company, shall be the sole and exclusive property of the Company.  I hereby assign to the Company, or its designee, all of my right, title and interest in and to such Intellectual Property. I further acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company and which are protectable by copyright are “works made for hire,” as that term is defined in the Unites States Copyright Act.  I further agree to assist the Company, or its designee, at the Company’s expense and in every proper way requested by the Company, to secure the Company’s rights in the Intellectual Property, including any copyrights, patents or ether rights in any and all countries.  If the Company is unable because of my mental or physical incapacity or for any other reason to secure my assistance in perfecting the rights transferred in this Agreement, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to perfect such rights with the same legal force and effect as if done by me. The designation and appointment of the Company and its duly authorized officers and agents as my agent and attorney in fact shall be deemed to be coupled with an interest and therefore

 

A-1



 

Irrevocable. If in the course of my Relationship with the Company, I incorporate into Company property any intellectual property owned by me or in which I have an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, revocable, perpetual, worldwide license to make, have made, modify, use and sell such intellectual property as part of or in connection with such Company property.

 

3.                                       Return of Company Documents .  I agree that, at the time of leaving the employ of the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all of the Company’s Intellectual Property or Confidential Information.

 

4.                                       Remedies .  I agree that any harm arising from a breach by me of the covenants of this Agreement would be immediate and irreparable, and that it would be impossible or inadequate to measure and calculate the damages from any breach of the covenants contained in this Agreement prior to resolution of any dispute. Accordingly, in any claim for breach of a covenant the Company may, in addition to any other right or remedy, obtain an injunction or other equitable relief from a court of competent jurisdiction.

 

5.                                       No Solicitation of Employees .  I agree that during the period or my employment at the Company and for a period of twelve (12) months thereafter I shall not solicit the employment of any person who is then employed by the Company or who was employed by the Company, as an employee or consultant within the prior twelve (12) month period, on behalf of myself or any other person or entity, directly or indirectly.

 

6.                                       General Provisions .

 

(a)                                  Governing Law; Consent to Personal Jurisdiction .  This Agreement will be governed by the laws of the State of Utah as they apply to contracts entered into and wholly to be performed within such State, and I expressly consent to the jurisdiction and venue of the courts located in the federal District of Utah.

 

(b)                                  Miscellaneous .  This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us.  No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged.  Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.  If one or more of the provisions in this Agreement is deemed void by law, then the remaining provisions will continue in full force and effect.  This Agreement will be binding upon my heirs, executors, administrators and ether legal representatives and will be for the benefit of the Company, its successors, and its assigns.

 

A-2



 

IN WITNESS WHEREOF, the undersigned has executed this Confidential information and Proprietary Inventions Agreement as of the date set forth below.

 

By:

/s/ Dan E. Strong

 

 

 

 

 

Name:

Dan E. Strong

 

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

Witness:

 

 

 

 

 

By:

/s/ Alison Nelson

 

 

 

 

 

Name:

Alison Nelson

 

A-3




Exhibit 10.7

 

[Control4 logo]

 

Control4 Technologies

11734 Election Drive Suite 200

Salt Lake City, UT 84020

801-523-3100

 

August 1, 2006

 

Jefferson Dungan

1273 Star Ridge Court

Wellington, CO 80549

 

Subject: Offer of Employment

 

Dear Jefferson,

 

Control4 is pleased to extend an offer of employment to you as Vice President of Manufacturing and Supply Chain Operations reporting to Rhonda Bassett-Spiers, Chief Operating Officer. Your annual compensation will be $150,000 per year (paid semi-monthly). You will be eligible to participate in the company bonus program with a potential payout at 40% of your base pay. In addition, you will receive 250,000 shares of employee stock options. There will also be a $20,000 allowance permitted towards relocation costs.

 

This offer is supplemented by our competitive benefits package which is summarized on the enclosed benefits overview.

 

We would like to make your acceptance of this offer by Wednesday, August 2, 2006. Should you have any questions, please feel free to contact me. We look forward to having you join our team.

 

Sincerely,

 

 

Alison Nielson, PHR

Director of Human Resources

 

Enclosure

 

 

Agreed and Accepted

 

/s/ Jefferson Dungan

 

August 2, 2006

 

Jefferson Dungan

 

Date

 



 

CONTROL4 CORPORATION

 

Confidential Information and Proprietary inventions Agreement

 

As a condition of my relationship with Control4 Corporation, its subsidiaries, affiliates, successors or assigns (together the “ Company ”), and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, I agree to the following terms under this Confidential Information and Proprietary Inventions Agreement (this “ Agreement ”):

 

1.             Confidential Information .  I agree at all times during the term of my relationship (my “ Relationship with the Company ”) and thereafter to hold in strictest confidence, and not to use except for the benefit of the Company, or to disclose to any person or entity without written authorization of the President of the Company, any Confidential Information of the Company.  I understand that “ Confidential Information ” means any Company proprietary information, technical data or research, trade secrets, customer information or know-how.  I further understand that Confidential Information does not include any information that has become publicly known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations concerning the item or items involved. I agree that I will not, during my Relationship with the Company, improperly use or disclose any proprietary information or trade secrets of any other person or entity.

 

2.             Intellectual Property . Any original works of authorship, inventions, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, that I solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the service of the Company (collectively referred to as “ Intellectual Property ) and which (i) are developed using the equipment, supplies, facilities or Confidential Information of the Company, (ii) result from or are suggested by work performed by me for the Company, or (iii) relate to the business, or to the anticipated research or development of the Company, shall be the sole and exclusive property of the Company. I hereby assign to the Company, or its designee, all of my right, title and interest in and to such intellectual Property. I further acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company and which are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act. I further agree to assist the Company, or its designee, at the Company’s expense and in every proper way requested by the Company, to secure the Company’s rights in the Intellectual Property, including any copyrights, patents or other rights in any and ail countries. If the Company is unable because of my mental or physical incapacity or for any other reason to secure my assistance in perfecting the rights transferred in this Agreement, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to perfect such rights with the same legal force and effect as if done by me. The designation and appointment of the Company and its duly authorized officers and agents as my agent and attorney in fact shall be teemed to be coupled with an interest and therefore irrevocable. If in the course of my Relationship with the Company, I incorporate into Company property any intellectual property owned by me or in which I have an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such intellectual property as part of or in connection with such Company property.

 

3.             Return of Company Documents . I agree that, at the time of leaving the employ of the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all of the Company’s Intellectual Property or Confidential Information.

 

4.             Remedies .  I agree that any harm arising from a breach by me of the covenants of this Agreement would be immediate and irreparable, and that it would be impossible or inadequate to measure and calculate the damages from any breach of the covenants contained in this Agreement prior to resolution of any dispute.  Accordingly, in any claim form breach of a covenant the Company may, in addition to any other right or remedy, obtain an injunction or other equitable relief from a court of competent jurisdiction.

 

1



 

5.             No Solicitation of employees .  I agree that during the period of my employment at the Company and for a period of twelve (12) months thereafter I shall not solicit the employment of any person who is then employed by the Company or who was employed by the Company, as an employee or consultant within the prior three (3) month period, on behalf of myself or any other person or entity, directly or indirectly.

 

6.             General Provisions .

 

(a)                Governing Law: Consent to Personal Jurisdiction .  This Agreement will be governed by the laws of the State of Utah as they apply to contracts entered into and wholly to be performed within such State, and I expressly consent to the jurisdiction and venue of the courts located in the federal District of Utah.

 

(b)                Miscellaneous .  This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement. If one or more of the provisions in this Agreement is deemed void by law, then the remaining provisions will continue in full force and effect. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.

 

                IN WITNESS WHEREOF, the undersigned has executed this Confidential Information and Proprietary Inventions Agreement as of the date set forth below.

 

 

By:

/s/ Jeff Dungan

 

 

 

 

 

 

Name:

Jeff Dungan

 

 

 

 

 

 

 

 

Witness:

 

 

 

 

 

By:

/s/ Alison Nielson

 

 

Name:

Alison Nielson

 

2




Exhibit 10.8

 

June 19, 2012

 

Eric B. Anderson

 

Subject: Offer of Employment

 

Dear Eric,

 

Control4 is pleased to extend an offer of employment to you as Sr. Vice President of Products and Services, reporting to Martin Plaehn, President and CEO.

 

Compensation .

 

(a)                                  Base Salary . Your salary shall initially be set at $20,000 per month, which is equivalent to $240,000.00 on an annual basis, less applicable deductions and withholdings, paid in accordance with the Company’s standard payroll procedures. Your position will be classified as “exempt” and you will not be eligible for overtime pay.

 

(b)                                  Stock Options . The Company will request that the Board approve the grant to you of an option to purchase 900,000 shares of Company Common Stock. The terms and conditions of the option grant will be as set forth in the Company’s 2003 Equity Incentive Plan and the vesting of the option grant shall be as approved by the Company’s Board of Directors.

 

(c)                                   Performance Bonus . At such time, if any, as the Board of Directors determines in its sole discretion that the Company has achieved requisite development, revenue and/or profitability milestones, the Board of Directors will determine your eligibility to receive an incentive bonus up to 30% of your Base Salary, less applicable deductions and withholdings, subject to the attainment of Company performance objectives as determined by the Board of Directors and subject to any other terms and conditions determined by the Board of Directors. Your 2012 bonus, if attained, will be pro-rated based on your hire date.

 

(d)                                  Other Benefits . The Company shall provide you with the opportunity to participate in the Company’s standard benefits plans (summary enclosed) available to other similarly situated employees and approved by the Board of Directors, subject to any eligibility requirements imposed by such plans or programs.

 

(e)                                   Vacation . You will be entitled to accrue up to three (3) weeks of vacation leave consisting of fifteen (15) business days earned on an annual, pro-rata basis throughout each calendar year of employment, all in accordance with the Company’s standard vacation policy in effect from time to time and approved by the Board of Directors. Your vacation accrual will be pro-rated for the remainder of this calendar year. Once the maximum vacation accrual is reached, no further vacation will accrue. When some vacation is used, vacation will begin to accrue again. There will be no retroactive grant of vacation for the period of time the accrued vacation was at the maximum accrual balance.

 



 

This offer is contingent upon the provision that you successfully pass a pre-employment drug screen and background check.

 

We would like you to make your signed acceptance, below, of this offer by Friday, 6/22/12 with an anticipated start date on or before June 29, 2012. In addition to the offer letter, please complete and sign the enclosed waiver, 1-9 (only the top portion), W-4 and emergency contact form and fax back to my attention at 801-206-0062. I have included electronic copies of these forms on the enclosed USB drive for your convenience.

 

Should you have any questions, please feel free to contact me. We look forward to having you join our team.

 

Sincerely,

 

 

 

 

 

/s/ Martin Plaehn

 

 

Martin Plaehn

 

 

President and CEO

 

 

 

 

 

 

 

 

Enclosures

 

 

 

 

 

Agreed and Accepted

 

 

 

 

 

 

 

 

Eric B. Anderson Date

 

Date

 

2




Exhibit 10.10

 

 

Supplier: Lite-On Electronic Company Ltd.

Primary Contact:

Address:

Phone:

 

Email:

 

Fax:

Effective Date:

December 3, 2010

Web Site:

 

This OEM Supply Agreement: OEM Design (“Agreement”) is made as of the Effective Date identified above, by and between Control4 Corporation, a Delaware corporation with offices located at 11734 S.  Election Road, Salt Lake City, Utah 84020 (“Control4”) and the supplier identified above (“Supplier”).  This Agreement incorporates by reference the Terms and Conditions set forth below (including all Schedules thereto).

 

Supplier

 

Control4 Corporation

 

 

 

Signature:

/s/ Andrew Hou

 

Signature:

/s/ Jeff Dungan

 

 

 

Name: Andrew Hou

 

Name: Jeff Dungan

 

 

 

Title: Vice President & G.M. SSBU

 

Title: VP Manufacturing

 

Terms and Conditions

 

1.                                       Definitions .  Terms with initial capital letters shall have the meanings ascribed to them in this Section 1 or elsewhere in this Agreement.

 

1.1          Agreement .  “Agreement” means this OEM Supply Agreement: OEM Design.

 

1.2          Change Order .  “Change Order” means a written order from Control4 to Supplier requesting one or more changes to the Product that Control4 desires to have made, including but not limited to changes in the drawings, designs, Specifications, method of shipment, and/or packaging of the Products.

 

1.3          Confidential Information .  “Confidential Information” shall include all technical information, financial information, proprietary information that each Party hereunder may deliver to the other Party during the course of performing this Agreement, or acquired by the one Party about the other during the course of performing this Agreement, including without limitation all Proprietary Information, non-public information about each Party’s business affairs, financing, finances, methods of operation, technical or scientific information, data systems, procedures, computer programs, circuitry schematics, software or algorithms.

 

1.4          Deliverable .  “Deliverable” means any item, project, material, documentation, software code (both Object Code and Source Code), or object, or the physical embodiment of the same, required to be delivered by Supplier to Control4 pursuant to this Agreement.

 

1.5          Derivative Work .  “Derivative Work” means a work based on Products, Intellectual Property, or Confidential Information (collectively, “Prior Work”), including, but not limited to: (i) for material subject to copyright protection, any work that is based upon one or more Prior Works, such as a revision, modification, translation, abridgment, condensation, expansion, collection, compilation or any other form in which such pre-existing works may be recast, transformed or adapted; (ii) for patentable or patented inventions, any adaptation, subset, addition, improvement or combination of any Prior Work; and (iii) for material subject to trade secret protection, any new material, information or data relating to and derived from Confidential Information.

 

1.6          Documentation .  “Documentation” means the written instructions, user guides, and user manuals for the Products, whether in electronic or paper form, provided by Supplier upon delivery of Products and any such materials provided by Supplier in connection with any updates,

 



 

modifications and improvements to any software provided hereunder.

 

1.7          End Customer .  “End Customer” means the ultimate purchaser and end user of the Products.

 

1.8          Epidemic Failure .  “Epidemic Failure” shall mean the occurrence of one or more material failures in Hardware (including in any embedded Firmware) supplied by Supplier during its Hardware Warranty Period (as defined below), due to a single root cause, discovered either in testing or in the field at a failure rate over any roiling 90 day period exceeding five percent (5%) of such Hardware delivered during such period.

 

1.9          Error .  “Error” means a reproducible failure of the Licensed Software or Firmware to perform in substantial conformity with the Specifications and applicable Documentation accompanying such Licensed Software or Firmware (if any) when delivered to Control4.  The priority level of an Error shall be determined in accordance with Schedule D.

 

1.10        Firmware .  Firmware means Licensed Software that is embedded in a Product.

 

1.11        Hardware .  “Hardware” means tangible devices or tangible system components, including any embedded Firmware that Supplier makes available to Control4 or an End Customer under this Agreement.

 

1.12        Intellectual Property .  “Intellectual Property” shall mean the applicable Party’s proprietary intellectual property, including without limitation the Patent Rights and the Marks, and proprietary information that is not generally known, including, and whether or not patentable, all trade secrets, know-how, data, software code, designs, specifications, material lists, drawings, algorithms, formulas, patterns, compilations, programs, samples, devices, protocols, methods, techniques, processes, procedures and results of experimentation and testing.

 

1.13        Inventions .  “Inventions” means any and all ideas, designs, concepts, techniques, technology, know-how, processes, methods, configurations, inventions, discoveries, and improvements, regardless of whether they are patentable or subject to protection under applicable copyright, trademark, trade secret or other laws governing the protection of Intellectual Property.

 

1.14        Licensed Software .  “Licensed Software” means the machine-readable,  Object-Code version of Supplier’s software (whether or not embedded in a Product as Firmware), including all related Documentation, and including any modified, updated or enhanced versions of the software or Documentation, that Supplier makes available to Control4 or an End Customer under this Agreement.

 

1.15        Major Release .  “Major Release” means a new release of Software supported by Supplier that adds features and functionality improving overall Product performance, efficiency and/or usability, and designated by Supplier as a replacement for a Product.

 

1.16        Marks .  “Marks” shall mean the applicable Party’s current and future logos, trade names, and trademarks.

 

1.17        Manufacturing     Know-How .  “Manufacturing Know-How” means the Specifications and information, including without limitation engineering designs, bill of materials, drawings, and the like, necessary to manufacture the Products, as well as the names and contact information for all of Supplier’s then-current suppliers and manufacturers with respect to the Products.

 

1.18        Minor Release .  “Minor Release” means a Supplier-designated correction, extension, or fix to an existing release of a Product, generally designed to address one or more errors or reduce the effects thereof.  A Minor Release may also include enhanced, improved or modified functionality (as determined in Supplier’s sole discretion).  All Minor Releases are provided on an “AS IS” basis only and in object code only.

 

1.19        Object Code .  “Object Code” means the machine-readable, executable instructions for computer programs or applications.

 

1.20        Party .  “Party” mean Control4 or Supplier as the context requires.  “Parties” means both Control4 and Supplier.

 

1.21        Patent Rights .  “Patent Rights” shall mean the patents and patent applications owned, licensed or filed by the applicable Party anywhere in the world, and all continuations, continuations-in-part, divisions, reissues, reexaminations, substitutions, additions and extensions thereof, and all supplementary protection certificates.

 

1.22        Price .  “Price” means the “Ex Works” price for the applicable Product as set forth in Schedule B (or as otherwise agreed to in writing by the Parties).

 

1.23        Product .  “Product” means those Hardware, Firmware, and Licensed Software created, designed and/or manufactured, and those Services performed by Supplier as specified in Schedule A.

 

1.24        Product Support Materials .  “Product Support Materials” mean those materials which Supplier is

 

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required to provide supplemental to the Hardware, and which are identified on Schedule A.  Such materials may include, by way of example and not limitation, Product installation guides, user manuals for End Customers, Q&A knowledgebase documentation, and documentation with information for tracking and identifying installed Products such as MAC, serial number, and installation code information.

 

1.25        Proprietary Information .  “Proprietary Information” means Inventions, Works, Intellectual Property, and any and all confidential, proprietary or secret information, including, without limitation, information relating to products, best-practices, templates, methodologies, research, technology, developments, services, clients, End Customers, suppliers, employees, business, operations or activities, and also similar information of any third party also divulged by the disclosing Party in connection with this Agreement.

 

1.26        Purchase Order .  “Purchase Order” means a written order issued by Control4 to Supplier containing information with respect to each purchase made pursuant to this Agreement, including a description of the Product to be purchased, the purchase quantity, the purchase delivery schedule, the nominated carrier, the routing instructions, the destination, and confirmation of the Price.

 

1.27        Schedules .  The following Schedules are appended hereto and incorporated herein as a part of this Agreement (which Schedules may be amended by the parties from time to time in a signed writing):

 

·                   Schedule A    Product Specifications and Support Materials

·                   Schedule B    Pricing and Terms of Delivery

·                   Schedule C    Project and Delivery Schedule and Deliverables

·                   Schedule D    Product Support

·                   Schedule E    Quality Assurance

·                   Schedule F    Out-of-Warranty Repair Process and Fees

·                   Schedule G    Customization & Works beyond Schedule A

·                   Schedule H   Control Intellectual Property; Supplier Intellectual Property

 

1.28        Services .  “Services” shall mean the specialized services to be provided by Supplier to Control4 pursuant to this Agreement.

 

1.29        Source Code .  “Source Code” means the instructions for computer programs and applications that are designed to be readable by the human eye, which when compiled or otherwise altered become usable by a computer.  Source Code includes all related diagrams, flow charts, and programmers notes.

 

1.30        Specifications .  “Specifications” means the physical, technical, functional and/or performance requirements for the Products as set forth more specifically in Schedule A.

 

1.31        Trade Secret(s) .  “Trade Secret(s)” means any scientific or technical data, information, design, process, procedure, formula, or improvement that is commercially valuable to the owner and not generally known in the industry.  The obligations set forth in this Agreement as they pertain to Trade Secret(s) shall survive termination of this Agreement and continue for so long as the relevant information remains a Trade Secret(s).

 

1.32        Work Product .  “Work Product” means all Intellectual Property associated with any Services, Inventions, Deliverables, Works or works of authorship developed or created by Supplier during the course of performing Services pursuant to this Agreement.

 

1.33        Works .  “Works” means products, devices, equipment, information, data and works of authorship, including, without limitation, processes, methodologies, templates, best-practices, lists, computer source and object code, devices, formulas, drawings, artwork, notes, memoranda, specifications, and documents of any nature, and all copies thereof, whether stored electronic or otherwise.

 

2.                                       Grant of Rights.

 

2.1          Control4 Appointment .  Subject to the terms of this Agreement, Supplier hereby appoints Control4, and Control4 hereby accepts appointment, as an exclusive reseller to sell and license the Products worldwide to Control4 customers and End Customers.  The foregoing appointment is subject to the license and the other terms and conditions set forth herein.

 

2.2          License Grants .  Subject to the terms of this Agreement:

 

2.2.1       Supplier grants to Control4, and Control4 accepts a perpetual, exclusive royalty-free license in and to that portion of the Supplier Intellectual Property identified on Schedule H, for Control’s use in making, having made, marketing and selling the Products worldwide.

 

2.2.2       During the Term, Control4 grants to Supplier, and Supplier accepts a personal, non-transferable, indivisible, revocable and non-exclusive license in and to that portion of the Control4 Intellectual Property identified on Schedule H, or that Control4 delivers or discloses to Supplier from time to time and indicates, at the time of such disclosure, that such Control4 Intellectual Property, and the disclosure thereof by Control4 to Supplier, is subject to the terms of this Agreement, solely for Licensee’s use in developing and

 

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manufacturing each Product, and selling the same to Control4 only.

 

2.2.3       Restrictions on Use .

 

2.2.3.1    Supplier acknowledges that the Control4 Intellectual Property constitutes valuable trade secrets of Control4.  Accordingly, Supplier will not do any of the following without Control4’s prior written consent: (a) modify, adapt, alter, translate, or create Derivative Works from the Control4 Intellectual Property; (b) sublicense or sell the Control4 Intellectual Property to any third party; (c) reverse engineer, decompile, disassemble, or otherwise attempt to derive the source code for the Control4 Intellectual Property.

 

2.2.3.2    Control4 acknowledges that the Supplier Intellectual Property constitutes valuable trade secrets of Supplier.  Accordingly, Control4 will not do any of the following without Supplier’s prior written consent: (a) modify, adapt, alter, translate, or create Derivative Works from the Supplier Intellectual Property; (b) sublicense or sell the Supplier Intellectual Property to any third party except as specifically permitted in this Agreement; (c) reverse engineer, decompile, disassemble, or otherwise attempt to derive the source code for the Control4 Intellectual Property

 

2.3          Products .  Supplier will design, manufacture and ship to Control4 the Products in accordance with the Specifications set forth in Schedule A, including any applicable Hardware, Firmware and Licensed Software.

 

2.4          Testing, Certifications and Standards .  The parties may identify on Schedule A any testing, technical certifications and standards which Products must receive or meet, respectively; and the parties may identify on Schedule B any additional compensation (if any) for Supplier related to such certifications and standards.  Unless specifically provided on Schedule A, Supplier shall not be responsible for causing applicable Products to achieve specified certifications and standards prior to delivery.

 

2.5          Initial Delivery Time Frame .  Subject to the availability of all requisite parts and/or components on the open market through normal commercial channels within the time frame that was specified for parts purchasing in the Schedule A, Supplier will adhere to the initial delivery time frame specified in Schedule C.  Subsequent delivery time frames will be set forth in the applicable Purchase Orders.

 

2.6          Change of Product Specifications: Design Changes .  Supplier may not exclude or discontinue Products set forth on Schedule A, nor make changes or modifications in Specifications, construction, or design of said Products to be delivered to Control4, during the Term, without first receiving Control4’s written consent, which shall not be unreasonably withheld.

 

2.7          Effect of Product or Design Chances .  Any mutually agreed to and executed Product changes, whether suggested by Control4 or Supplier, shall be governed by and shall not change any other terms of this Agreement, including Supplier’s warranty of Product, unless mutually agreed to in writing and attached as an amendment hereto.

 

2.8          Additional Products .  Additional Products may be added to Schedule A upon the mutual agreement and written Change Order agreed upon by both Control4 and Supplier.  In such event, the development, manufacturing, and sale of such additional Products shall be made in accordance with the terms of this Agreement.

 

2.9          Product Support .  Supplier will provide to Control4 support for each Product as set forth more specifically in the Service Level Agreement appended as Schedule D (“Product Support”).

 

2.10        Control4’s Obligation .  Subject to Supplier’s compliance with its obligations hereunder, Control4 agrees to purchase via Purchase Order the Products specified in Schedule A at the price specified in Schedule B.

 

2.11        Supplier’s Obligation .  In consideration of Control4’s purchase commitments in this Agreement, Supplier agrees to commit to the design and development, production, and manufacturing of the Product, including without limitation completing all necessary design implementations, hiring necessary staff and other resources, and committing to the development of proper tooling for manufacturing and/or applicable testing of the Products set forth in Schedule A.

 

2.12        Pre-Existing Intellectual Property .  Nothing herein shall be deemed to constitute a transfer, sale or conveyance by one Party to the other Party of any ownership interest in such Party’s Intellectual Property that was owned or developed by it prior to the Effective Date.

 

2.13        Works Made for Hire .  Any and all Services, Inventions, Works, Work Product and Deliverables, prepared by Supplier pursuant to this Agreement (whether or not they are made, conceived or reduced to practice using Control4’s data or facilities) which are made, conceived, developed, reduced to practice, or created by Supplier (whether alone or jointly with Control4 and/or one or more independent contractors), shall be considered “WORKS-MADE-FOR-HIRE” and shall be the sole property of Control4.  Supplier agrees to and hereby does assign to Control4, without further compensation, all right, title and interest in any such Services, Inventions, Work Product, Deliverables and Works, and in all Intellectual Property contained therein.  Supplier hereby grants Control4 a perpetual, royalty-free license to use any pre-

 

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existing materials, concepts, processes or information contained or expressed in Supplier’s work, Services, Work Product or Deliverables hereunder.

 

2.14        Assignment of Intellectual Property .  Supplier will promptly disclose to Control4 any and all Inventions and Intellectual Property and will assist Control4 in obtaining and enforcing, for Control4’s benefit, patents and any other Intellectual Property rights relating thereto in any country.  Upon request, Supplier will execute all applications, assignments, instruments and papers and perform all acts necessary or desired by Control4 to assign all such Inventions, and Intellectual Property relating thereto, fully and completely to Control4 and to enable Control4, (including its successors, assigns and nominees) to secure and enjoy the full benefits and advantages thereof.  In the event Supplier fails or refuses to sign any document or documents reasonably requested by Control4 to allow it to apply for or prosecute any patent, copyright or mask work registration, or other right or protection relating to an Invention, Deliverable, Work or Work Product, whether because of Supplier’s physical or mental incapacity or for any other reason, Supplier hereby irrevocably appoints Control4 and its authorized officers and agents as its agent and attorney-in-fact, to act in Supplier’s behalf to execute and file any such application or applications and to do all other lawfully permitted acts to further the prosecution and issuance of patent, copyright or mask work registrations, or similar protections with the same legal force and effect as if executed by Supplier.

 

2.15        Residual Rights .  Notwithstanding anything to the contrary herein, Supplier shall be free to use and employ its general skills, know-how and expertise gained or learned during the course of any Work Order, so long as it acquires such information without disclosure or use of any Control4 Proprietary Information or any Work Product, Works, Deliverables, Inventions or Intellectual Property of Control4.

 

3.                                       Ordering and Delivery of Products.

 

3.1          General .  The purchase and sale of the Products shall be made against specific written Purchase Orders submitted by Control4 to Supplier during the term of this Agreement.  All Purchase Orders for Product submitted by Control4 (by either facsimile or email) shall state the following: (a) Control4’s name and address; (b) the description of the Products ordered; (c) the quantities of Products ordered as per Schedule A; (d) the desired delivery dates; (e) the destination of the Products ordered; and (f) the price(s) for the Products ordered.  Control4 shall mail, email and/or fax each Purchase Order to Supplier.  Supplier shall acknowledge by facsimile or email the details of the Purchase Order within two (2) business days of receipt of the Purchase Order.

 

3.2          Acceptance .  All Purchase Orders (and any amendments thereto) are subject to acceptance by Supplier, which acceptance may not be withheld for any Purchase Order falling within the scope of the agreed quantities and delivery dates set forth in Schedule B (if any) and issued within the agreed upon Product lead time.  Acceptance shall be indicated by return of an email or facsimile appropriately signed by Supplier, so as to indicate acceptance, conditional or otherwise, of any such order of Products.  Any Purchase Order that is not rejected by Supplier within five (5) business days of the day sent by Control4 shall be deemed automatically accepted by Supplier.

 

3.3          Conflicting Provisions .  If any conflict arises between the terms stated in any Purchase Order and the terms and conditions of this Agreement, the terms and conditions of this Agreement shall prevail.  Any term of a Purchase Order that is in conflict with, omitted or contradictory to this Agreement will be null and void.  The remaining terms and commitment of the Purchase Order will still remain valid and binding.

 

3.4          Affiliates .  This Agreement is entered into by Control4 for the benefit of itself and its affiliated companies (if any), each of which shall be deemed to be a third-party beneficiary of this Agreement.  Control4’s affiliated companies will be entitled to place Purchase Orders with Supplier subject to the terms and conditions herein contained.

 

3.5          Deviation from Purchase Orders .  Following acceptance of a Purchase Order, Supplier may not reject or deviate from the Purchase Order without Control4’s written approval in Control4’s sole discretion.  Control4 may from time to time need to pull in a delivery date or push out a delivery date to accommodate changes in schedules and End Customer demand.  Such changes can be made in accordance with the terms outlined in the Pricing and Terms of Delivery Schedule of this Agreement.

 

3.6          Time of the Essence .  Time is of the essence with respect to delivery of ordered Products by specified delivery dates.  [LIQUIDATED DAMAGES?]

 

4.                                       Term .  Unless terminated as provided herein, this Agreement will be effective for a period of four (4) years from the Effective Date (“Initial Term”).  Upon the expiration of the Initial Term, this Agreement will automatically renew for successive periods of one (1) year (each a “Renewal Term”) unless terminated at the end of the Initial Term or any Renewal Term by either Party by delivering written notice of the intent to terminate not less than (or a minimum of) one hundred and eighty (180) days prior to the end of the Initial Term or Renewal Term, as applicable.

 

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5.                                       Pricing .

 

5.1          Prices .  The applicable Price for each Product ordered hereunder is set forth in Schedule B,

 

5.2          Taxes .  The Prices specified in Schedule B for each Product are exclusive of any other federal, state or local sales, use, excise, or other similar taxes or duties, which Supplier may be required to collect or pay as a consequence of the sale or delivery of any Products to Control4.  Supplier shall include all required taxes as a separate line item on each invoice.  Control4 shall not be responsible for the payment or reimbursement of any tax not properly invoiced by Supplier, or for any taxes based on Supplier’s income.

 

5.3          Price Changes .  Any change in the Price payable for any Product shall be made only upon written agreement of the Parties.

 

5.4          Cost Reductions .  Supplier shall provide to Control4 regular cost reductions to occur semi-annually from the date of execution of this Agreement or as mutually agreed between the Parties in writing.  Such reductions may be either through manufacturing efficiency gains, through component pricing improvements or through cost reductions, so long as any component changes are approved by Control4 in advance and in writing.

 

6.                                       Delivery .

 

6.1          General .  All Products shall be delivered to Control4 (or its designated location) Ex Works Supplier’s facility as specified in the applicable Purchase Order, using Control4’s specified standard shipping.  The Product shall be packed and marked for shipment in accordance with Schedules A and B.  Supplier shall have no liability for any events occurring during shipment except in cases where Product is not packaged in accordance with Schedule A.  In the event that Supplier is unable to meet the delivery date at the specified location as set forth in the Purchase Order, Supplier is responsible for any incremental fees associated with expedited shipping to ensure fastest freight and delivery to Control4, as well as incremental expediting fees associated with ongoing shipments, until Supplier is caught up on deliveries to Control4.

 

6.2          Title: Risk of Loss .  Title to and risk of loss or damage on any Product shall pass to Control4 upon Supplier’s delivery of such Product to the carrier specified by Control4.

 

6.3          Time of the Essence .  Each Party acknowledges that timely completion of applicable development schedule milestones, as outlined in Schedule C, are of the essence and vital to the success of this business arrangement set forth herein.

 

7.                                       Inspection and Acceptance.

 

7.1          Testing and Inspection .  Control4 may inspect and perform tests of the Products at any reasonable time and place.  If such inspection or testing is made on Supplier’s premises, Control4 shall provide Supplier with ten (10) business days advance notice and Supplier shall provide reasonable facilities for such inspection and testing.

 

7.2          Acceptance .  Final inspection and acceptance by Control4 shall be conducted within ten (10) business days of the receipt of the applicable Products at Control4’s specified receiving destination (except as otherwise agreed in writing, signed by both Parties).  Any Products not rejected within such ten (10) business day period shall be deemed to be accepted by Control4.

 

7.3          Rejection .  Control4 may, within ten (10) business days of receipt of any Products at Control4’s receiving destination, reject Products that fail to conform to the applicable specifications and test procedures specified in Schedule A.  In the event of a rejection, the provisions of Section 8 shall apply to any such rejected Products.

 

8.                                       Warranty .

 

8.1          Product Warranty .  Supplier warrants to Control4 and its End Customers that for a period of twenty-four (24) months from the date of sale by Control4 to the End Customer (excluding prototype or qualification units not intended for delivery to End Customers), that the Products will conform to the Specifications as per Schedule A, and will be free from manufacturing defects in materials and workmanship under normal use and service.  In the event that there is an issue with one of Supplier’s component suppliers that results in an issue for Control4 that has not been previously specified, Supplier will provide support to work with such component supplier to correct the issue.  As set forth below in Section 9, Control4 may return directly to Supplier any defective Product that does not conform to the Specifications.  For products out-of-warranty or damaged due to misuse, Control4 may request that Supplier perform repairs, in which event Control4 agrees to pay the specified repair fees as per Schedule F.  Supplier warrants such repairs for three (3) months (workmanship only).

 

8.2          Software or Firmware Warranty; Enhancement .  Where applicable and as part of the Product Warranty set forth above, Supplier shall fix, without charge, any reproducible software or firmware defect that is documented by Control4.  In the event that a reproducible software or firmware defect occurs following release of an update or upgrade to a Control4 controller, and in the event the firmware is demonstrated to work properly with the prior version of the Control4 controller, then revising the software or firmware to attain compatibility with the new release shall

 

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be categorized as an enhancement project which is performed as Additional Work as described in Schedule G.

 

8.3          Refund .  Supplier’s liability for warranty claims hereunder is limited to a refund of the purchase price then paid to Supplier for any defective Products, whether Supplier’s liability arises from any breach of Supplier’s express warranty, breach of any obligation arising from breach of warranty, or otherwise with respect to the manufacture and sale of any Products hereunder.

 

8.4          CLASS QUALITY ISSUE .  IN THE EVENT THAT THERE IS A CLASS QUALITY ISSUE WITH ANY PRODUCT PROVIDED BY SUPPLIER TO CONTROL4 THAT REQUIRES A FIELD RECALL FOR PRODUCTS UNDER WARRANTY AND IT IS DETERMINED THAT QUALITY ISSUE IS RELATED TO MANUFACTURING OR COMPONENT ISSUES OR ERRORS IN THE PRODUCT SPECIFICATION BY SUPPLIER, SUPPLIER WILL BE RESPONSIBLE FOR SPECIFIC COSTS RELATED TO THE RECALL, REPAIR, AND REPLACEMENT OF PRODUCT IN THE FIELD.

 

8.5          Additional Warranties .  Supplier hereby represents and warrants to Control4 that:

 

8.5.1       Supplier has and will convey to Control4, upon payment in full, good title to the Products, free and clear of all liens and other security interests;

 

8.5.2       The Products and any accompanying user manuals and product documentation (if any; “Materials”)), and the use, distribution, and resale thereof by Control4 do not and shall not infringe upon, misappropriate, or violate any patent, copyright, trade secret, trade name, trademark, or any other proprietary right of any third party; and

 

8.5.3       The Products and Materials shall be compliant with all applicable government or administrative electrical, environmental and emissions standards in countries for which they are designed for use (as specified in Schedule A); any additional compliance and/or markings are Control4’s responsibility.

 

8.6          No Other Warranties .  EXCEPT AS SPECIFIED HEREIN, CONTROL4 AND SUPPLIER EACH HEREBY DISCLAIM ALL EXPRESSED OR IMPLIED REPRESENTATIONS AND WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY , EXCEPT TO THE EXTENT THAT SUCH DISCLAIMERS ARE HELD TO BE LEGALLY INVALID.

 

9.                                       Return-to-Vendor Process.

 

9.1          General .  All Products returned to Supplier under a warranty claim require a Return To Vendor (RTV) number, which will be issued by Supplier upon request.  All Products returned to Supplier must have the RTV number clearly marked on the outside of each box returned.  Returned Product must be packaged in a way that prevents any damage during shipment.  Any Product that is damaged in shipment will be the responsibility of the Party making the shipment.  Control4 is responsible for one-way freight to Supplier for returned product and the Supplier is responsible for one-way freight to Control4.

 

9.2          Non-Warranty Repair .  Clear signs of Control4 caused damage or Products that appear to have been used in a manner contrary to the Product specifications are subject to be processed under “Non-Warranty Repair.” In such case, Control4 will be notified of the change in return status.  At Control4’s option, the Product can then be repaired at cost or returned “as is” to Control4.  In the case of any non-warranty repair, Control4 shall assume all shipping charges.

 

9.3          All authorized RTV’s will be either be replaced with conforming product shipped to Control4 at Supplier’s expense at the time of receipt of non-conforming product, or Supplier will issue a credit to Control4 for the full purchase price of the Product.  In the

 

10.                                Limitation of Liability .  EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT, NEITHER PARTY WILL BE LIABLE FOR ANY PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES IN ANY ACTION ARISING FROM OR RELATED TO THIS AGREEMENT, WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), INTENTIONAL CONDUCT OR OTHERWISE, INCLUDING WITHOUT LIMITATION, DAMAGES RELATING TO THE LOSS OF PROFITS, INCOME OR GOODWILL, REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW; PROVIDED, HOWEVER, THAT THIS SECTION IS NOT INTENDED TO LIMIT AND SHALL NOT BE CONSTRUED TO LIMIT THE OBLIGATIONS OF EITHER PARTY TO DEFEND AND FULLY INDEMNIFY THE OTHER PARTY AGAINST CLAIMS ASSERTED BY THIRD PARTIES TO THE EXTENT REQUIRED BY SECTION 16.

 

11.                                Change Orders

 

11.1        Change Orders Submitted by Control4 .  Control4 may, by written Change Order, request changes in the drawings, designs, specifications, software, packaging or packing requirements concerning the Product, and/or request

 

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additional services from Supplier.  Upon Supplier’s receipt of a proposed Change Order, Supplier shall determine within twenty (20) business days any corresponding change in Price, and shall provide Control4 with a statement setting forth any such Price changes.  Change Orders shall not be effective until signed by both Parties.

 

11.2        Change Orders Submitted by Supplier .  At any time, Supplier may recommend to Control4 proposed changes in the drawings, designs, specifications, process changes, or packaging or packing requirements that are expected to result in improved Product reliability or cost reduction.  Implementation of Supplier’s recommendations shall only be made upon receipt of authorization by Control4 in the form of a written Change Order.  Change Order costs shall be negotiated between Supplier and Control4 and shall be outlined in the applicable signed Change Order.

 

11.3        Effect of Change Orders .  Upon written agreement by the Parties as to any proposed Change Order, any resulting Price change shall apply to any subsequent Purchase Order with respect to which the change is effective, and Schedule B shall be amended accordingly.  Modifications or changes to Products that are not provisioned in Schedule A, which by their nature require additional effort or deliverables on the part of the Supplier, are considered as extra work and shall be invoiced separately.  The costs of such modifications are calculated on an hourly basis and charged as per Schedule G.

 

12.                                Discontinuation and Modification of Product

 

12.1        Availability of Products .  Except as provided below in Section 12.2, during the term of this Agreement, Supplier shall continue to manufacture and offer each of the Products for sale to Control4.

 

12.2        Discontinuation of a Product .  Supplier may discontinue providing any particular Product to Control4 upon nine (9) months prior written notice.  After the discontinuation of any particular Product, Supplier shall continue to honor all warranty and the RTV processes outlined in Sections 8 and 9 for twenty four (24) months.

 

12.3        Modification of Products .  Any Product modification developed specifically for Control4 by Supplier shall be work made for hire and shall be the property of Control4 (including but not limited to all IP, documentation, and tooling).  All such modifications will be maintained with latest, up to date information/items, and shall be deemed to be Control4 Confidential.

 

13.                                Payment and Invoice.

 

13.1        Payment Terms .  Unless otherwise agreed in Schedule B or a writing by Control4, payment for any Purchase Orders shall be due sixty (60) days from delivery of the Products to Control4.  All transactions must be valued and paid in United States currency.

 

13.2        Partial Shipments .  When partial shipments are made, Supplier shall invoice Control4 in accordance with this Agreement for the quantity of conforming Products shipped at the agreed upon Price for such Products,

 

14.                                Termination.

 

14.1        Termination for Breach .  Either Party may terminate this Agreement if the other Party violates any material provision of this Agreement and fails to correct or cure any such violation within thirty (30) days after receipt of written notice of such violation.  In addition, should either Party be adjudicated to be bankrupt or insolvent, or should a receiver or liquidator be appointed for its business or assets, or should an assignment be made for the benefit of such Party’s creditors, or should such Party file or have filed against it a petition for winding up its affairs, or should such Party file or have filed against it a petition under any applicable bankruptcy statutes or regulations or should such Party attempt to assign this Agreement without the written consent of the other Party being first obtained, then the other Party shall be entitled to terminate this Agreement effective immediately upon delivery of notice of such election to the other Party.

 

14.2        Effect of Termination .  Any undisputed and properly invoiced payment obligations of Control4 owed to Supplier shall survive expiration or termination of this Agreement for any reason.

 

14.3        Right to Market and Distribute .  In the any event resulting in Termination, Control4 shall retain the right to market and distribute any remaining inventory purchased from Supplier.

 

15.                                Source Code Escrow

 

15.1        Escrow Deposit .  Within thirty (30) days of the Effective Date, Supplier shall enter into a third party escrow agreement (“Software Escrow Agreement”) approved by Control4, with an escrow agent (“Software Escrow Agent”) for the benefit of Control4, and within five (5) days thereafter shall deposit a copy of the current version of the source code for the Supplier Intellectual Property identified in Schedule H with the Software Escrow Agent under the Software Escrow Agreement.  Supplier will update the escrow with the source code as soon as reasonably possible after they are made generally available to Supplier’s customers or made available to Control4 (whichever comes sooner).

 

15.2        Release Conditions .  Control4 shall have the right to obtain from the Software Escrow Agent one copy of

 

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all source code in escrow, under any of the following conditions (each a “Release Condition”):

 

15.2.1     A receiver, trustee, or similar officer is appointed for the business or property of Supplier;

 

15.2.2     Supplier files a petition in bankruptcy, files a petition seeking any reorganization, makes an arrangement, composition, or similar relief under any law regarding insolvency or relief for debtors, or makes an assignment for the benefit of creditors;

 

15.2.3     Any involuntary petition or proceeding under bankruptcy or insolvency laws is instituted against Supplier and not stayed, enjoined, or discharged within thirty (30) days;

 

15.2.4     Supplier takes any corporate action authorizing any of the foregoing;

 

15.2.5     Any similar or analogous proceedings or event to those in sub paragraphs (a) through (d) above occurs in respect of Supplier within any jurisdiction outside the USA; or

 

15.2.6     Control4 determines in good faith that Supplier has failed to or is unable to support, maintain, manufacture and/or deliver the Licensed Software, or the Products, as applicable, as required under this Agreement for a period of at least twenty (20) days, Control4 gives written notice of such determination to Supplier, and Control4 in good faith determines that Supplier has failed to support and maintain the Licensed Software or Products as required under this Agreement within ten (10) days following receipt of such notice; or

 

15.2.7     A force majeure event (as described below) prevents Supplier from supporting, maintaining, manufacturing and/or delivering the Licensed Software or Product as required under this Agreement for a period of at least thirty (30) days/

 

16.                                Escrow of Manufacturing Know-How

 

16.1        Escrow Deposit .  Within thirty (30) days of the Effective Date, Supplier shall enter into a third-party escrow agreement (“Manufacturing Escrow Agreement”) approved by Control4 with an escrow agent ( “Manufacturing Escrow Agent”), and within five (5) days thereafter shall deposit a copy of its current Manufacturing Know-How with the Manufacturing Escrow Agent under the Manufacturing Escrow Agreement.  Supplier will update the escrow with the up-to-date Manufacturing Know-How as soon as reasonably possible after material changes are known to Supplier.

 

16.2        Release Conditions .  Control4 shall have the right to obtain from the Manufacturing Escrow Agent one (1) copy of the Manufacturing Know-How, upon the occurrence of a Release Condition.

 

16.3        License Grant .  Upon release of the Manufacturing Know-How from escrow pursuant to this Section (“Escrow of Manufacturing Know-How”), Control4 may, directly or through its contractors and suppliers:

 

16.3.1     Use the Manufacturing Know-How (including without limitation all Supplier Intellectual Property Rights related thereto) to manufacture or have manufactured Products solely for resale and uses of Products otherwise permitted under this Agreement, and to improve, enhance and create Derivative Works of the Products and various components thereof.  Control4 shall own all such Derivative Works created by or for Control4.  Supplier shall execute such documents and take such steps as Control4 reasonably requests to perfect Control4’s ownership of the intellectual Property Rights in such Derivative Works.

 

16.3.2     Enter into agreements with Supplier and/or Supplier’s suppliers for the continuing supply of Products to Control4.  In addition, Control4 shall be permitted to share access to the Manufacturing Know-How with other customers and contractors of Supplier who otherwise have access to Supplier’s Manufacturing Know-How.

 

16.4        Assistance .  If Control4 elects to have the Manufacturing Know-How released from escrow pursuant to this Section, Supplier shall provide reasonable and prompt cooperation to assist Control4 in establishing a source of Products supply using the Manufacturing Know-How.

 

17.                                Force Majeure :  Neither Party to this Agreement shall be liable to the other for non-performance due to causes not reasonably within its control; including but not limited to fire, flood, war, embargo, riot, or intervention of any governmental authority, provided, however, that the Party suffering such delay immediately notifies the other Party in writing, of the reasons for the delay and, if possible, the duration of such delay.

 

18.                                Confidentiality; Non-Compete; Non-Solicitation

 

18.1        Proprietary Materials .  From time to time during the performance of this Agreement, each Party may deliver certain Proprietary Information to the other Party hereunder.  All such Proprietary Information shall be deemed “Confidential information” as described in this Section 16, and, as between the Parties hereto, the Party providing such materials shall be deemed the owner, except as otherwise provided in this Agreement.

 

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18.2        Confidentiality Obligations .  During the term of this Agreement and for a period of five (5) years thereafter, each Party hereto shall hold the Confidential Information in strict confidence and shall not permit the use or disclosure of any such Confidential Information by or to any person or entity (excluding party employees, attorneys, and subcontractors who may have access to Confidential Information on a need-to-know basis) unless such use or disclosure is specifically authorized in writing by the Party providing the Confidential Information.

 

18.3        Treatment of Confidential Information .  Each Party shall take appropriate action and utilize the same effort to safeguard Confidential Information as it utilizes to protect its own trade secrets or proprietary information, but at a minimum, each Party shall undertake reasonable precautions to protect the Confidential Information.  Without limitation on the foregoing, each Party shall: (i) advise its own employees who have access to the Confidential Information and others for whom the other Party has given written consent to disclose the Confidential Information, of the confidential nature of the Confidential Information; (ii) ensure by agreement or otherwise that the confidential Information is prohibited from being disclosed to any additional third parties except to the extent required to carry out obligations under this Agreement; and (iii) require that such Confidential Information be kept in a reasonably secure location.

 

18.4        Compliance with Law .  In the event that a Party hereto is required by law or by any legal process, including interrogatories, requests for information or documents, subpoena, civil investigative demand, depositions, or similar legal process, to disclose any Confidential Information, such Party shall provide the other Party with reasonably prompt, written notice of such request or requirement so that the other Party may seek, at its own cost, an appropriate protective order if it deems it appropriate to do so.  If, in the absence of a protective order or the receipt of a waiver hereunder, the compelled Party is nonetheless, based on the advise of the Party’s legal counsel, required by law to disclose Confidential Information, such Party may disclose only that portion of the Confidential Information which such Party’s counsel reasonably believes the Party is legally required to disclose, and will undertake reasonable efforts to obtain assurance that the Confidential Information will receive confidential treatment.

 

18.5        Use of Confidential Information .  The Confidential Information shall be used by each Party solely in the course of performing its obligations hereunder.  The Parties shall not make Confidential Information available for use by or for the benefit of any other third party, whether or not for consideration.

 

18.6        Return of Confidential Information .  Each Party will return to the other Party or destroy (and certify to the other Party that such destruction has taken place) all Confidential Information in written form provided by the other Party, including any copies, upon termination of this Agreement Notwithstanding the foregoing, neither Party shall be required to destroy any of the other Party’s Confidential Information that is stored electronically as part of such Party’s disaster recovery program (provided that such Party shall maintain the confidentiality of any such electronically retained Confidential Information).

 

18.7        Limitations .  The obligations set forth in this Section 16 do not apply if and to the extent the Party receiving Confidential Information establishes that: (i) the information disclosed to it was already known to it without obligation to keep it confidential; (ii) it received the information in good faith from a third party lawfully in possession thereof without obligation to keep such information confidential; (iii) the information was publicly known at the time of its receipt by it or has become publicly known other than by a breach of this Agreement; (iv) the information is independently developed by it without use of the other Party’s Confidential information; or (v) it was disclosed under operation of Law, provided that the receiving Party has promptly notified the disclosing Party of any legal process requiring production of Confidential Information prior to compliance and has taken all reasonable precautions, including a protective order if so requested by disclosing party to insure confidential treatment of any information.

 

19.                                Indemnification .

 

19.1        By Supplier .  Supplier will indemnify, hold harmless and defend Control4, at Supplier’s expense, against any loss, injury, expense or damage arising from any claim brought against Control4 alleging that its sale of the Products in accordance with the terms of this Agreement infringes a third party’s copyright, patent or trade secret or other intellectual property rights, and will indemnify and hold Control4 harmless against all losses in connection with any such claims.

 

19.2        By Control4 .  Control4 will indemnify, hold harmless and defend Supplier, at Control4’s expense, any claim brought against Supplier alleging that Supplier’s use, in accordance with the terms of this Agreement and where applicable, of materials provided to Supplier by Control4 infringes a third person’s copyright, trade secret or patent, and will indemnify and hold Supplier harmless against alt losses in connection with any such claims.

 

19.3        General .  The Party entitled to indemnity under this Section (“Indemnified Party”) shall give the other Party (“Indemnifying Party”) written notice of any claims resulting in an obligation of indemnification under this Section.  The Indemnified Party shall provide reasonable assistance in the defense and the settlement of a claim at the

 

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Indemnifying Party’s expense.  The Indemnifying Party shall not settle a claim without the written consent of the Indemnified Party; such consent shall not be unreasonably withheld.  The Indemnifying Party will obtain the prior written approval, which approval will not be unreasonably delayed or withheld, of the Indemnified Party in respect of any non-cash aspects of a proposed settlement of such claim from the Indemnified Party before entering into any settlement of such claim or ceasing to defend against such claim.

 

20.                                Notices .

 

20.1        General .  All notices permitted or required pursuant to this Agreement shall be written in the English language and shall be either (1) hand-delivered, (2) deposited with a nationally recognized overnight delivery service, (3) deposited with the United States Post Office, certified mail, return receipt requested, postage prepaid.  All notices other than those sent by facsimile transmission shall be deemed to have been served when actually received, or upon refusal of delivery.  All notices shall be addressed to the parties to whom such notices are intended as set forth below:

 

20.1.1     If to Control4:

 

Control4 Corporation
Attn:                                
11734 S.  Election Road, Suite 200
Salt Lake City, Utah 84020-6432

 

Copy to Control4 General Counsel

 

20.1.2     If to Supplier:

 


                                          

20.2        Change of Address .  Either Party may change its address by giving notice to the other in accordance with this Section.

 

20.3        Exceptions .  Regular business communications such as Purchase Orders, engineering Change Orders, corrective action requests, and the like may be sent via electronic mail or facsimile to appropriate individuals within either Supplier, Any regular business communication that will be relied upon as a material legal document must be delivered via one of the means noted above.

 

21.                                General .

 

21.1        Independent Contractors .  In performing their respective obligations hereunder, each of the Parties shall operate as and have the status of an independent contractor and shall not act as or be joint venturers, or an agent or employee of the other Party.  Neither Party shall have any right or authority to assume or create any obligations of any kind or to make any representations or warranties on behalf of the other party, whether express or implied, or to bind the other party in any respect whatsoever.

 

21.2        Amendments .  Any mutually agreed terms which may be specified during the continuance of this Agreement, or any extension hereof, shall be incorporated into this Agreement in the form of an addendum signed by both Parties and attached hereto.

 

21.3        No Waiver .  No failure or delay by either Party in exercising any right, power, or remedy under this Agreement shall operate as a waiver of any such right, power, or remedy.  No waiver of any term or condition of this Agreement shall be effective, unless it is in writing and signed by the Party against whom such waiver or modification is sought to be enforced.  The express waiver of any right or default hereunder shall be effective only in the instance given and shall not operate as or imply a waiver of any similar right or default on any subsequent occasion.

 

21.4        Invalidity .  Should any provision of this Agreement be determined to be void, invalid or otherwise unenforceable by any court or tribunal of competent jurisdiction, such determination shall not affect the remaining provisions hereof which shall remain in full force and effect.

 

21.5        Choice of Law; Jurisdiction

 

21.5.1     This Agreement shall be governed by and interpreted in accordance with the laws of the State of Utah, USA, without regard to provisions relating to conflicts of laws.

 

21.5.2     The Parties agree that if any legal proceeding is commenced to interpret or enforce the provisions of this Agreement, the Utah District Court in and for the County of Salt Lake shall have exclusive jurisdiction over the matter.  Control4 and Supplier each consents to the personal jurisdiction of such Court.  All legal fees including but not limited to attorney fees will be paid by the non-prevailing Party in any Segal dispute.

 

21.6        Entire Terms and Conditions .  The headings, font and bold and underlined type to the portions of this Agreement are for the convenience of the Parties only and have no legal effects.  This Agreement along with its Schedules constitutes the entire agreement between the Parties and may only be amended by an express, written document signed by the authorized representatives of both Parties.

 

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21.7        Copies .  All copies duly signed and executed by both Parties shall be deemed to be originals of this Agreement.

 

21.8        Authority .  The persons executing this Agreement on behalf of Control4 and Supplier represent and warrant that they each have the requisite corporate authority to do so and that their execution of this Agreement is not subject to any further ratification or approval whatsoever.

 

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Schedule A - Product Specifications; Product Support Materials

 

Below are the technical specifications for the Products) to be designed and/or manufactured by Supplier for Control4.  Consistent with the Agreement, upon completion of the design and effective when volume production commences, and unless an alternate timeframe is mutually agreed upon by both Parties in advance and in writing, Control4 must be notified prior to any changes to the bill of materials, approved vendor list or any other ECO changes at least four (4) weeks in advance of the implementation of any such change.  Depending on the type of change, Control4 may elect to have Supplier re-qualify such changes for the affected Product(s) to confirm there are no negative changes to form, fit, or function of the below specified Product(s).  Any Product changes not approved in advance by Control4 may be deemed non-conforming material and in such event shall be rejected and returned to Supplier for repair or replacement at Supplier’s expense.

 

1.                                       Product Specifications for all Hardware, Firmware and Licensed Software will be agreed upon in a writing signed by both parties after the Effective Date.

 

2.                                       The Acceptance Test Criteria for each of the Products set forth in Section 1 of this Schedule A will be agreed upon in a writing signed by both parties after the Effective Date.

 

3.                                       Supplier shall provide the Product Support Materials for each of the Products set forth in Section 1 of this Schedule A as identified and agreed upon in a writing signed by both parties after the Effective Date.

 

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Schedule B - Pricing and Terms of Delivery

 

1.                                       Supplier will provide the following Product(s) in accordance with Schedule A:

 

a.                                       The Products will be agreed upon in a writing signed by both Parties after the Effective Date.

 

2.                                       Product Pricing (for each Product outlined in Schedule A)

 

a.                                       Pricing for each Product identified above in Section 1.a of this Schedule B will be agreed upon in a writing signed by both Parties after the Effective Date.

 

3.                                       Sample pricing

 

a.                                       Sample Pricing for each Product identified above in Section 1.a of this Schedule B will be agreed upon in a writing signed by both Parties after the Effective Date.

 

4.                                       Terms of Delivery

 

a.                                       Delivery is Ex Works Supplier’s facility.

 

b.                                       All units shall be bundled and packaged in accordance with the Schedule A.

 

c.                                        Shipments shall include accompanying documentation for build date and test data in accordance with the Schedule A.

 

d.                                       Unless otherwise expressly stated, Control4 agrees to pay all properly executed and undisputed Invoices within forty-five (45) days of receipt of a valid invoice or the date on which the entire delivery associated with the total Purchase Order amount is delivered to and accepted by Control4, whichever is later.  This payment term as defined is in effect for any term noted in this Agreement as “payment upon/from invoice date” or “payment upon/from date of receipt of valid invoice.”

 

e.                                        Upon request, Control4 may review Supplier financial under appropriate NDA with to satisfy any query required for Supplier to establish appropriate credit limit for Control4.

 

f.                                         Supplier agrees to pay for all expedited shipping for late deliveries and as may be required to meet delivery schedule as defined by Control4 in the Agreement.

 

g.                                        Other than the customized and/or Control4 specific related materials, Control4 is not responsible for raw materials ordered by Supplier that exceed those requirements to support Control4 valid and existing Purchase Orders at component lead time.

 

h.                                       Control4 may alter a valid Purchase Order by any amount up to the date of longest component lead time plus the manufacturing and testing time required.  Control4 may alter a valid Purchase Order by any amount and upon receipt of such change request from Control4 by Supplier, and subject to various lead times of the Products, Supplier will make commercially reasonable efforts to increase or decrease the quantity of Products requested in a valid Purchase Order.

 

i.                                           Any two (2) contiguous production shipments in which Supplier provides less than 98.5% on time delivery as measured by the delivery date stated on a Purchase Order and accepted by Supplier, may be considered a material breach of the Agreement by Supplier.

 

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5.                                       Packaging Requirements:

 

a.                                       Exterior Packaging: Exterior packaging requirements for each Product identified above in Section 1a of this Schedule B will be agreed upon in a writing signed by both Parties after the Effective Date.

 

b.                                       End Customer Packaging: End customer packaging requirements for each Product identified above in Section 1.a of this Schedule B will be agreed upon in a writing signed by both Parties after the Effective Date.

 

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Schedule C - Project and Delivery Schedule; Deliverables

 

1.                                       The Project and Delivery Schedule for each Product identified in Section 1.a of Schedule B will be agreed upon in a writing signed by both Parties after the Effective Date.

 

2.                                       The Deliverables will be agreed upon in a writing signed by both Parties after the Effective Date.

 

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Schedule D - Product Support

 

Product Support

 

1.1                                If requested, Supplier shall provide operating documentation for the Product hardware and any applicable software.  Control4 shall be entitled to use the information to generate corresponding documents for Control4’s Products but Supplier shall not be held liable for any inadvertent errors associated with said documentation.

 

1.2                                Supplier shall also provide reasonable support to Control4.  However, Supplier shall not be held responsible for any misrepresentations or any error in Control4’s marketing of the Product to the public.

 

1.3                                There may be occasions where Control4 may desire Supplier, and Supplier is willing, to implement proprietary customization to hardware components of the Product.  Control4 and Supplier agree that such customization will be a separate activity and fees for such shall be quoted as NRE.  Any agreement relating to such customization shall be in writing, endorsed by Supplier and Control4, and attached to this document.  See Schedule G for more detail.

 

1.4                                Should Control4 require developmental support, such support shall be provided to Control4 on a case by case basis.

 

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Schedule E - Quality Assurance Requirements

 

The following Quality Assurance Requirements are the basis for technical and organizational conditions and processes and shall be applied by both Supplier and Control4 in order to meet quality goals of each Party.  The minimum requirements for the Quality Management System of both Parties are specified below.  Rights and duties in view of supplied Product quality are regulated.  Supplier shall provide technical and organizational conditions in order to produce and supply high quality Products.  If at any point after the failure rates at Control4’s IQA exceed 0.5%, Control4 may consider Supplier to be in material breach of this Agreement.  During the 24-month warranty period after the date of sale by Control4, if any Products have been returned for repair and shipped back to Control4 with multiple instances of test failure or failure to meet the Specifications as defined in this Agreement, then Supplier shall replace the unit with a new unit at no extra charge or cost to Control4.

 

1.                                       Quality Management System at the Supplier

Supplier agrees to introduce and maintain a Quality Management System based on ISO 9001:2000 with the obligation to set a zero-defect goal and to continuously improve performance.  Production, inspection and/or packaging equipment provided by Control4 shall be part of the Quality Management System.  Control4 is interested in the protection and maintenance of our environment.  Therefore it is desirable that Supplier introduce an Environmental Management System based on ISO 14001 or similar.

 

2.                                       Quality Management System at sub-suppliers

If production or inspection equipment, software, services, material or any other components are provided by sub-suppliers, they will be part of the Supplier’s Quality Management System.  Otherwise Supplier will secure quality by adequate actions.  Supplier shall require its sub-suppliers to introduce and maintain a Quality Management System based on ISO 9000 with the obligation for sub-suppliers to also set a zero-defect goal and to continuously improve their performance.  Control4 may demand documented evidence from Supplier showing the effectiveness of the Quality Management System utilized by his sub-suppliers.

 

3.                                       Information

If it becomes evident that quality assurance requirements (such as quality characteristics, schedules or delivered quantities) cannot be met, Supplier shall inform Control4 immediately.  Supplier shall also notify Control4 immediately of any deviations detected after delivery.  To support a rapid solution, Supplier shall disclose all necessary data and facts.  Supplier shall obtain the approval of Control4 prior to any of the following:

 

·                                           Changing the production methods, sequence and materials (also at sub-suppliers)

·                                           Changing sub-suppliers

·                                           Changing test methods/equipment

·                                           Relocating production sites

·                                           Relocating production equipment at the same site

·                                           Outsourcing

·                                           Substitution

 

In order to be able to check the impact of any of the changes listed above, Supplier shall timely inform Control4.  However, Supplier’s duty to inform Control4 will not be applied in case of non-Control4 specific standard parts.

 

4.                                       Audit

Supplier authorizes Control4 to determine through audits whether its quality assurance activities meet the requirements set forth herein.  The audit can be conducted as a system, process or product audit.  Supplier shall support even short-term audit date requests.  Reasonable restrictions imposed by Supplier to safeguard business will be accepted and confidentiality will be warranted.  In the event of quality problems, Supplier shall enable Control4 to conduct an audit at its sub-suppliers.  Control4 shall communicate audit results to Supplier.  If Control4 considers corrective actions to be needed, Supplier agrees to immediately prepare an action plan and implement it on schedule through Control4’s Supplier Corrective Action (SCAR) system.  Supplier shall notify Control4 of all progress made.

 

5.                                       Product and process agreements

The Products shall comply with agreed or warranted conditions (e.g.  Specification, data sheets, drawings, sample parts).  Supplier shall promptly examine all documentation provided by Control4 (e.g.  specifications, data sheets, drawings).  If the Control4 documentation is obviously incorrect, unclear, incomplete or obviously different than a sample part, Supplier shall inform Control4 in writing prior to start of mass production or performance of services.

 

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a.                                       Mass production and First Article Acceptance Report

Prior to starting mass production, Supplier shall, if not agreed otherwise, submit a mass production process validation plan, similar to PPAP per QS9000.  Verification of applicability and capability shall be provided.  Prior to starting mass production, Supplier shall submit initial samples of the product built under mass production conditions in agreed quantities and on schedule.  Mass production may not be started until it is released by Control4 through the FAAR (First Article Acceptance Report) program.

 

b.                                       Process capability

For all process characteristics, Supplier shall perform process planning (work plans, test plans, operating supplies, tooling, machinery, etc.).  For functional and process critical characteristics Supplier shall review the suitability of the manufacturing facilities and shall document the results.  Documented test results and process data must be made available to Control4 electronically.  Product quality is monitored with periodic audits.  “Special characteristics,” identified and agreed on between Control4 and Supplier shall, if applicable, be monitored electronically by statistic process control.  Special characteristics and process capabilities shall be determined and documented.  If not agreed otherwise, the following values shall be maintained.

 

Type Term Capability

Machine capability MFU Cm k   > 1,33

Short-term process capability PFU Pp k   > 1,

Long-term process capability PFU Cp k   > 1,33

If the value above cannot be met, Supplier shall perform and document a 100% inspection prior to shipping, until the root cause has been determined and fixed.  In the case of process disruptions and quality deviations, Supplier shall analyze the causes, shall initiate improvement measures and review their effectiveness.

 

C pk 

 

Sigma level ( s )

 

Area under the probability density function  F ( s )

 

Process yield

 

Process fallout (in terms of DPMO/PPM)

 

 

 

 

 

 

 

 

 

 

 

0.33  

 

1

 

0.6826894921

 

68.27

%

317311

 

0.67  

 

2

 

0.9544997361

 

95.45

%

45500

 

1.00 

 

3

 

0.9973002039

 

99.73

%

2700

 

1.33 

 

4

 

0.9999366575

 

99.99

%

63

 

1.67 

 

5

 

0.9999994267

 

99.9999

%

1

 

2.00 

 

6

 

0.9999999980

 

99.9999998

%

0.002

 

 

6.                                       Production records

Supplier shall maintain the following documents:

·                   Work plan for every part

·                   Test plan for every part

·                   Inspection results for every batch

·                  Process settings for every batch

·                   Material used for every batch

·                   Material RoHS certificate for every part

In general, Supplier shall maintain evidence of the documents above.  Control4 may demand documented evidence.

 

7.                                       Serial production, documentation, product identification

Supplier shall record and document quality assurance measures, especially test and inspection results, and orderly retain these records electronically.  Control4 shall have the ability to query the Supplier database by unit MAC ID or unique Unit serial number to access electronically stored data.  Documents and records shall be retained for at least 7 years.  All changes made on the product and in the process chain shall be documented by Supplier in a product history, and shall be submitted to Control4 upon request if its PLM system is separate from Control4’s Arena PLM system.  Upon request Supplier shall enable Control4 to access the records electronically.  Supplier shall use process descriptions to regulate the control of all data and documents (including external documents like standards and customer drawings) and implement them effectively.  Based on the agreements herein, Supplier may be required to provide serialization documentation with every shipment.

 

8.                                       Packaging, identification, traceability

Supplier shall deliver products in approved shipping containers in order to prevent damage and quality impairments (e.g.  scratches, contamination, corrosion, chemical reaction).  Supplier agrees to identify the products, parts and the packaging in accordance with agreements reached with Control4.  Supplier must ensure that packed products will also remain legible during shipping and storage. 

 

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Supplier agrees to ensure the traceability of the products produced.  Measures must be instituted to ensure that if a defect is detected, the defective parts/products/batches etc., are traceable and contained.  If Control4 makes production and test equipment available to Supplier, especially equipment and fixtures related to deliveries, and then they must be labeled as Control4 property.  Supplier is responsible for protecting this property from damage and ensuring proper function, maintenance and repair.

 

9.                                       Control4’s quality expectation

Supplier is committed in the same way as Control4 towards its customers to the zero-defect goal in business with Control4.  If the zero-defect goal is not attainable short-term, Control4 together with Supplier shall set temporary upper limits for defect rates as an interim goal.  Supplier shall propose and agree with Control4 on improvement actions.  If the defect rate is below the upper limit, this does not release Supplier from its responsibility to process all complaints and to proceed with continuous improvement activities.  Based on a periodic Supplier rating, the quality performance of Supplier will be monitored and reported by Control4.  It is expected that Supplier will monitor its quality performance as well.  Within the warranty period of 24 months from the date of sale by Control4, Supplier guarantees that all products, which are only assembled or sold without modification, are free of defects, which might be caused by material defects or poor processing.  Control4 shall limit incoming inspections to externally apparent shipping damage and conformation of the quantity and part number of the ordered product, according to supplied shipping documentation.  Discrepancies are reported without delay.  If the defect is not detected directly after delivery, Supplier will waive the claim of late notification of defects within the warranty period.  Supplier must adapt its Quality Management System and quality assurance activities to this limited incoming inspection.  If, in exceptional cases, Supplier is unable to supply products conforming to the specification, Supplier must obtain a concession from Control4 prior to delivery.  Supplier agrees to implement comments and ideas from Control4 to improve product quality by modifying production and quality assurance activities to the extent possible.  If the supply of components is not conforming to Specifications, should threaten to cause a production interruption at Control4 or its customers, Supplier, in consultation with Control4, must seek a remedy through suitable immediate actions for which Supplier is financially responsible (substitute delivery, sorting, rework, special shifts, rush shipment etc.).  Supplier then analyses defects without delay, with support from Control4 to the extent necessary and possible.  Defective parts shall be returned to Supplier.  Supplier agrees to analyze each deviation and to notify Control4 promptly of the cause of the deviation, initiated corrective and preventive measures as well as their effectiveness.

 

10.                                Safety and Environmental Regulations (RoHS, REACH)

Supplier commits to complying with all legal regulations regarding the environment, health, and striving to avoid all negative effects on humans and environment through an adequate organization and realization of environmental protection in the company.  For this, the implementation and further development of an Environmental and Occupational Safety Management Systems is beneficial.  Supplier is obligated to fulfill the requirements of the RoHS EC-guideline 2002/957EG and the REACH regulation (EC) no.  1907/2006.  If there is an exception for these requirements it must be clearly communicated to Control4 in writing for every single case.

 

11.                                Affected parts

These quality assurance requirements are valid for all parts and sub-assemblies which are supplied by Supplier.

 

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Schedule F - Out-of-Warranty Repair Process and Fees

 

Out-of-Warranty Repair Process Supplier to Control4

 

1.1                                The out-of-warranty Repair Process shall be the same as the RTV Process except that repair time, component cost and shipping and handling charges shall be invoiced to Control4.

 

1.2                                Out-of-Warranty Repair Fees to Control4 shall be charged per incident based on the work and the components involved, plus labor cost

 

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Schedule G - Customizations and Additional Work

 

Pricing for Extra Work that has been requested by Control4 and agreed to by Supplier with an executed Change Order or Request for Proposal is to be quoted on a case by case basis.  Control4 is not responsible for any work performed by Supplier without a valid Control4 Purchase Order.

 

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Schedule H - Control4 Intellectual Property; Supplier Intellectual Property

 

1.                                       The Control4 Intellectual Property will be identified in a writing signed by Control4 after the Effective Date.

 

2.                                       Supplier’s Intellectual Property consists of the following:

 

a.                                       Multimedia Communication System, and Television Device and Core Module as identified in Taiwanese Application No.  099100089, filed January 5, 2010.

 

b.                                       Digital Home / Space Management System and Method, as identified in the attached application.

 

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Exhibit 10.11

 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “ Agreement ”) dated as of June 17, 2013 (the “ Effective Date ”) between SILICON VALLEY BANK , a California corporation with a loan production office located at 2755 East Cottonwood Parkway, Suite 540, Salt Lake City, Utah 84121 (“ Bank ”), and CONTROL4 CORPORATION , a Delaware corporation (“ Borrower ”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. This Agreement amends and restates in its entirety that certain Loan and Security Agreement dated as of December 29, 2005, between Borrower and Bank, as amended by that certain Amendment to Loan and Security Agreement dated as of May 31, 2007, between Borrower and Bank, as amended by that certain Amendment to Loan and Security Agreement dated as of February 15, 2008, between Borrower and Bank, as amended by that certain Amendment to Loan and Security Agreement dated as of April 30, 2008, between Borrower and Bank, as amended by that certain Amendment to Loan and Security Agreement dated as of June 30, 2008, between Borrower and Bank, as amended by that certain Amendment to Loan and Security Agreement dated as of April 17, 2009, between Borrower and Bank, as amended by that certain Amendment to Loan and Security Agreement dated as of December 15, 2009, between Borrower and Bank, as amended by that certain Amendment to Loan and Security Agreement dated as of December 30, 2010, between Borrower and Bank, as amended by that certain Amendment to Loan and Security Agreement dated as of June 13, 2011, between Borrower and Bank, and as further amended by that certain Amendment to Loan and Security Agreement dated as of September 21, 2012, between Borrower and Bank (the “ Prior Agreement ”).  The parties agree that the Prior Agreement is hereby superseded and replaced in its entirety by this Agreement, and the parties hereto further agree as follows:

 

1.                                       ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following GAAP.  Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

 

2.                                       LOAN AND TERMS OF PAYMENT

 

2.1                                Promise to Pay .  Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

 

2.1.1                      Revolving Advances.

 

(a)                                  Availability .  Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount.  Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

 

(b)                                  Termination; Repayment .  The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

 

2.1.2                      Equipment Advances.

 

(a)                                  Availability .  Subject to the terms and conditions of this Agreement, during the Draw Period, Bank shall make advances (each, an “ Equipment Advance ” and, collectively, “ Equipment Advances ”) not exceeding the Equipment Line.  Equipment Advances may only be used to finance Eligible Equipment purchased within ninety (90) days (determined based upon the applicable invoice date of such Eligible Equipment) before the date of each Equipment Advance.  All Eligible Equipment must have been new when purchased by Borrower, except for such Eligible Equipment that is disclosed in writing to Bank by Borrower, and that Bank in its sole discretion has agreed to finance, prior to being financed by Bank.  No Equipment Advance may exceed one hundred

 



 

percent (100.0%) of the total invoice for Eligible Equipment (excluding taxes, shipping, warranty charges, freight discounts and installation expenses relating to such Eligible Equipment except to the extent such are allowed to be financed pursuant hereto as Other Equipment).  Notwithstanding the foregoing, (i) the initial Equipment Advance hereunder may be used to reimburse Borrower for Eligible Equipment purchased on or after January 1, 2013, and (ii) up to an aggregate of One Million Dollars ($1,000,000.00) of the Equipment Advances may be used for (x) tooling Equipment, provided such tooling Equipment is otherwise Eligible Equipment, and (y) Eligible Equipment maintained by Borrower outside of the State of Utah.  Unless otherwise agreed to by Bank, not more than thirty percent (30.0%) of the proceeds of the Equipment Line shall be used to finance Other Equipment.  Each Equipment Advance must be in an amount of at least Two Hundred Fifty Thousand Dollars ($250,000.00).   After repayment, no Equipment Advance may be reborrowed.

 

(b)                                  Interest Period .  Commencing on the first Payment Date of the month following the month in which the Funding Date of an Equipment Advance occurs (or commencing on the Funding Date if the Funding Date is the first calendar day of the month), and continuing on each Payment Date thereafter, Borrower shall make monthly payments of interest, in arrears, on the principal amount of each Equipment Advance at the rate set forth in Section 2.3(a)(ii).

 

(c)                                   Repayment .  Commencing on June 1, 2014, and continuing on the Payment Date of each month thereafter, Borrower shall repay each Equipment Advance in (i) forty-two (42) equal monthly installments of principal, plus (ii) monthly payments of accrued interest at the rate set forth in Section 2.3(a)(ii).  The final payment due on the Equipment Maturity Date shall include all outstanding principal and all accrued unpaid interest and all other Obligations with respect to the Equipment Advances.  Borrower may prepay any of the Equipment Advances, in whole or in part, at any time without a prepayment fee or penalty.

 

2.1.3                      First Equipment Advance Loan .

 

(a)                                  Availability .  Subject to the satisfaction of the terms and conditions of this Agreement, on the Effective Date, Bank shall make one (1) term loan (the “ First Equipment Advance Loan ”) to Borrower in an amount equal to Four Hundred Forty-Four Thousand Four Hundred Forty-Four Dollars and Thirty-Two Cents ($444,444.32) to refinance in full the outstanding principal amount of the “Equipment Advances” pursuant to Section 2.1.6 of the Prior Agreement.

 

(b)                                  Repayment .  Commencing on the first Payment Date following the Effective Date, and continuing on each Payment Date thereafter, Borrower shall repay the First Equipment Advance Loan in (i) seven (7) consecutive equal installments of principal, plus (ii) monthly payments of accrued interest at the effective rate of interest as set forth in Section 2.3(a)(iii) (each a “ First Equipment Advance Loan Payment ”).  Borrower’s final First Equipment Advance Loan Payment, due on the First Equipment Maturity Date, shall include all outstanding principal and accrued unpaid interest and all other Obligations with respect to the First Equipment Advance Loan.  Once repaid, the First Equipment Advance Loan may not be reborrowed.

 

2.1.4                      Second Equipment Advance Loan .

 

(a)                                  Availability .  Subject to the satisfaction of the terms and conditions of this Agreement, on the Effective Date, Bank shall make one (1) term loan (the “ Second Equipment Advance Loan ”) to Borrower in an amount equal to Seven Hundred Seventy-Nine Thousand Eight Hundred Eighty Dollars and Eighty-Eight Cents ($779,880.88) to refinance in full the outstanding principal amount of the “Equipment Advances II” pursuant to Section 2.1.7 of the Prior Agreement.

 

(b)                                  Repayment .  Commencing on the first Payment Date following the Effective Date, and continuing on each Payment Date thereafter, Borrower shall repay the Second Equipment Advance Loan in (i) twenty-eight (28) consecutive equal installments of principal, plus (ii) monthly payments of accrued interest at the effective rate of interest as set forth in Section 2.3(a)(iv) (each a “ Second Equipment Advance Loan Payment ”).  Borrower’s final Second Equipment Advance Loan Payment, due on the Second Equipment Maturity Date, shall include all outstanding principal and accrued unpaid interest and all other Obligations with respect to the Second Equipment Advance Loan.  Once repaid, the Second Equipment Advance Loan may not be reborrowed.

 

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2.1.5                      Third Equipment Advance Loan .

 

(a)                                  Availability .  Subject to the satisfaction of the terms and conditions of this Agreement, on the Effective Date, Bank shall make one (1) term loan (the “ Third Equipment Advance Loan ”) to Borrower in an amount equal to Two Million Dollars ($2,000,000.00) to refinance in full the outstanding principal amount of the “Equipment Advances III” pursuant to Section 2.1.8 of the Prior Agreement.

 

(b)                                  Repayment .  Commencing on the first Payment Date following the Effective Date, and continuing on each Payment Date thereafter, Borrower shall repay the Third Equipment Advance Loan in (i) forty-two (42) consecutive equal installments of principal, plus (ii) monthly payments of accrued interest at the effective rate of interest as set forth in Section 2.3(a)(v) (each a “ Third Equipment Advance Loan Payment ”).  Borrower’s final Third Equipment Advance Loan Payment, due on the Third Equipment Maturity Date, shall include all outstanding principal and accrued unpaid interest and all other Obligations with respect to the Third Equipment Advance Loan.  Once repaid, the Third Equipment Advance Loan may not be reborrowed.

 

2.2                                Overadvances .  If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either (a) the Revolving Line or (b) the aggregate of (i) the Borrowing Base, plus (ii) the Non-Formula Amount, Borrower shall immediately pay to Bank in cash the amount of such excess (such excess, the “ Overadvance ”). Without limiting Borrower’s obligation to repay Bank any Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.

 

2.3                                Payment of Interest on the Credit Extensions.

 

(a)                                  Interest Rate .

 

(i)                                      Advances .  Each Advance shall bear interest on the outstanding principal amount thereof from the date when made, continued or converted until paid in full at a rate per annum equal to (i) for Prime Rate Advances, the Prime Rate, and (ii) for LIBOR Advances, the LIBOR Rate plus the LIBOR Rate Margin.  On and after the expiration of any Interest Period applicable to any LIBOR Advance outstanding on the date of occurrence of an Event of Default or acceleration of the Obligations, the amount of such LIBOR Advance shall, during the continuance of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Prime Rate plus four percent (4.0%).  Pursuant to the terms hereof, interest on each Advance shall be paid in arrears on each Interest Payment Date.  Interest shall also be paid on the date of any prepayment of any Advance pursuant to this Agreement for the portion of any Advance so prepaid and upon payment (including prepayment) in full thereof.  All accrued but unpaid interest on the Advances shall be due and payable on the Revolving Line Maturity Date.

 

(ii)                                   Equipment Advances .  Subject to Section 2.4(e), the principal amount outstanding for each Equipment Advance shall accrue interest at a floating per annum rate equal to one half of one percent (0.50%) above the Prime Rate, which interest shall be payable on the Payment Date.

 

(iii)                                First Equipment Advance Loan .  Subject to Section 2.4(e), the principal amount outstanding under the First Equipment Advance Loan shall accrue interest at a floating per annum rate equal to one half of one percent (0.50%) above the Prime Rate, which interest shall be payable on the Payment Date.

 

(iv)                               Second Equipment Advance Loan .  Subject to Section 2.4(e), the principal amount outstanding under the Second Equipment Advance Loan shall accrue interest at a floating per annum rate equal to one half of one percent (0.50%) above the Prime Rate, which interest shall be payable on the Payment Date.

 

(v)                                  Third Equipment Advance Loan .  Subject to Section 2.4(e), the principal amount outstanding under the Third Equipment Advance Loan shall accrue interest at a floating per annum

 

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rate equal to one half of one percent (0.50%) above the Prime Rate, which interest shall be payable on the Payment Date.

 

(b)                                  Prime Rate Advances .  Each change in the interest rate of the Prime Rate Advances based on changes in the Prime Rate shall be effective on the effective date of such change and to the extent of such change.

 

(c)                                   LIBOR Advances .  The interest rate applicable to each LIBOR Advance shall be determined in accordance with Section 3.5(a) hereunder.  Subject to Sections 3.6 and 3.7, such rate shall apply during the entire Interest Period applicable to such LIBOR Advance, and interest calculated thereon shall be payable on the Interest Payment Date applicable to such LIBOR Advance.

 

(d)                                  Computation of Interest .  Any interest hereunder will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days in the case of any Credit Extension outstanding.  In computing interest on any Credit Extension, the date of the making of such Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.

 

(e)                                   Default Rate .  Except as otherwise provided in Section 2.3(a)(i), upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is four percent (4.0%) above the rate that would otherwise be applicable thereto (the “ Default Rate ”).  Payment or acceptance of the increased interest provided in this Section 2.3(e) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

 

2.4                                Fees .  Borrower shall pay to Bank:

 

(a)                                  Revolving Line Commitment Fee .  A fully earned, non-refundable Revolving Line commitment fee of Twenty Thousand Dollars ($20,000.00), on May 29, 2013;

 

(b)                                  Revolving Line Anniversary Fee . A fully earned, non-refundable Revolving Line anniversary fee (the “ Anniversary Fee ”) of Twenty Thousand Dollars ($20,000.00) shall be earned as of the Effective Date, and shall be due and payable on the earlier of (i) May 29, 2014, (ii) the early termination of this Agreement, or (iii) an Event of Default;

 

(c)                                   Equipment Line Commitment Fee .  A fully earned, non-refundable Equipment Line commitment fee of Six Thousand Eight Hundred Seventy-Five Dollars ($6,875.00), on the Effective Date;

 

(d)                                  Unused Revolving Line Facility Fee .  Payable quarterly in arrears on the first day of each calendar quarter occurring prior to the Revolving Line Maturity Date, and on the Revolving Line Maturity Date, a fee (the “ Unused Revolving Line Facility Fee ”) in an amount equal to 0.375% per annum of the average unused portion of the Revolving Line, as determined by Bank.  The unused portion of the Revolving Line, for purposes of this calculation, shall be calculated on a calendar year basis and shall equal the difference between (i) the Revolving Line, and (ii) the average for the period of the daily closing balance of the Revolving Line outstanding; and

 

(e)                                   Bank Expenses .  All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due(or, if no stated due date, upon demand by Bank).

 

(f)                                    Fees Fully Earned .  Unless otherwise provided in this Agreement or in a separate writing by Bank, Borrower shall not be entitled to any credit, rebate, or repayment of any fees earned by Bank pursuant to this Agreement notwithstanding any termination of this Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder.  Bank may deduct amounts owing by Borrower under the clauses of this Section 2.4 pursuant to the terms of Section 2.5(c).  Bank shall provide Borrower written notice of deductions made from the Designated Deposit Account pursuant to the terms of the clauses of this Section 2.4.

 

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2.5                                Payments; Application of Payments; Debit of Accounts.

 

(a)                                  All payments to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when due.  Payments of principal and/or interest received after 12:00 p.m. Pacific time are considered received at the opening of business on the next Business Day.  When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.

 

(b)                                  Bank has the exclusive right to determine the order and manner in which all payments with respect to the Obligations may be applied.  Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.

 

(c)                                   Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due.  These debits shall not constitute a set-off.

 

3.                                       CONDITIONS OF LOANS

 

3.1                                Conditions Precedent to Initial Credit Extension .  Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

 

(a)                                  duly executed original signatures to the Loan Documents;

 

(b)                                  duly executed original signatures to the Control Agreement(s);

 

(c)                                   the Operating Documents and long-form good standing certificates of Borrower certified by the Secretary of State (or equivalent agency) of Borrower’s jurisdiction of organization or formation and each jurisdiction in which Borrower is qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Effective Date;

 

(d)                                  duly executed original signatures to the completed Borrowing Resolutions for Borrower;

 

(e)                                   certified copies, dated as of a recent date, of financing statement searches, as Bank may request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

 

(f)                                    the Perfection Certificate of Borrower, together with the duly executed original signature thereto;

 

(g)                                   a bailee’s waiver in favor of Bank for each location where Borrower maintains property with a third party, by each such third party, together with the duly executed original signatures thereto;

 

(h)                                  evidence satisfactory to Bank that the insurance policies and endorsements required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses or endorsements in favor of Bank; and

 

(i)                                      payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.

 

3.2                                Conditions Precedent to all Credit Extensions .  Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

 

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(a)                                  except as otherwise provided in Section 3.4, timely receipt of an executed Payment/Advance Form and/or Notice of Borrowing, as applicable;

 

(b)                                  the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the Payment/Advance Form and/or Notice of Borrowing, as applicable, and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension.  Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

 

(c)                                   Bank determines to its satisfaction that there has not been any material impairment in the general affairs, management, results of operation, financial condition or the prospect of repayment of the Obligations, or any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank.

 

3.3                                Covenant to Deliver .  Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension.  Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.

 

3.4                                Procedures for Borrowing.

 

(a)                                  Advances .

 

(i)                                      Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, an Advance shall be made upon Borrower’s irrevocable written notice delivered to Bank by electronic mail in the form of a Notice of Borrowing executed by an Authorized Signer or without instructions if any Advances is necessary to meet Obligations which have become due.  Such Notice of Borrowing must be received by Bank prior to 12:00 p.m. Pacific time, (i) at least three (3) Business Days prior to the requested Funding Date, in the case of any LIBOR Advance, and (ii) on the requested Funding Date, in the case of a Prime Rate Advance, specifying: (1) the amount of the Advance; (2) the Currency in which such Advance shall be denominated; (3) the requested Funding Date; (4) whether the Advance is to be comprised of LIBOR Advances or Prime Rate Advances; and (5) the duration of the Interest Period applicable to any such LIBOR Advances included in such notice; provided that if the Notice of Borrowing shall fail to specify the duration of the Interest Period for any Advance comprised of LIBOR Advances, such Interest Period shall be one (1) month.

 

(ii)                                   On the Funding Date, Bank shall credit proceeds of an Advance to the Designated Deposit Account denominated in the same Currency as the Currency requested with respect to the Advance and, subsequently, shall transfer such proceeds by wire transfer to such other account as Borrower may instruct in the Notice of Borrowing.  No Advances shall be deemed made to Borrower, and no interest shall accrue on any such Advance, until the related funds have been deposited in the applicable Designated Deposit Account.

 

(b)                                  Equipment Advances .  Subject to the prior satisfaction of all other applicable conditions to the making of an Equipment Advance set forth in this Agreement, to obtain an Equipment Advance, Borrower must notify Bank (which notice shall be irrevocable) by electronic mail or facsimile no later than 12:00 p.m. Pacific time two (2) Business Days before the proposed Funding Date.  The notice shall be a Payment/Advance Form, must

 

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be signed by a Responsible Officer or designee, and shall include a copy of the invoice for the Equipment being financed.  If Borrower satisfies the conditions of each Equipment Advance, Bank shall disburse such Equipment Advance by transfer to the Designated Deposit Account.

 

3.5                                Conversion and Continuation Elections.

 

(a)                                  So long as (i) no Event of Default exists; (ii) Borrower shall not have sent any notice of termination of this Agreement; and (iii) Borrower shall have complied with such customary procedures as Bank has established from time to time for Borrower’s requests for LIBOR Advances, Borrower may, upon irrevocable written notice to Bank:

 

(1)                                  elect to convert on any Business Day, Prime Rate Advances into LIBOR Advances;

 

(2)                                  elect to continue on any Interest Payment Date any LIBOR Advances maturing on such Interest Payment Date; or

 

(3)                                  elect to convert on any Interest Payment Date any LIBOR Advances maturing on such Interest Payment Date into Prime Rate Advances.

 

(b)                                  Borrower shall deliver a Notice of Conversion/Continuation by electronic mail to be received by Bank prior to 12:00 p.m. Pacific time (i) at least three (3) Business Days in advance of the Conversion Date or Continuation Date, if any Advances are to be converted into or continued as LIBOR Advances; and (ii) on the Conversion Date, if any Advances are to be converted into Prime Rate Advances, in each case specifying the:

 

(1)                                  proposed Conversion Date or Continuation Date;

 

(2)                                  aggregate amount of the Advances to be converted or continued;

 

(3)                                  nature of the proposed conversion or continuation; and

 

(4)                                  if the resulting Advance is to be a LIBOR Advance, the duration of the requested Interest Period.

 

(c)                                   If upon the expiration of any Interest Period applicable to any LIBOR Advances, Borrower shall have timely failed to select a new Interest Period to be applicable to such LIBOR Advances or request to convert a LIBOR Advance into a Prime Rate Advance, Borrower shall be deemed to have elected to convert such LIBOR Advances into Prime Rate Advances.

 

(d)                                  Any LIBOR Advances shall, at Bank’s option, convert into Prime Rate Advances in the event that (i) an Event of Default exists, or (ii) the aggregate principal amount of the Prime Rate Advances which have been previously converted to LIBOR Advances, or the aggregate principal amount of existing LIBOR Advances continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceeds the lesser of the Revolving Line or the Borrowing Base.  Borrower agrees to pay Bank, upon demand by Bank (or Bank may, at its option, debit the Designated Deposit Account or any other account Borrower maintains with Bank) any amounts required to compensate Bank for any loss (including loss of anticipated profits), cost, or expense incurred by Bank, as a result of the conversion of LIBOR Advances to Prime Rate Advances pursuant to this Section 3.5(d).

 

(e)                                   Notwithstanding anything to the contrary contained herein, Bank shall not be required to purchase Dollar deposits in the London interbank market or other applicable LIBOR market to fund any LIBOR Advances, but the provisions hereof shall be deemed to apply as if Bank had purchased such deposits to fund the LIBOR Advances.

 

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3.6                                Special Provisions Governing LIBOR Advances .   Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to LIBOR Advances as to the matters covered:

 

(a)                                  Determination of Applicable Interest Rate .  As soon as practicable on each Interest Rate Determination Date, Bank shall determine (which determination shall, absent manifest error in calculation, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Advances for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Borrower.

 

(b)                                  Inability to Determine Applicable Interest Rate .  In the event that Bank shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any LIBOR Advance, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such LIBOR Advance on the basis provided for in the definition of LIBOR, Bank shall on such date give notice (by facsimile or by telephone confirmed in writing) to Borrower of such determination, whereupon (i) no Advances may be made as, or converted to, LIBOR Advances until such time as Bank notifies Borrower that the circumstances giving rise to such notice no longer exist, and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by Borrower with respect to LIBOR Advances in respect of which such determination was made shall be deemed to be rescinded by Borrower.

 

(c)                                   Compensation for Breakage or Non-Commencement of Interest Periods .  If (i) for any reason, other than a default by Bank or any failure of Bank to fund LIBOR Advances due to impracticability or illegality under Sections 3.7(c) and 3.7(d) of this Agreement, a borrowing or a conversion to or continuation of any LIBOR Advance does not occur on a date specified in a Notice of Borrowing or a Notice of Conversion/Continuation, as the case may be, or (ii) any complete or partial principal payment or reduction of a LIBOR Advance, or any conversion of any LIBOR Advance, occurs on a date prior to the last day of an Interest Period applicable to that LIBOR Advance, including due to voluntary or mandatory prepayment or acceleration, then, in each case, Borrower shall compensate Bank, upon written request by Bank, for all losses and expenses incurred by Bank in an amount equal to the excess, if any, of:

 

(A)                                the amount of interest that would have accrued on the amount (1) not borrowed, converted or continued as provided in clause (i) above, or (2) paid, reduced or converted as provided in clause (ii) above, for the period from (y) the date of such failure to borrow, convert or continue as provided in clause (i) above, or the date of such payment, reduction or conversion as provided in clause (ii) above, as the case may be, to (z) in the case of a failure to borrow, convert or continue as provided in clause (i) above, the last day of the Interest Period that would have commenced on the date of such borrowing, conversion or continuing but for such failure, and in the case of a payment, reduction or conversion prior to the last day of an Interest Period applicable to a LIBOR Advance as provided in clause (ii) above, the last day of such Interest Period, in each case at the applicable rate of interest or other return for such LIBOR Advance(s) provided for herein (excluding, however, the LIBOR Rate Margin included therein, if any), over

 

(B)                                the interest which would have accrued to Bank on the applicable amount provided in clause (A) above through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to the definition of LIBOR Rate on the date of such failure to borrow, convert or continue as provided in clause (i) above, or the date of such payment, reduction or conversion as provided in clause (ii) above, as the case may be, for a period equal to the remaining period of such applicable Interest Period provided in clause (A) above.

 

Bank’s request shall set forth the manner and method of computing such compensation and such determination as to such compensation shall be conclusive absent manifest error.

 

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(d)                                  Assumptions Concerning Funding of LIBOR Advances .  Calculation of all amounts payable to Bank under this Section 3.6 and under Section 3.7 shall be made as though Bank had actually funded each relevant LIBOR Advance through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to the definition of LIBOR Rate in an amount equal to the amount of such LIBOR Advance and having a maturity comparable to the relevant Interest Period; provided, however, that Bank may fund each of its LIBOR Advances in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 3.6 and under Section 3.7.

 

(e)                                   LIBOR Advances After Default .  After the occurrence and during the continuance of an Event of Default, (i) Borrower may not elect to have an Advance be made or continued as, or converted to, a LIBOR Advance after the expiration of any Interest Period then in effect for such Advance and (ii) subject to the provisions of Section 3.6(c), any Notice of Conversion/Continuation given by Borrower with respect to a requested conversion/continuation that has not yet occurred shall, at Bank’s option, be deemed to be rescinded by Borrower and be deemed a request to convert or continue Advances referred to therein as Prime Rate Advances.

 

3.7                                Additional Requirements/Provisions Regarding LIBOR Advances.

 

(a)                                  Borrower shall pay Bank, upon demand by Bank, from time to time such amounts as Bank may determine to be necessary to compensate it for any costs incurred by Bank that Bank determines are attributable to its making or maintaining of any amount receivable by Bank hereunder in respect of any LIBOR Advances relating thereto (such increases in costs and reductions in amounts receivable being herein called “ Additional Costs ”), in each case resulting from any Regulatory Change which:

 

(i)                                      changes the basis of taxation of any amounts payable to Bank under this Agreement in respect of any LIBOR Advances (other than changes which affect taxes measured by or imposed on the overall net income of Bank by the jurisdiction in which Bank has its principal office);

 

(ii)                                   imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with, or other liabilities of Bank (including any LIBOR Advances or any deposits referred to in the definition of LIBOR); or

 

(iii)                                imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities).

 

Bank will notify Borrower of any event occurring after the Effective Date which will entitle Bank to compensation pursuant to this Section 3.7(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation.  Bank will furnish Borrower with a statement setting forth the basis and amount of each request by Bank for compensation under this Section 3.7(a).  Determinations and allocations by Bank for purposes of this Section 3.7(a) of the effect of any Regulatory Change on its costs of maintaining its obligations to make LIBOR Advances, of making or maintaining LIBOR Advances, or on amounts receivable by it in respect of LIBOR Advances, and of the additional amounts required to compensate Bank in respect of any Additional Costs, shall be conclusive absent manifest error.

 

(b)                                  If Bank shall determine that the adoption or implementation of any applicable law, rule, regulation, or treaty regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by Bank (or its applicable lending office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on capital of Bank or any person or entity controlling Bank (a “ Parent ”) as a consequence of its obligations hereunder to a level below that which Bank (or its Parent) could have achieved but for such adoption, change, or compliance (taking into consideration policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time, within five (5) days after demand by Bank, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction.  A statement of Bank claiming compensation under this Section 3.7(b) and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error.

 

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Notwithstanding anything to the contrary in this Section 3.7, Borrower shall not be required to compensate Bank pursuant to this Section 3.7(b) for any amounts incurred more than nine (9) months prior to the date that Bank notifies Borrower of Bank’s intention to claim compensation therefor; provided that if the circumstances giving rise to such claim have a retroactive effect, then such nine-month period shall be extended to include the period of such retroactive effect.  The obligations of the Borrower arising pursuant to this Section 3.7(b) shall survive the Revolving Line Maturity Date, the termination of this Agreement and the repayment of all Obligations.

 

(c)                                   If, at any time, Bank, in its sole and absolute discretion, determines that (i) the amount of LIBOR Advances for periods equal to the corresponding Interest Periods are not available to Bank in the offshore currency interbank markets, or (ii) LIBOR does not accurately reflect the cost to Bank of lending the LIBOR Advances, then Bank shall promptly give notice thereof to Borrower.  Upon the giving of such notice, Bank’s obligation to make the LIBOR Advances shall terminate; provided, however, LIBOR Advances shall not terminate if Bank and Borrower agree in writing to a different interest rate applicable to LIBOR Advances.

 

(d)                                  If it shall become unlawful for Bank to continue to fund or maintain any LIBOR Advances, or to perform its obligations hereunder, upon demand by Bank, Borrower shall prepay the LIBOR Advances in full with accrued interest thereon and all other amounts payable by Borrower hereunder (including, without limitation, any amount payable in connection with such prepayment pursuant to Section 3.6(c)).  Notwithstanding the foregoing, to the extent a determination by Bank as described above relates to a LIBOR Advance then being requested by Borrower pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Borrower shall have the option, subject to the provisions of Section 3.6(c), to (i) rescind such Notice of Borrowing or Notice of Conversion/Continuation by giving notice (by facsimile or by telephone confirmed in writing) to Bank of such rescission on the date on which Bank gives notice of its determination as described above, or (ii) modify such Notice of Borrowing or Notice of Conversion/Continuation to obtain a Prime Rate Advance or to have outstanding Advances converted into or continued as Prime Rate Advances by giving notice (by facsimile or by telephone confirmed in writing) to Bank of such modification on the date on which Bank gives notice of its determination as described above.

 

4.                                       CREATION OF SECURITY INTEREST

 

4.1                                Grant of Security Interest.   Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.

 

Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank.  Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien in this Agreement).

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash.  Upon payment in full in cash of the Obligations (other than inchoate indemnity obligations) and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at the sole cost and expense of Borrower, release its Liens in the Collateral and all rights therein shall revert to Borrower.  In the event (x) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any.  In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to (x) if such Letters of Credit are denominated in Dollars, then at least one hundred five percent (105.0%); and (y) if such Letters of Credit are denominated in a Foreign Currency, then at least one hundred ten percent (110.0%), of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its business judgment), to secure all of the Obligations relating to such Letters of Credit.

 

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4.2                                Priority of Security Interest .  Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien under this Agreement).  If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

 

4.3                                Authorization to File Financing Statements .  Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.

 

5.                                       REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1                                Due Organization, Authorization; Power and Authority .  Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business.  In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled “Perfection Certificate”.  Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement).  If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect), or (v) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement by which Borrower is bound.  Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

 

5.2                                Collateral .  Borrower has good title to, rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens.  Borrower has no Collateral Accounts at or with any bank or financial institution other than Bank or Bank’s Affiliates except for the Collateral Accounts described in the Perfection Certificate delivered to Bank in connection herewith and which Borrower has taken such actions as are necessary to give Bank a perfected security interest therein, pursuant to the term of Section 6.6(b).  The Accounts are bona fide, existing obligations of the Account Debtors.

 

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The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate.  None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 6.12.

 

All Inventory is in all material respects of good and marketable quality, free from material defects.

 

Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate.  Each Patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part.  To the best of Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.

 

5.3                                Accounts Receivable.

 

(a)                                  For any Eligible Account in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such Eligible Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be.  Whether or not an Event of Default has occurred and is continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s security interest in such funds and verify the amount of such Eligible Account.

 

(b)                                  All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations.  Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Borrowing Base Certificate.  To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

 

5.4                                Litigation .  There are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, Five Hundred Thousand Dollars ($500,000.00).

 

5.5                                Financial Statements; Financial Condition .  All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations.  There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

 

5.6                                Solvency .  The fair salable value of Borrower’s consolidated assets (including goodwill minus disposition costs) exceeds the fair value of Borrower’s liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

 

5.7                                Regulatory Compliance .  Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors).  Borrower (a) has complied in all material respects with all Requirements of Law, and (b) has not violated any Requirements of Law the violation of which could reasonably be expected to have a

 

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material adverse effect on its business.  None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted.

 

5.8                                Subsidiaries; Investments .  Borrower does not own any stock, partnership, or other ownership interest or other equity securities except for Permitted Investments.

 

5.9                                Tax Returns and Payments; Pension Contributions .  Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except (a) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed Fifty Thousand Dollars ($50,000.00).

 

To the extent Borrower defers payment of any contested taxes, Borrower shall (i) notify Bank in writing of the commencement of, and any material development in, the proceedings, and (ii) post bonds or take any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien.”  Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

5.10                         Use of Proceeds .  Borrower shall use the proceeds of the Credit Extensions as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.

 

5.11                         Full Disclosure .  No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

 

5.12                         Definition of “Knowledge .   For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, to the “best of” Borrower’s knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.

 

6.                                       AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1                                Government Compliance.  Borrower shall, and shall cause each of its Subsidiaries to, maintain its legal existence and good standing in its jurisdiction of formation and each jurisdiction in which the nature of its business requires them to be so qualified, except where the failure to take such action would not reasonably be expected to have a material adverse effect on Borrower’s and its Subsidiaries’ business or operations, taken as a whole; provided , that (a) the legal existence of any Subsidiary that is not a co-Borrower or guarantor may be terminated or permitted to lapse, and any qualification of such Subsidiary to do business may be terminated or

 

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permitted to lapse, if, in the good faith judgment of Borrower, such termination or lapse is in the best interests of Borrower and its Subsidiaries, taken as a whole, and (b) Borrower may not permit its qualification to do business in the jurisdiction of its chief executive office to terminate or lapse; and provided , further , that this Section 6.1 shall not be construed to prohibit any other transaction that is otherwise expressly permitted in Section 7 of this Agreement. Borrower shall comply, and shall have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on Borrower’s business.

 

6.2                                Financial Statements, Reports, Certificates.   Provide Bank with the following:

 

(a)                                  Borrowing Base Reports .  Within thirty (30) days after the last day of each month, aged listings of accounts receivable and accounts payable (by invoice date) (the “ Borrowing Base Reports ”);

 

(b)                                  Borrowing Base Certificate .  Within thirty (30) days after the last day of each month and together with the Borrowing Base Reports, a duly completed Borrowing Base Certificate signed by a Responsible Officer;

 

(c)                                   Monthly Financial Statements .  As soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the “ Monthly Financial Statements ”);

 

(d)                                  Monthly Compliance Certificate .  Within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank may reasonably request;

 

(e)                                   Board-Approved Projections .  As soon as available, but no later than thirty (30) days after to the last day of Borrower’s fiscal year, and contemporaneously with any updates or changes thereto, Board-approved projections as to the following fiscal year in a form acceptable to Bank;

 

(f)                                    Annual Audited Financial Statements .  As soon as available, but no later than one hundred eighty (180) days after the last day of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank;

 

(g)                                   Other Statements .  Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt;

 

(h)                                  SEC Filings .  As soon as available, but no later than five (5) days after filing with the Securities Exchange Commission, Borrower’s 10K, 10Q, and 8K reports; Borrower’s 10K, 10Q, and 8K reports required to be delivered pursuant to this subsection (h) shall be deemed to have been delivered on the date on which Borrower posts such report or provides a link thereto on Borrower’s or another website on the Internet, provided, that Borrower shall provide paper copies to Bank of the Compliance Certificates required by subsection (d) hereof;

 

(i)                                      Legal Action Notice .  A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, Five Hundred Thousand Dollars ($500,000.00) or more; and

 

(j)                                     Other Financial Information .  Other financial information reasonably requested by Bank.

 

6.3                                Inventory; Returns .  Keep all Inventory in good and marketable condition, free from material defects.  Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date.  Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than Five Hundred Thousand Dollars ($500,000.00).

 

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6.4                                Taxes; Pensions .  Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

 

6.5                                Insurance.

 

(a)                                  Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request.  Insurance policies shall be in a form, with financially sound and reputable insurance companies that are not Affiliates of Borrower, and in amounts that are satisfactory to Bank.  All property policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee.  All liability policies shall show, or have endorsements showing, Bank as an additional insured.  Bank shall be named as lender loss payee and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral.

 

(b)                                  Ensure that proceeds payable under any property policy are, at Bank’s option, payable to Bank on account of the Obligations.

 

(c)                                   At Bank’s request, Borrower shall deliver certified copies of insurance policies and evidence of all premium payments.  Each provider of any such insurance required under this Section 6.5 shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to Bank, that it will give Bank thirty (30) days prior written notice before any such policy or policies shall be materially altered or canceled.  If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

 

6.6                                Operating Accounts.

 

(a)                                  (i) Borrower shall maintain (A) its primary operating and depository accounts with Bank and Bank’s Affiliates, and (B) a portion of its excess cash in a securities account or accounts with Bank and/or Bank’s Affiliates, and (ii) each Subsidiary of Borrower shall maintain its primary U.S. operating and depository accounts with Bank and Bank’s Affiliates.

 

(b)                                  Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates.  For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank.  The provisions of the previous sentence shall not apply to (i) any Collateral Account maintained by Borrower or its Subsidiaries outside the United States, and (ii) deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.

 

6.7                                Financial Covenants .  Maintain at all times, subject to periodic reporting as of the last day of each month, commencing with the month ending April 30, 2013, and as of the last day of each month thereafter, on a consolidated basis with respect to Borrower and its Subsidiaries:

 

(a)                                  Liquidity Coverage .  A ratio of (i) Borrower’s unrestricted and unencumbered cash at Bank plus Eligible Accounts to (ii) the aggregate amount of outstanding Obligations of Borrower to Bank, of at least 1.50:1.00.

 

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(b)                                  Tangible Net Worth .  A Tangible Net Worth of at least the sum of (i) Thirteen Million Five Hundred Thirty-Eight Thousand Dollars ($13,538,000.00), plus (ii) fifty percent (50.0%) of Borrower’s Net Income for the quarter ending June 30, 2013, and as of the last day of each Testing Quarter thereafter, plus (ii) twenty-five percent (25.0%) of all net cash consideration received by Borrower on or after the Effective Date from the issuance and sale by Borrower of its equity securities and/or Subordinated Debt, in each case with investors acceptable to Bank.

 

6.8                                Protection of Intellectual Property Rights.

 

(a)                                  (i) Protect, defend and maintain the validity and enforceability of its Intellectual Property; (ii) promptly advise Bank in writing of material infringements or any other event that could reasonably be expected to materially and adversely affect the value of its Intellectual Property; and (iii) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

 

(b)                                  Provide written notice to Bank within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public).  Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

 

6.9                                Litigation Cooperation .  From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.

 

6.10                         Access to Collateral; Books and Records .  Upon the occurrence of the Audit Trigger Event, allow Bank, or its agents, at reasonable times, on one (1) Business Day’s notice (provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy Borrower’s Books, provided however that such inspections or audits shall be conducted no more often than once every twelve (12) months unless an Event of Default has occurred and is continuing in which case such inspections and audits shall occur as often as Bank shall determine is necessary.  The foregoing inspections and audits shall be at Borrower’s expense.  Borrower confirms, acknowledges and agrees that the Audit shall be completed upon the earlier to occur of (i) ninety (90) days after the Audit Trigger Event, or (ii) after the occurrence of the Audit Trigger Event, the aggregate amount of outstanding Advances exceeds Five Million Dollars ($5,000,000.00).

 

6.11                         Further Assurances .  Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.

 

6.12                         Change in Business Location .  Provide at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than One Hundred Thousand Dollars ($100,000.00) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars ($100,000.00) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.  If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Five Hundred Thousand Dollars ($500,000.00) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank.

 

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7.                                       NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

7.1                                Dispositions .  Convey, sell, lease, transfer or otherwise dispose of (collectively “ Transfer ”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for:

 

(a)                                  Transfers in the ordinary course of business for reasonably equivalent consideration;

 

(b)                                  Transfers to Borrower or any of its Subsidiaries from Borrower or any of its Subsidiaries;

 

(c)                                   Transfers of property to the extent such property is exchanged for credit against, or proceeds are promptly applied to, the purchase price of other property used or useful in the business of Borrower or its Subsidiaries;

 

(d)                                  Transfers constituting non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and other non-perpetual licenses that may be exclusive in some respects other than territory (and/or that may be exclusive as to territory only in discrete geographical areas outside of the United States), but that could not result in a legal transfer of Borrower’s title in the licensed property;

 

(e)                                   Transfers otherwise permitted by the Loan Documents;

 

(f)                                    Transfers associated with the making or disposition of a Permitted Investment;

 

(g)                                   Transfers in connection with the Permitted Acquisition of a portion of the assets or rights acquired; and

 

(h)                                  Transfers of assets (other than Accounts, Inventory, and Intellectual Property), provided, that the aggregate book value of all such Transfers by Borrower and its Subsidiaries, together, shall not exceed in any fiscal year, One Hundred Fifty Thousand Dollars ($150,000.00).

 

7.2                                Changes in Business; Change in Control; Jurisdiction of Formation .  (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) fail to provide notice to Bank of any Key Person departing from or ceasing to be employed by Borrower within five (5) days after such Key Person’s departure from Borrower; or (ii) permit or suffer any Change in Control.

 

7.3                                Mergers or Acquisitions.   Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person (including, without limitation, by the formation of any Subsidiary), except for the Permitted Acquisitions.  A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

 

7.4                                Indebtedness.   Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

 

7.5                                Encumbrance.   Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s

 

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Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein.

 

7.6                                Maintenance of Collateral Accounts.  Maintain any Collateral Account except pursuant to the terms of Section 6.6(b) hereof.

 

7.7                                Distributions; Investments.   (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock, other than Permitted Distributions; or (b) directly or indirectly make any Investment (including, without limitation, by the formation of any Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries to do so.

 

7.8                                Transactions with Affiliates.  Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for (a) transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms (when viewed in the context of any series of transactions of which it may be a part, if applicable) that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person; or (b) transactions among Borrower and its Subsidiaries and among Borrower’s Subsidiaries so long as no Event of Default exists or could result therefrom.

 

7.9                                Subordinated Debt.  Make or permit any payment on or amendments of any Subordinated Debt, except (a) payments pursuant to the terms of the Subordinated Debt; (b) payments made with Borrower’s capital stock or other Subordinated Debt; or (c) other purchases or payments of Subordinated Debt, provided that the aggregate amount of such purchases or payments made pursuant to this clause (c) during the period commencing on the Effective Date and ending on the date of determination, when combined with distributions, dividends or purchases of Borrower’s capital stock in cash during such period, shall not exceed One Hundred Fifty Thousand Dollars ($150,000.00) in the aggregate.

 

7.10                         Compliance.   Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to (a) meet the minimum funding requirements of ERISA, (b) prevent a Reportable Event or Prohibited Transaction, as defined in ERISA, from occurring, or (c) comply with the Federal Fair Labor Standards Act, the failure of any of the conditions described in clauses (a) through (c) which could reasonably be expected to have a material adverse effect on Borrower’s business; or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

8.                                       EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “ Event of Default ”) under this Agreement:

 

8.1                                Payment Default .  Borrower fails to (a) make any payment of principal or interest on any Credit Extension when due, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Maturity Date).  During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);

 

8.2                                Covenant Default.

 

(a)                                  Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7, 6.8(b), 6.10 or 6.12, or violates any covenant in Section 7; or

 

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(b)                                  Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period).  Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;

 

8.3                                Material Adverse Change .  A Material Adverse Change occurs;

 

8.4                                Attachment; Levy; Restraint on Business.

 

(a)                                  (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary), or (ii) a notice of lien or levy is filed against any of Borrower’s assets by any Governmental Authority, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or

 

(b)                                  (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting all or any material part of its business;

 

8.5                                Insolvency .  (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and is not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6                                Other Agreements .  There is, under any agreement to which Borrower is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Five Hundred Thousand Dollars ($500,000.00); or (b) any breach or default by Borrower, the result of which could have a material adverse effect on Borrower’s business;

 

8.7                                Judgments; Penalties .  One or more fines, penalties or final judgments, orders or decrees for the payment of money in an amount, individually or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000.00) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower by any Governmental Authority, and the same are not, within ten (10) days after the entry, assessment or issuance thereof, discharged, satisfied, or paid, or after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the satisfaction, payment, discharge, stay, or bonding of such fine, penalty, judgment, order or decree);

 

8.8                                Misrepresentations .  Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made; or

 

8.9                                Subordinated Debt .  Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability

 

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or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement.

 

9.                                       BANK’S RIGHTS AND REMEDIES

 

9.1                                Rights and Remedies .  Upon the occurrence and during the continuance of an Event of Default, Bank may, without notice or demand, do any or all of the following:

 

(a)                                  declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

 

(b)                                  stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

 

(c)                                   demand that Borrower (i) deposit cash with Bank in an amount equal to at least (A) one hundred five percent (105.0%) of the Dollar Equivalent of the aggregate face amount of all Letters of Credit denominated in Dollars remaining undrawn, and (B) one hundred ten percent (110.0%) of the Dollar Equivalent of the aggregate face amount of all Letters of Credit denominated in a Foreign Currency remaining undrawn, (plus, in each case, all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

 

(d)                                  terminate any FX Contracts;

 

(e)                                   verify the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, and notify any Person owing Borrower money of Bank’s security interest in such funds;

 

(f)                                    make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral.  Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates.  Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

 

(g)                                   apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;

 

(h)                                  ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral.  Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;

 

(i)                                      place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

 

(j)                                     demand and receive possession of Borrower’s Books; and

 

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(k)                                  exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

 

9.2                                Power of Attorney .  Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to:  (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits.  Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder.  Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.

 

9.3                                Protective Payments .  If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral.  Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter.  No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

 

9.4                                Application of Payments and Proceeds Upon Default .  If an Event of Default has occurred and is continuing, Bank shall have the right to apply in any order any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations.  Bank shall pay any surplus to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency.  If Bank, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

 

9.5                                Bank’s Liability for Collateral .  So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person.  Borrower bears all risk of loss, damage or destruction of the Collateral.

 

9.6                                No Waiver; Remedies Cumulative .  Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith.  No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given.  Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative.  Bank has all rights and remedies provided under the Code, by law, or in equity.  Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver.  Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.

 

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9.7                                Demand Waiver .  Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.

 

10.                                NOTICES

 

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below.  Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

 

If to Borrower:

Control4 Corporation

 

11734 South Election Road, Suite 200

 

Draper, Utah 84020

 

Attn:

 

Fax:

 

Email:

 

 

If to Bank:

Silicon Valley Bank

 

2755 East Cottonwood Parkway, Suite 540

 

Salt Lake City, Utah 84121

 

Attn:                     Gary Jackson

 

Fax:

 

Email:             gjackson@svb.com

 

 

with a copy to:

Riemer & Braunstein LLP

 

Three Center Plaza

 

Boston, Massachusetts 02108

 

Attn:                     David A. Ephraim, Esquire

 

Fax:                        (617) 692-3455

 

Email:             DEphraim@riemerlaw.com

 

11.                                CHOICE OF LAW, VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE

 

California law governs the Loan Documents without regard to principles of conflicts of law.  Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank.  Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court.  Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

 

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TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL .

 

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court.  The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive.  The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers.  All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed.  If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief.  The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings.  The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings.  The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge.  The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a).  Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies.  The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

 

This Section 11 shall survive the termination of this Agreement.

 

12.                                GENERAL PROVISIONS

 

12.1                         Termination Prior to Maturity Date; Survival .  All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations have been satisfied.  So long as Borrower has satisfied the Obligations (other than inchoate indemnity obligations, and any other obligations which, by their terms, are to survive the termination of this Agreement, and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 4.1 of this Agreement), this Agreement may be terminated prior to the Maturity Date by Borrower, effective three (3) Business Days after written notice of termination is given to Bank.  Those obligations that are expressly specified in this Agreement as surviving this Agreement’s termination shall continue to survive notwithstanding this Agreement’s termination.

 

12.2                         Successors and Assigns .  This Agreement binds and is for the benefit of the successors and permitted assigns of each party.  Borrower may not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion).  Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.

 

12.3                         Indemnification .  Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “ Indemnified Person ”) harmless against:  (i) all obligations, demands, claims, and liabilities (collectively, “ Claims ”) claimed or

 

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asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (ii) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct.

 

This Section 12.3 shall survive until all statutes of limitation with respect to the Claims, losses, and expenses for which indemnity is given shall have run.

 

12.4                         Time of Essence .  Time is of the essence for the performance of all Obligations in this Agreement.

 

12.5                         Severability of Provisions .  Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

 

12.6                         Correction of Loan Documents .  Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties.

 

12.7                         Amendments in Writing; Waiver; Integration .  No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought.  Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document.  Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver.  The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

 

12.8                         Counterparts .  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

 

12.9                         Confidentiality .  In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, “ Bank Entities ”); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use its best efforts to obtain any prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein.  Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain (other than as a result of its disclosure by Bank in violation of this Agreement) after disclosure to Bank; or (ii) disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

 

Bank Entities may use anonymous forms of confidential information for aggregate datasets, for analyses or reporting, and for any other uses not expressly prohibited in writing by Borrower.  The provisions of the immediately preceding sentence shall survive termination of this Agreement.

 

12.10                  Right of Set Off.   Borrower hereby grants to Bank, a lien, security interest and right of set off as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity

 

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under the control of Bank (including a Bank subsidiary) or in transit to any of them.  At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations.  ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

12.11                  Attorneys’ Fees, Costs and Expenses .  In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.

 

12.12                  Electronic Execution of Documents .  The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

 

12.13                  Captions .  The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

 

12.14                  Construction of Agreement .  The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement.  In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

 

12.15                  Relationship .  The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement.  The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

 

12.16                  Third Parties .  Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

 

13.                                DEFINITIONS

 

13.1                         Definitions .  As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative.  As used in this Agreement, the following capitalized terms have the following meanings:

 

Account ” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.

 

Account Debtor ” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

 

Additional Costs ” is defined in Section 3.7(a).

 

Advance ” or “ Advances ” means a revolving credit loan (or revolving credit loans) under the Revolving Line.

 

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Affiliate ” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

 

Agreement ” is defined in the preamble hereof.

 

Anniversary Fee ” is defined in Section 2.4(b).

 

Audit ” is Bank’s inspection of Borrower’s Accounts, the Collateral, and Borrower’s Books, in each case with results satisfactory to Bank in its sole and absolute discretion.

 

Audit Trigger Event ” means the date on which an Advance request has been made or Advances are outstanding, provided however that the Audit Trigger Event shall not include any Advance requests that are made or Advances that are outstanding within five (5) days prior to and within five (5) days after any fiscal quarter end of Borrower.

 

Authorized Signer ” is any individual listed in Borrower’s Borrowing Resolution who is authorized to execute the Loan Documents, including any Notice of Borrowing or other Credit Extension request, on behalf of Borrower.

 

Availability Amount ” (a) the lesser of (i) the Revolving Line or (ii) the aggregate amount of (x) the amount available under the Borrowing Base, plus (y) the Non-Formula Amount minus (b) the outstanding principal balance of any Advances.

 

Bank ” is defined in the preamble hereof.

 

Bank Entities ” is defined in Section 12.9.

 

Bank Expenses ” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.

 

Bank Services ”  are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “ Bank Services Agreement ”).

 

Bank Services Agreement ” is defined in the definition of Bank Services.

 

Board ” is Borrower’s board of directors.

 

Borrower ” is defined in the preamble hereof.

 

Borrower’s Books ” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

 

Borrowing Base ” is eighty percent (80.0%) of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank has the right to decrease the foregoing percentage in its good faith business judgment to mitigate the impact of events, conditions, contingencies, or risks which may adversely affect the Collateral or its value.

 

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Borrowing Base Certificate ” is that certain certificate in the form attached hereto as Exhibit D .

 

Borrowing Base Report ” is defined in Section 6.2(a).

 

Borrowing Resolutions ” are, with respect to any Person, those resolutions adopted by such Person’s board of directors (and, if required under the terms of such Person’s Operating Documents, stockholders) and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary on behalf of such Person certifying (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that set forth as a part of or attached as an exhibit to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents, including any Notice of Borrowing or other Credit Extension request, on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.

 

Business Day ” is any day that is not a Saturday, Sunday or a day on which Bank is closed, and if any determination of a “Business Day” shall relate to an FX Contract, the term “Business Day” shall mean a day on which dealings are carried on in the country of settlement of the Foreign Currency.

 

Cash Equivalents ” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; and (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue.

 

Change in Control ” is a transaction in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of greater than thirty-five percent (35%) of the shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors.

 

Claims ” is defined in Section 12.3.

 

Code ” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “ Code ” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

 

Collateral ” is any and all properties, rights and assets of Borrower described on Exhibit A .

 

Collateral Account ” is any Deposit Account, Securities Account, or Commodity Account.

 

Compliance Certificate ” is that certain certificate in the form attached hereto as Exhibit E .

 

Contingent Obligation ” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the

 

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account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

 

Continuation Date ” means any date on which Borrower continues a LIBOR Advance into another Interest Period.

 

Control Agreement ” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.

 

Conversion Date ” means any date on which Borrower converts a Prime Rate Advance to a LIBOR Advance or a LIBOR Advance to a Prime Rate Advance.

 

Copyrights ” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.

 

Credit Extension ” is any Advance, Overadvance, Equipment Advance, the First Equipment Advance Loan, the Second Equipment Advance Loan, the Third Equipment Advance Loan, or any other extension of credit by Bank for Borrower’s benefit.

 

Currency ” is coined money and such other banknotes or other paper money as are authorized by law and circulate as a medium of exchange.

 

Default Rate ” is defined in Section 2.3(e).

 

Deferred Revenue ” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.

 

Deposit Account ” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.

 

Designated Deposit Account ” is the multicurrency account denominated in Dollars, account number xxxxxx7276, maintained by Borrower with Bank.

 

Dollars , ” “ dollars ” or use of the sign “ $ ” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

 

Dollar Equivalent ” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

 

Draw Period ” is the period of time from the Effective Date through the earlier to occur of (a) May 31, 2014, or (b) an Event of Default.

 

Effective Date ” is defined in the preamble hereof.

 

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Eligible Accounts ” means Accounts which arise in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.3.  Bank reserves the right at any time after the Effective Date to adjust any of the criteria set forth below and to establish new criteria in its good faith business judgment.  Unless Bank otherwise agrees in writing, Eligible Accounts shall not include:

 

(a)                                  Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or agent;

 

(b)                                  Accounts that the Account Debtor has not paid within ninety (90) days of invoice date (one hundred twenty (120) days for retail accounts with net sixty (60) day terms) regardless of invoice payment period terms;

 

(c)                                   Accounts with credit balances over ninety (90) days (one hundred twenty (120) days for retail accounts with net sixty (60) day terms) from invoice date;

 

(d)                                  Accounts owing from an Account Debtor if fifty percent (50%) or more of the Accounts owing from such Account Debtor have not been paid within ninety (90) days (one hundred twenty (120) days for retail accounts with net sixty (60) day terms) of invoice date;

 

(e)                                   Accounts owing from an Account Debtor which does not have its principal place of business in the United States or Canada;

 

(f)                                    Accounts billed from and/or payable to Borrower outside of the United States;

 

(g)                                   Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts);

 

(h)                                  Accounts owing from an Account Debtor which is a United States government entity or any department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended;

 

(i)                                      Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other terms if Account Debtor’s payment may be conditional;

 

(j)                                     Accounts owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings);

 

(k)                                  Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts);

 

(l)                                      Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor’s satisfaction of Borrower’s complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);

 

(m)                              Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;

 

(n)                                  Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an agreement acceptable to Bank wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods

 

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wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called “bill and hold” accounts);

 

(o)                                  Accounts for which the Account Debtor has not been invoiced;

 

(p)                                  Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrower’s business;

 

(q)                                  Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond ninety (90) days (one hundred twenty (120) days for retail accounts with net sixty (60) day terms);

 

(r)                                     Accounts arising from chargebacks, debit memos or other payment deductions taken by an Account Debtor;

 

(s)                                    Accounts arising from product returns and/or exchanges (sometimes called “warranty” or “RMA” accounts);

 

(t)                                     Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;

 

(u)                                  Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue);

 

(v)                                  Accounts owing from an Account Debtor, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing; and

 

(w)                                Accounts for which Bank in its good faith business judgment determines collection to be doubtful, including, without limitation, accounts represented by “refreshed” or “recycled” invoices.

 

Eligible Equipment ” is the following to the extent it complies with all of Borrower’s representations and warranties to Bank, is acceptable to Bank in all respects, is located at 11734 South Election Road, Suite 200, Draper, Utah 84040 or a location of Borrower in the United States as disclosed in the Perfection Certificate in effect as of the Effective Date or such other location of which Bank has approved in writing, and in each case is subject to a first priority Lien in favor of Bank: (a) general purpose equipment, and (b) Other Equipment.

 

Equipment ” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

 

Equipment Advance ” and “ Equipment Advances ” are each defined in Section 2.1.2(a).

 

Equipment Line ” is an Equipment Advance or Equipment Advances in an aggregate amount of up to Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000.00).

 

Equipment Maturity Date ” is November 1, 2017.

 

ERISA ” is the Employee Retirement Income Security Act of 1974, and its regulations.

 

Event of Default ” is defined in Section 8.

 

Exchange Act ” is the Securities Exchange Act of 1934, as amended.

 

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Financed Equipment ” is all present and future Eligible Equipment in which Borrower has any interest which is financed by an Equipment Advance, the First Equipment Advance Loan, the Second Equipment Advance Loan, and/or the Third Equipment Advance Loan.

 

First Equipment Advance Loan ” is defined in Section 2.1.3(a).

 

First Equipment Advance Loan Payment ” is defined in Section 2.1.3(b).

 

First Equipment Maturity Date ” is December 1, 2013.

 

Foreign Currency ” means lawful money of a country other than the United States.

 

Funding Date ” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.

 

FX Contract ” is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.

 

GAAP ” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

 

General Intangibles ” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

 

Governmental Approval ” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

 

“Governmental Authority ” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization .

 

Indebtedness ” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

 

Indemnified Person ” is defined in Section 12.3.

 

Insolvency Proceeding ” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

 

Intellectual Property ” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:

 

(a)                                  its Copyrights, Trademarks and Patents;

 

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(b)                                  any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;

 

(c)                                   any and all source code;

 

(d)                                  any and all design rights which may be available to such Person;

 

(e)                                   any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and

 

(f)                                    all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.

 

Interest Payment Date ” means, with respect to any LIBOR Advance, the last day of each Interest Period applicable to such LIBOR Advance and, with respect to Prime Rate Advances, the first day of each month (or, if that day of the month does not fall on a Business Day, then on the first Business Day following such date), and each date a Prime Rate Advance is converted into a LIBOR Advance to the extent of the amount converted to a LIBOR Advance.

 

Interest Period ” means, as to any LIBOR Advance, the period commencing on the date of such LIBOR Advance, or on the conversion/continuation date on which the LIBOR Advance is converted into or continued as a LIBOR Advance, and ending on the date that is one, two, or three months thereafter, in each case as Borrower may elect in the applicable Notice of Borrowing or Notice of Conversion/Continuation; provided, however , that (a) no Interest Period with respect to any LIBOR Advance shall end later than the Revolving Line Maturity Date, (b) the last day of an Interest Period shall be determined in accordance with the practices of the LIBOR interbank market as from time to time in effect, (c) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of a LIBOR Advance, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day, (d) any Interest Period pertaining to a LIBOR Advance that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period, and (e) interest shall accrue from and include the first Business Day of an Interest Period but exclude the last Business Day of such Interest Period.

 

Interest Rate Determination Date ” means each date for calculating the LIBOR for purposes of determining the interest rate in respect of an Interest Period.  The Interest Rate Determination Date shall be the second Business Day prior to the first day of the related Interest Period for a LIBOR Advance.

 

Inventory ” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

 

Investment ” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

 

Key Person ” is each of Borrower’s (a) Chief Executive Officer, who is Martin Plaehn as of the Effective Date, and (b) Chief Financial Officer, who is Dan Strong as of the Effective Date.

 

Letter of Credit ” is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity, or similar agreement.

 

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LIBOR ” means, for any Interest Rate Determination Date with respect to an Interest Period for any Advance to be made, continued as or converted into a LIBOR Advance, the rate of interest per annum determined by Bank to be the per annum rate of interest at which deposits in Dollars are offered to Bank in the London interbank market (rounded upward, if necessary, to the nearest 0.0001%) in which Bank customarily participates at 11:00 a.m. (local time in such interbank market) two (2) Business Days prior to the first day of such Interest Period for a period approximately equal to such Interest Period and in an amount approximately equal to the amount of such Advance.

 

LIBOR Advance ” means an Advance that bears interest based at the LIBOR Rate.

 

LIBOR Rate ” means, for each Interest Period in respect of LIBOR Advances comprising part of the same Advances, an interest rate per annum (rounded upward, if necessary, to the nearest 0.0001%) equal to LIBOR for such Interest Period divided by one (1)  minus the Reserve Requirement for such Interest Period.

 

LIBOR Rate Margin ” is two and one half of one percent (2.50%).

 

Lien ” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

 

Loan Documents ” are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, the Perfection Certificate, any Bank Services Agreement, any subordination agreement, any note, or notes or guaranties executed by Borrower, and any other present or future agreement by Borrower with or for the benefit of Bank in connection with this Agreement or Bank Services, all as amended, restated, or otherwise modified.

 

Material Adverse Change ” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment of the prospect of repayment of any portion of the Obligations; or (d) Bank determines, based upon information available to it and in its reasonable judgment, that there is a reasonable likelihood that Borrower shall fail to comply with one or more of the financial covenants in Section 6 during the next succeeding financial reporting period.

 

Maturity Date ” is the Revolving Line Maturity Date, Equipment Maturity Date, First Equipment Maturity Date, Second Equipment Maturity Date, and Third Equipment Maturity Date, as applicable.

 

Monthly Financial Statements ” is defined in Section 6.2(c).

 

Net Income ” means, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.

 

Non-Formula Amount ” is an Advance or Advances under the Revolving Line in an amount of up to Five Million Dollars ($5,000,000.00).

 

Notice of Borrowing ” means a notice given by Borrower to Bank in accordance with Section 3.4, substantially in the form of Exhibit B , with appropriate insertions.

 

Notice of Conversion/Continuation ” means a notice given by Borrower to Bank in accordance with Section 3.2, substantially in the form of Exhibit C , with appropriate insertions.

 

Obligations ” are Borrower’s obligations to pay when due any debts, principal, interest, fees, Bank Expenses, the Anniversary Fee, the Unused Revolving Line Facility Fee, and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation, any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrower’s duties under the Loan Documents.

 

33



 

Operating Documents ” are, for any Person, such Person’s formation documents, as certified by the Secretary of State (or equivalent agency) of such Person’s jurisdiction of organization on a date that is no earlier than thirty (30) days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

 

Other Equipment ” is tooling, computer software, and other similar property and soft costs approved by Bank, including taxes, shipping, warranty charges, freight discounts and installation expenses.

 

Overadvance ” is defined in Section 2.2.

 

Parent ” is defined in Section 3.7(b).

 

Patents ” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

Payment/Advance Form ” is that certain form attached hereto as Exhibit F .

 

Payment Date ” is the first (1 st ) calendar day of each month.

 

Perfection Certificate ” is defined in Section 5.1.

 

Permitted Acquisitions ” means the acquisition by Borrower of all or substantially all of the assets of another company or companies (collectively, the “ Target ”), provided that (a) Target is engaged in a similar line of business as Borrower both prior to and after giving effect to such acquisition, (b) such acquisition is non-hostile in nature, (c) no Event of Default has occurred and is continuing or would exist after giving effect to such acquisition, (d) Borrower provides evidence to Bank acceptable to Bank in its sole and absolute discretion that Borrower is and shall be in compliance with the terms of this Agreement both prior to and after giving effect to such acquisition, (e) such acquisition is consummated within a reasonable amount of time, as determined by Bank in its sole and absolute discretion, (f) Borrower provides evidence to Bank, acceptable to Bank in its sole and absolute discretion, that immediately before giving effect to such acquisition, that Borrower shall have unrestricted and unencumbered cash in accounts with Bank or Bank’s Affiliates in an amount of at least Eight Million Dollars ($8,000,000.00) and Borrower shall provide evidence to Bank, acceptable to Bank in its sole and absolute discretion, that immediately after giving effect to such acquisition, that Borrower shall have unrestricted and unencumbered cash in accounts with Bank or Bank’s Affiliates in an amount of at least Eight Million Dollars ($8,000,000.00), (g) within thirty (30) days after giving effect to such acquisition, upon request of Bank, Borrower shall (i) cause Target to become a co-borrower hereunder and provide to Bank such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of Target), (ii) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in Target, in form and substance satisfactory to Bank, and (iii) provide to Bank all other documentation in form and substance satisfactory to Bank, including one or more opinions of counsel satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above, (h) Borrower remains a separate legal entity following the transactions in connection with and contemplated by such acquisition, (i) prior to the consummation of such acquisition, Borrower delivers to Bank evidence that the assets of Target are free and clear of all Liens, and (j) no Indebtedness, other than Permitted Indebtedness, shall be assumed or incurred by Borrower in connection with such acquisition.

 

Permitted Distributions ” means:

 

(a)                                  purchases of capital stock from former employees, consultants and directors pursuant to repurchase agreements or other similar agreements in an aggregate amount not to exceed One Hundred Fifty Thousand Dollars ($150,000.00) in any fiscal year provided that at the time of such purchase no Event of Default has occurred and is continuing;

 

34



 

(b)                                  distributions or dividends consisting solely of Borrower’s capital stock;

 

(c)                                   purchases for value of any rights distributed in connection with any stockholder rights plan;

 

(d)                                  purchases of capital stock or options to acquire such capital stock with the proceeds received from a substantially concurrent issuance of capital stock or convertible securities;

 

(e)                                   purchases of capital stock pledged as collateral for loans to employees;

 

(f)                                    purchases of capital stock in connection with the exercise of stock options or stock appreciation rights by way of cashless exercise or in connection with the satisfaction of withholding tax obligations; and

 

(g)                                   purchases of fractional shares of capital stock arising out of stock dividends, splits or combinations or business combinations.

 

Permitted Indebtedness ” is:

 

(a)                                  Borrower’s Indebtedness to Bank under this Agreement or any other Loan Document;

 

(b)                                  (i) any Indebtedness that does not exceed Five Hundred Thousand Dollars ($500,000.00) in principal amount existing on the Effective Date, and (ii) any Indebtedness in excess of Five Hundred Thousand Dollars ($500,000.00) in principal amount existing on the Effective Date and shown on the Perfection Certificate;

 

(c)                                   Subordinated Debt;

 

(d)                                  unsecured Indebtedness to trade creditors and with respect to surety bonds and similar obligations incurred in the ordinary course of business;

 

(e)                                   Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

 

(f)                                    Indebtedness between Borrower and any of its Subsidiaries or among any of Borrower’s Subsidiaries;

 

(g)                                   capitalized leases and purchase money Indebtedness not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate in any fiscal year secured by Permitted Liens; and

 

(h)                                  refinanced Permitted Indebtedness, provided that the amount of such Indebtedness is not increased except by an amount equal to a reasonable premium or other reasonable amount paid in connection with such refinancing and by an amount equal to any existing, but unutilized, commitment thereunder.

 

Permitted Investments ” are:

 

(a)                                  Investments existing on the Effective Date;

 

(b)                                  (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agencies or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 2 years after its creation and having the highest rating from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc., and (iii) Bank’s certificates of deposit maturing no more than 2 years after issue;

 

(c)                                   Investments approved by the Borrower’s Board of Directors or otherwise pursuant to a Board-approved investment policy;

 

(d)                                  Investments in or to Borrower or any of its Subsidiaries in each case for current ordinary necessary operating expenses;

 

35



 

(e)                                   Investments consisting of Collateral Accounts in the name of Borrower so long as Bank has a first priority, perfected security interest in such Collateral Accounts;

 

(f)                                    Investments consisting of extensions of credit to Borrower’s or its Subsidiaries’ customers in the nature of accounts receivable, prepaid royalties or notes receivable arising from the sale or lease of goods, provision of services or licensing activities of Borrower;

 

(g)                                   Investments received in satisfaction or partial satisfaction of obligations owed by financially troubled obligors;

 

(h)                                  Investments acquired in exchange for any other Investments in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization;

 

(i)                                      Investments acquired as a result of a foreclosure with respect to any secured Investment;

 

(j)                                     Investments consisting of loans and advances to employees in an aggregate amount not to exceed One Hundred Fifty Thousand Dollars ($150,000.00); and

 

(k)                                  other Investments, if, on the date of incurring any Investments pursuant to this clause (l), the outstanding aggregate amount of all Investments incurred pursuant to this clause (l) does not exceed One Hundred Fifty Thousand Dollars ($150,000.00).

 

Permitted Liens ” are:

 

(a)                                  (i) Liens securing Permitted Indebtedness described under clause (b) of the definition of “Permitted Indebtedness” or (ii) Liens arising under this Agreement or other Loan Documents;

 

(b)                                  Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

 

(c)                                   Liens (including with respect to capital leases) (i) on property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) acquired or held by Borrower or its Subsidiaries incurred for financing such property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) other than Accounts, Inventory, and Financed Equipment, or (ii) existing on property (and accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof) when acquired other than Accounts, Inventory, and Financed Equipment, if the Lien is confined to such property (including accessions, additions, parts, replacements, fixtures, improvements and attachments thereto, and the proceeds thereof);

 

(d)                                  Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness it secures may not increase;

 

(e)                                   leases or subleases of real property granted in the ordinary course of business, and leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or intellectual property) granted in the ordinary course of Borrower’s business, if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest;

 

(f)                                    non-exclusive license of intellectual property granted to third parties in the ordinary course of business, and licenses of intellectual property that could not result in a legal transfer of title of the licensed property that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discrete geographical areas outside of the United States;

 

36



 

(g)                                   leases or subleases granted in the ordinary course of Borrower’s business, including in connection with Borrower’s leased premises or leased property;

 

(h)                                  Liens in favor of custom and revenue authorities arising as a matter of law to secure the payment of custom duties in connection with the importation of goods;

 

(i)                                      Liens on insurance proceeds securing the payment of financed insurance premiums;

 

(j)                                     Liens on assets acquired in mergers and acquisitions not prohibited by Section 7 of this Agreement;

 

(k)                                  Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7;

 

(l)                                      Liens in favor of other financial institutions arising in connection with Borrower’s deposit or securities accounts held at such institutions so long as Bank has a first priority, perfected security interest in such deposit or securities accounts;

 

(m)                              Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed One Hundred Fifty Thousand Dollars ($150,000.00) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

 

(n)                                  Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

 

(o)                                  deposits to secure the performance of bids, trade contracts (other than for borrowed money), contracts for the purchase of property, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case, incurred in the ordinary course of business and not representing an obligation for borrowed money; and

 

(p)                                  Liens not otherwise permitted, provided that (i) the amount of all such Liens is not in excess of One Hundred Fifty Thousand Dollars ($150,000.00) (with any such Lien valued as the amount of the obligation secured by such Lien) and (ii) such Liens are subordinate in priority to Bank’s Lien hereunder.

 

Person ” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

 

Prime Rate ” is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the “prime rate” then in effect; provided that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Bank, the “Prime Rate” shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal office in the State of California (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged by Bank in connection with extensions of credit to debtors).

 

Prime Rate Advance ” means an Advance that bears interest based at the Prime Rate.

 

Prior Agreement ” is defined in the preamble hereof.

 

Registered Organization ” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.

 

37



 

Regulatory Change ” means, with respect to Bank, any change on or after the date of this Agreement in United States federal, state, or foreign laws or regulations, including Regulation D, or the adoption or making on or after such date of any interpretations, directives, or requests applying to a class of lenders including Bank, of or under any United States federal or state, or any foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.

 

Requirement of Law ” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

Reserve Requirement ” means, for any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental, or emergency reserves) are required to be maintained during such Interest Period under Regulation D against “Eurocurrency liabilities” (as such term is used in Regulation D) by member banks of the Federal Reserve System.  Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by Bank by reason of any Regulatory Change against (a) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the definition of LIBOR or (b) any category of extensions of credit or other assets which include Advances.

 

Responsible Officer ” is any of the Chief Executive Officer, Vice President of Finance, and Chief Financial Officer of Borrower.

 

Restricted License ” is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Bank’s right to sell any Collateral.

 

Revolving Line ” is an aggregate principal amount equal to Thirteen Million Dollars ($13,000,000.00).

 

Revolving Line Maturity Date ” is May 29, 2015.

 

SEC ” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

 

Second Equipment Advance Loan ” is defined in Section 2.1.4(a).

 

Second Equipment Advance Loan Payment ” is defined in Section 2.1.4(b).

 

Second Equipment Maturity Date ” is September 1, 2015.

 

Securities Account ” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.

 

Subordinated Debt ” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

 

Subsidiary ” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.  Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.

 

38



 

Tangible Net Worth ” is, on any date, the consolidated total assets of Borrower and its Subsidiaries minus (a) any amounts attributable to (i) goodwill, (ii) intangible items including unamortized debt discount and expense, Patents, Trademarks, Copyrights, and research and development expenses except prepaid expenses, (iii) notes, accounts receivable and other obligations owing to Borrower from its officers or other Affiliates, and (iv) reserves not already deducted from assets, minus (b) Total Liabilities, plus (c) Subordinated Debt .

 

“Target ” is defined in the definition of “Permitted Acquisition.”

 

Testing Quarter ” is any quarter with respect to which Bank has tested Borrower’s Net Income to determine whether Borrower is in compliance with the Tangible Net Worth financial covenant set forth in Section 6.7(b).

 

Third Equipment Advance Loan ” is defined in Section 2.1.5(a).

 

Third Equipment Advance Loan Payment ” is defined in Section 2.1.5(b).

 

Third Equipment Maturity Date ” is November 1, 2016.

 

Total Liabilities ” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, but excluding Subordinated Debt.

 

Trademarks ” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

 

Transfer ” is defined in Section 7.1.

 

Unused Revolving Line Facility Fee ” is defined in Section 2.4(d).

 

[ Signature page follows. ]

 

39



 

IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the Effective Date.

 

BORROWER:

 

 

 

CONTROL4 CORPORATION

 

 

 

By

/s/ Dan Strong

 

Name:

Dan Strong

 

Title:

CFO

 

 

 

BANK:

 

 

 

SILICON VALLEY BANK

 

 

 

By

/s/ Jayson Davis

 

Name:

 Jayson Davis

 

Title:

Vice President

 

 

Signature Page to Loan and Security Agreement

 


 

EXHIBIT A — COLLATERAL DESCRIPTION

 

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

 

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

 

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

 

Notwithstanding the foregoing, the Collateral does not include any Intellectual Property; provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual Property.  If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property.

 

Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed not to encumber any of its Intellectual Property without Bank’s prior written consent.

 

1



 

EXHIBIT B

 

FORM OF NOTICE OF BORROWING

 

CONTROL 4 CORPORATION

 

 

Date:

 

 

 

To:                              Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA  95054
Attention:  Corporate Services Department

 

RE:                            Amended and Restated Loan and Security Agreement dated as of                   , 2013 (as amended, modified, supplemented or restated from time to time, the “ Loan Agreement ”), by and between SILICON VALLEY BANK , a California corporation with a loan production office located at 2755 East Cottonwood Parkway, Suite 540, Salt Lake City, Utah 84121 (“ Bank ”), and CONTROL 4 CORPORATION , a Delaware corporation (“ Borrower ”)

 

Ladies and Gentlemen:

 

The undersigned refers to the Loan Agreement, the terms defined therein and used herein as so defined, and hereby gives you notice irrevocably, pursuant to Section 3.4 of the Loan Agreement, of the borrowing of an Advance.

 

1.                                       The Funding Date(1), which shall be a Business Day, of the requested borrowing is                               .

 

2.                                       The aggregate amount of the requested Advance is $                          .

 

3.                                       The requested Advance shall consist of $                       of Prime Rate Advances and $                     of LIBOR Advances.

 

4.                                       The duration of the Interest Period for the LIBOR Advances included in the requested Advance shall be                      months.

 

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Advance before and after giving effect thereto, and to the application of the proceeds therefrom, as applicable:

 

(a)                                  all representations and warranties of Borrower contained in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date;

 

(b)                                  no Event of Default has occurred and is continuing, or would result from such proposed Advance; and

 

(c)                                   the requested Advance will not cause the aggregate principal amount of the outstanding Advances to exceed, as of the designated Funding Date, the Availability Amount.

 


(1)  Advance requests for LIBOR Advances must be submitted by 12:00 pm Pacific time at least three (3) Business Days prior to Funding Date.  Advance requests for Prime Rate Advances must be submitted by 12:00 pm Pacific time on the Funding Date.

 

1



 

BORROWER:

 

 

 

CONTROL 4 CORPORATION

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

For internal Bank use only

 

LIBOR Pricing Date

 

LIBOR

 

LIBOR Variance

 

Maturity Date

 

 

 

 

 

 

%

 

 

 

2



 

EXHIBIT C

 

FORM OF NOTICE OF CONVERSION/CONTINUATION

 

CONTROL 4 CORPORATION

 

 

Date:

 

 

To:                              Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA  95054
Attention: Corporate Services Department

 

RE:                            Amended and Restated Loan and Security Agreement dated as of                    , 2013 (as amended, modified, supplemented or restated from time to time, the “ Loan Agreement ”), by and between SILICON VALLEY BANK , a California corporation with a loan production office located at 2755 East Cottonwood Parkway, Suite 540, Salt Lake City, Utah 84121 (“ Bank ”), and CONTROL 4 CORPORATION , a Delaware corporation (“ Borrower ”)

 

Ladies and Gentlemen:

 

The undersigned refers to the Loan Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably, pursuant to Section 3.4 of the Loan Agreement, of the [conversion] [continuation] of the Advances specified herein, that:

 

1.                                       The date of the [conversion] [continuation] is                                             , 20        .

 

2.                                       The aggregate amount of the proposed Advances to be [converted] is $                              or [continued] is $                                    .

 

3.                                       The Advances are to be [converted into] [continued as] [LIBOR] [Prime Rate] Advances.

 

4.                                       The duration of the Interest Period for the LIBOR Advances included in the [conversion] [continuation] shall be            months.

 

The undersigned, on behalf of Borrower, hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed [conversion] [continuation], before and after giving effect thereto and to the application of the proceeds therefrom:

 

(a)                                  all representations and warranties of Borrower stated in the Loan Agreement are true, accurate and complete in all material respects as of the date hereof; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date;

 

(b)                                  no Event of Default has occurred and is continuing, or would result from such proposed [conversion] [continuation]; and

 

(c)                                   the requested [conversion] [continuation] will not cause the aggregate principal amount of the outstanding Advances to exceed, as of the designated Funding Date, the Availability Amount.

 

1



 

BORROWER:

 

 

 

CONTROL 4 CORPORATION

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

For internal Bank use only

 

LIBOR Pricing Date

 

LIBOR

 

LIBOR Variance

 

Maturity Date

 

 

 

 

 

 

%

 

 

 

2


 

EXHIBIT D - BORROWING BASE CERTIFICATE

 

Borrower: Control4 Corporation
Lender:
      Silicon Valley Bank
Commitment Amount:
                   $13,000,000.00

 

ACCOUNTS RECEIVABLE

 

 

 

1                                          Accounts Receivable (invoiced) Book Value as of                                         

 

$

 

 

2                                          Additions (Please explain on next page)

 

$

 

 

3                                          Less: Intercompany / Employee / Non-Trade Accounts

 

$

 

 

4                                          NET TRADE ACCOUNTS RECEIVABLE

 

$

 

 

 

 

 

 

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

 

 

 

5                                          90 Days Past Invoice Date (120 days for retail accounts with net 60 day terms)

 

$

 

 

6                                          Credit Balances over 90 Days (120 days for retail accounts with net 60 day terms)

 

$

 

 

7                                          Balance of 50% over 90 Day (120 days for retail accounts with net 60 day terms) Accounts (Cross-Age or Current Affected)

 

$

 

 

8                                          Foreign Account Debtor Accounts

 

$

 

 

9                                          Foreign Invoiced and/or Collected Accounts

 

$

 

 

10                                   Contra / Customer Deposit Accounts

 

$

 

 

11                                   U.S. Government Accounts

 

$

 

 

12                                   Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts

 

$

 

 

13                                   Accounts with Memo or Pre-Billings

 

$

 

 

14                                   Contract Accounts; Accounts with Progress / Milestone Billings

 

$

 

 

15                                   Accounts for Retainage Billings

 

$

 

 

16                                   Trust / Bonded Accounts

 

$

 

 

17                                   Bill and Hold Accounts

 

$

 

 

18                                   Unbilled Accounts

 

$

 

 

19                                   Non-Trade Accounts (If not already deducted above)

 

$

 

 

20                                   Accounts with Extended Term Invoices (Net 90+ (120+ for retail accounts with net 60 day terms))

 

$

 

 

21                                   Chargebacks Accounts / Debit Memos

 

$

 

 

22                                   Product Returns / Exchanges

 

$

 

 

23                                   Disputed Accounts; Insolvent Account Debtor Accounts

 

$

 

 

24                                   Deferred Revenue, if applicable / Other (Please explain on next page)

 

$

 

 

25                                   Concentration Limits

 

$

 

 

26                                   TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

 

$

 

 

 

 

 

 

27                                   Eligible Accounts (#4 minus #26)

 

$

 

 

28                                   ELIGIBLE AMOUNT OF ACCOUNTS (80 of #27)

 

$

 

 

 

 

 

 

29                                   NON-FORMULA AMOUNT

 

$

5,000,000.00

 

 

 

 

 

BALANCES

 

 

 

30                                   Maximum Loan Amount

 

$

13,000,000.00

 

31                                   Total Funds Available (Lesser of #30 or (#28 plus #29))

 

$

 

 

32                                   Present balance owing on Line of Credit

 

$

 

 

33                                   RESERVE POSITION (#31 minus #32)

 

$

 

 

 

[Continued on following page.]

 

1



 

Explanatory comments from previous page:

 

 

The undersigned represents and warrants that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank.

 

 

 

BANK USE ONLY

COMMENTS:

 

Received by:

 

 

 

 

AUTHORIZED SIGNER

CONTROL4 CORPORATION

 

Date:

 

 

 

Verified:

 

By:

 

 

 

AUTHORIZED SIGNER

 

Authorized Signer

 

Date:

 

Date:

 

 

Compliance Status:

Yes

No

 

2



 

EXHIBIT E

 

COMPLIANCE CERTIFICATE

 

TO:

SILICON VALLEY BANK

 

 

Date:

 

FROM:

CONTROL4 CORPORATION

 

 

 

 

The undersigned authorized officer of CONTROL4 CORPORATION (“Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”):

 

(1) Borrower is in complete compliance for the period ending                                with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.

 

Attached are the required documents supporting the certification.  The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenants

 

Required

 

Complies

 

 

 

 

 

Monthly financial statements with Compliance Certificate

 

Monthly within 30 days

 

Yes  No

Annual financial statement (CPA Audited)

 

FYE within 180 days

 

Yes  No

10-Q, 10-K and 8-K

 

Within 5 days after filing with SEC

 

Yes  No

Borrowing Base Certificate, A/R & A/P Agings

 

Monthly within 30 days

 

Yes  No

Board-approved projections

 

Within 30 days prior to FYE

 

Yes  No

 

Financial Covenants

 

Required

 

Actual

 

Complies

 

 

 

 

 

 

 

Maintain at all times (reported monthly)

 

 

 

 

 

 

Liquidity

 

1.50:1.0

 

:1.0

 

Yes  No

Tangible Net Worth

 

*

 

:1.0

 

Yes  No

 


*As set forth in Section 6.7(b)

 

The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

 

Other Matters

 

Have there been any amendments of or other changes to the capitalization table of Borrower and to the Operating Documents of Borrower or any of its Subsidiaries? If yes, provide copies of any such amendments or changes with this Compliance Certificate.

 

Yes

 

No

 

1



 

The following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions to note.”)

 

 

CONTROL4 CORPORATION

 

BANK USE ONLY

 

 

 

Received by:

 

By:

 

 

 

AUTHORIZED SIGNER

 

Name:

 

 

Date:

 

 

 

Title:

 

 

 

 

 

 

 

Verified:

 

 

 

 

 

 

AUTHORIZED SIGNER

 

 

 

Date:

 

 

 

 

 

 

 

 

 

 

Compliance Status:

Yes

No

 

2



 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

 

Dated:

 

 

 

I.                                         Liquidity Coverage (Section 6.7(a))

 

Required:                                            1.50:1.0

 

Actual:                                                                  :1.0

 

A.

 

Aggregate value of Borrower’s unrestricted and unencumbered cash at Bank

 

$

 

 

 

 

 

 

 

 

 

B.

 

Aggregate value of Borrower’s Eligible Accounts

 

$

 

 

 

 

 

 

 

 

 

C.

 

Sum of Line A plus Line B

 

$

 

 

 

 

 

 

 

 

 

D.

 

Aggregate amount of outstanding Obligations of Borrower to Bank

 

$

 

 

 

 

 

 

 

 

 

E.

 

Liquidity Coverage (line C divided by line D)

 

 

 

 

Is line E equal to or greater than 1.50:1:00?

 

o  No, not in compliance

o  Yes, in compliance

 

I.                                         Tangible Net Worth (Section 6.7(b))

 

Required:                                            A Tangible Net Worth of at least the sum of (i) Thirteen Million Five Hundred Thirty-Eight Thousand Dollars ($13,538,000.00), plus (ii) fifty percent (50.0%) of Borrower’s Net Income as of the last day of each Testing Quarter, plus (ii) twenty-five percent (25.0%) of all net cash consideration received by Borrower on or after the Effective Date from the issuance and sale by Borrower of its equity securities and/or Subordinated Debt, in each case with investors acceptable to Bank.

 

Actual:                                                         $                        

 

o  No, not in compliance

o  Yes, in compliance

 

1


 

EXHIBIT F — LOAN PAYMENT/ADVANCE REQUEST FORM

 

DEADLINE FOR SAME DAY PROCESSING IS NOON PACIFIC TIME *

 

Fax To:

 

Date:

 

 

LOAN PAYMENT:

 

CONTROL4 CORPORATION

From Account #

 

 

To Account #

 

 

 

(Deposit Account #)

 

 

(Loan Account #)

 

 

 

Principal $

 

 

and/or Interest $

 

 

Authorized Signature:

 

 

Phone Number:

 

 

Print Name/Title:

 

 

 

 

 

 

LOAN ADVANCE:

 

 

Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.

From Account #

 

 

To Account #

 

 

 

(Loan Account #)

 

 

(Deposit Account #)

 

Amount of Advance $

 

 

 

All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date:

 

Authorized Signature:

 

 

Phone Number:

 

 

Print Name/Title:

 

 

 

 

 

 

OUTGOING WIRE REQUEST:

 

 

Complete only if all or a portion of funds from the loan advance above is to be wired.

Deadline for same day processing is noon, Pacific Time

 

Beneficiary Name:

 

 

Amount of Wire: $

 

 

Beneficiary Bank:

 

 

Account Number:

 

 

City and State:

 

 

 

Beneficiary Bank Transit (ABA) #:

 

 

Beneficiary Bank Code (Swift, Sort, Chip, etc.):

 

 

 

 

(For International Wire Only)

Intermediary Bank:

 

 

Transit (ABA) #:

 

 

For Further Credit to:

 

 

Special Instruction:

 

 

 

By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

 

Authorized Signature:

 

 

2 nd  Signature (if required):

 

 

Print Name/Title:

 

 

Print Name/Title:

 

 

Telephone #:

 

 

Telephone #:

 

 

 


* Unless otherwise provided for an Advance bearing interest at LIBOR.

 

1




Exhibit 10.12

 

LEASE

 

BETWEEN

 

WDCI, INC.

 

A HAWAII CORPORATION

 

AND

 

CONTROL 4 CORPORATION,

 

A DELAWARE CORPORATION

 

FOR THE PREMISES LOCATED AT

 

BROADBENT CENTENNIAL PLAZA

 

SALT LAKE CITY, UTAH

 

DATED: JUNE        , 2004

 



 

INDUSTRIAL LEASE

 

THIS LEASE is made this 29 th  day of June, 2004, by and between WDCI, INC. , a Hawaii corporation (“Landlord”) and Control4 Corporation, a Delaware corporation (“Tenant”):

 

1.                                       BASIC TERMS .

 

1.01                         Basic Terms .

 

(A)                                Landlord WDCI, INC. , a Hawaii corporation.

 

(B)                                Tenant :  Control4 Corporation, a Delaware corporation.

 

(C)                                Address of Tenant :  3612 West 1820 South, Salt Lake City, Utah 84104

 

(D)                                Premises :  15,000 square feet of space in the industrial building located at 3612 West 1820 South, Salt Lake City, Utah, which Premises are outlined on Exhibit A attached hereto for the purposes of identification.

 

(E)                                 Parking Stalls :  9 common stalls in front of the Premises, and additional non-exclusive overflow parking located on the north side of buildings #1 and #2

 

(F)                                  Building :  The Building in which the Premises are located.

 

(G)                                Project :  A warehouse complex including all improvements and appurtenances thereto known as “Centennial Plaza” and located in Salt Lake City, Utah, such complex depicted and described on Exhibit A attached hereto.

 

(H)                               Lease Commencement :  September 1, 2004

 

(I)                                    Lease Term :  Three (3) Years

 

(J)                                    Rent :  All sums, moneys, or payments are required to be paid by Tenant to Landlord pursuant to the terms of this Lease, including Sections 5, 21.01, 21.02, and 21.03.

 

(K)                               Base Rent :  Base Rent shall be in accordance with the following schedule:

 

Months

 

Monthly Base Rent

 

1

 

$

0.00

 

2-12

 

$

3,900.00

 

13-24

 

$

4,050.00

 

25-36

 

$

4,200.00

 

 

(L)                                 Security Deposit :  $8,400.00

 

(M)                             Tenant’s Proportionate Share :  6.15%.

 

(N)                                Estimated Initial Monthly Common Expenses :  $650.00

 

1



 

(O)                                Estimated Initial Monthly Real Estate Tax Charge :  $562.50

 

(P)                                  Permitted Use :  General office and warehouse use.

 

1.02                         Effect of Reference to Basic Terms .  Effect of Reference to Basic Terms.  Each reference in this Lease to any of the Basic Terms contained in Section 1.01 shall be construed to incorporate into such reference the respective definition for such Basic Term set forth in Section 1.01 above.

 

2.                                       PREMISES .

 

2.01                         Lease .  In consideration of the rents, covenants, agreements, and conditions hereinafter provided to be paid, kept, performed, and observed, Landlord leases to Tenant and Tenant hereby hires from Landlord the Premises described in Section 1.01D.

 

2.02                         Reservations by Landlord .  Landlord excepts and reserves the roof and exterior walls of the Building, and further reserves the right to place, install, maintain, carry through, repair, and replace such utility lines, pipes, wires, appliances, tunneling, and the like in, over, through, and upon the Premises as may be reasonably necessary or advisable for the servicing of the Premises or any other portions of the Project.

 

Notwithstanding any provision in this Lease to the contrary, it is agreed that Landlord reserves the right, without invalidating this Lease or modifying any provision thereof, at any time, and from time to time, (i) to make alterations changes, and additions to the Building and other improvements in the Project (including, without limitation, the Building in which the Premises are located), (ii) to add additional areas and buildings to the Project and/or to exclude areas therefrom, (iii) to construct additional buildings and other improvements in the Project, (iv) to remove or relocate the whole or any part of any building or other improvement in the Project, and (v) to relocate any other tenant in the Project.  It is further understood that the existing layout of the buildings, walks, roadways, parking areas, entrances, exits, and other improvements shall not be deemed to be a warranty, representation, or agreement on the part of Landlord that the Project shall remain exactly as presently built, it being understood and agreed that Landlord may change the number, dimensions, and locations of the walks, buildings, and parking spaces as Landlord shall deem proper.

 

3.                                       USE .

 

The Premises hereby leased shall be used by Tenant for the purpose specified in Section 1.01N and for no other purposes.  Landlord makes no representation to Tenant that the use limited in this Section 3 constitutes a lawful use under applicable zoning regulations, or that the lawful uses for the Premises as of the date of this Lease shall not change during the Lease Term.  Tenant shall, at its own expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, and requirements in effect during the Term or any part of the Term hereof regulating the use by Tenant or condition of the Premises.  Tenant shall not use or permit the use of the Premises in any manner that will tend to create waste or a nuisance, or which will tend to unreasonably disturb other tenants in the Project.  Tenant shall not place a load upon the floor of the Building which exceeds that load per square foot which such floor was designed to carry or which is allowed by law.  Tenant, its employees, and all persons visiting or doing business with

 

2



 

Tenant in the Premises shall be bound by and shall observe the Rules and Regulations attached to this Lease as Exhibit B , and such further and other reasonable Rules and Regulations made hereafter by Landlord relating to the Project or the Premises, of which notice in writing shall be given to Tenant, and all such Rules and Regulations shall be deemed to be incorporated into and form a part of this Lease.  Tenant shall be solely responsible for providing security for the Premises, and for Tenant, its agents, employees, contractors, customers, invitees, and others within the Premises.  Landlord shall have no responsibility therefor.

 

4.                                       TERM .

 

4.01                         Term of Lease .  To have and to hold the leased Premises for and during the” Lease Term described in Section 1.01G, commencing on the Commencement Date (defined in Section 4.02 below), subject to the payment of the Rent and the full and timely performance by Tenant of the covenants and conditions hereinafter set forth.

 

4.02                         Commencement Date .  As used in this Lease, the term “Commencement Date” shall mean the date the Premises are Ready for Occupancy (as defined in Section 4.04 below).  If the Commencement Date occurs on other than the first day of a month, Tenant shall pay Base Rent at the same monthly rate for such partial month (also in advance), any periods for rent adjustments shall be measured from the first day of the calendar month in which the Commencement Date falls and all other terms and conditions of this Lease shall be in force and effect during such partial month.  As soon as the Commencement Date is established Landlord and Tenant shall execute a Commencement Date Memorandum in the form of attached Exhibit C , which may be requested by either party, setting forth the exact Commencement Date and the Expiration Date to provide for the full term referenced in Section 1.01G from the Commencement Date.  Notwithstanding anything contained in this Section 4.02 to the contrary, it is understood and agreed that at such time as Tenant occupies all or any portion of the Premises for the purposes permitted or allowed in this Lease, its Rental obligation shall commence.

 

4.03                         Landlords Work .  Landlord agrees to perform the work described in Exhibit D hereto (“Landlords Work”).  Other than Landlord’s Work, Landlord shall have no obligation for the completion or repair of the Premises and Tenant shall accept the Premises in its “as is” condition on the date Landlord delivers possession of the Premises to Tenant in accordance with the provisions of this Lease.

 

4.04                         Ready for Occupancy; Delay in Delivery .  Landlord shall deliver and Tenant shall accept possession of the Premises at such time as the Premises is Ready for Occupancy.  If the Premises, or any portion, is not “Ready for Occupancy” on the Commencement Date, Rent and other sums owing under this Lease attributable to the Premises shall not commence until the Premises is Ready for Occupancy.  The postponement of Rent and other sums herein provided to be paid by Tenant attributable to such space for any period prior to the delivery to Tenant of such space Ready for Occupancy shall be in full settlement of all claims which Tenant might otherwise have by reason of such space not being Ready for Occupancy on the Commencement Date.  “Ready for Occupancy” as used herein shall mean the date that Landlord shall have substantially completed Landlord’s Work, subject only to the completion of “punch list” items of a minor nature.  The issuance of a temporary certificate of occupancy for such space (or its

 

3



 

equivalent), or certification by Landlord’s contractor, architect or space planner verifying substantial completion of Landlord’s Work shall conclusively control the date upon which the space is Ready for Occupancy and the commencement of Tenant’s obligation to pay Rent.  In the event Tenant’s acts or omission delay the completion of Landlord’s Work, Landlord’s Work shall be deemed Ready for Occupancy on the date Landlord’s Work would have been substantially completed in the absence of Tenants acts or omission that caused the delay.  Notwithstanding anything in the foregoing to the contrary, should Landlord fail to have the Premises Ready for Occupancy within one hundred eighty (180) days after the date of this Lease (such date extended if failure to have the Premises Ready for Occupancy is due to Force Majeure, as referenced in Section 14), then Tenant shall have the option to terminate this Lease upon written notice (which shall be delivered if at all within thirty (30) days after the date Tenant is entitled to terminate the Lease pursuant to this Section and if not timely delivered, then Tenant’s termination right shall lapse), the effective date of termination to be at least thirty (30) days after the date of delivery of Tenant’s notice; provided, however, should Landlord have the Premises Ready for Occupancy prior to the date set forth in Tenant’s notice then such termination notice shall be of no force and effect and this Lease shall continue in full force and effect between the parties.  In the event this Lease is terminated as provided immediately above, then neither Landlord nor Tenant shall have any claim or obligation to the other by reason of this Lease or the termination thereof.

 

4.05                         Early Possession .  Tenant shall be permitted to enter the Premises after the later of (i) full execution and delivery of this Lease or (ii) the vacation of the Premises by the existing tenant, and prior to the Commencement Date without the obligation for payment of rent for the purpose of installing fixtures and equipment; provided that (a) Tenant will not interfere with Landlord’s construction of the Landlord’s Work, (b) Tenant first provides Landlord with all insurance required by the terms of this Lease, and (c) all construction by Tenant shall be performed in accordance with the terms of this Lease.  Without limiting any other provision of this Lease, Landlord shall not be responsible for damages or loss to any work performed by Tenant or to Tenant’s personal property or the personal property of Tenant’s contractor’s, employees or agents which occurs during such period of early access.

 

5.                                       BASE RENT .

 

Tenant agrees to pay Landlord the Base Rent set out in Section 1.01I for the full Term.  The first full monthly installment of Base Rent shall be payable upon the execution of this Lease by Tenant.  Thereafter, each succeeding monthly installment shall be due and payable on or before the first day of each and every successive calendar month during the Term.  In the event the Term of this Lease ends on a date other than the last day of a month, the last monthly payment of Base Rent shall be in a pro rata portion of the then applicable Base Rent for such partial month based on the number of days in such partial month prior to and including the last day of the Term of this Lease.

 

The Base Rent and all other Rent or other charges provided for herein shall be paid to Landlord without deduction or offset, and in lawful money of the United States of America to such persons and at such place as Landlord may from time to time designate in writing.  For purposes of rent adjustment under the Lease, the number of months is measured from the first day of the calendar month in which the Commencement Date falls.  Landlord and Tenant agree

 

4



 

for tax reporting purposes that none of the Base Rent due in periods in which the Base Rent is not being abated shall be allocated to any other period.

 

6.                                       UTILITIES AND SERVICES .

 

Tenant shall contract in its own name and pay for all charges for water, sewer, electricity, gas, fuel, telephone, trash hauling, and any other services or utilities used in, servicing, or assessed against the Premises, unless otherwise herein expressly provided.

 

7.                                       QUIET ENJOYMENT .

 

Landlord covenants that Tenant, on paying the Rent herein provided, and on keeping, performing, and observing the covenants, agreements, and conditions herein required of Tenant, shall peaceably and quietly hold and enjoy the Premises for the Term aforesaid, subject, however, to the terms of this Lease.

 

8.                                       ASSIGNMENT AND SUBLETTING .

 

8.01                         No Assignments .  Except as expressly permitted in this paragraph, Tenant shall not, without the prior written consent of Landlord, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant.  Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease.  This Lease shall not, nor shall any interest herein, be assignable as to the interest of Tenant by operation of law without the written consent of Landlord, which consent shall not be unreasonably withheld.  A transfer of a majority interest or control of the stock or capital or member interest of Tenant shall be deemed an assignment under this Lease requiring Landlord’s consent.

 

8.02                         Limits on Subletting .  No sublease shall be made without the prior written consent of Landlord, which consent Landlord agrees will not unreasonably be withheld.  If at any time or from time to time during the term of this Lease, Tenant desires to sublet all or any part of the Premises, Tenant shall give notice to Landlord setting forth the terms of the proposed subletting and the space so proposed to be sublet and such additional information concerning the subtenant as Landlord may request, including, without limitation, the name of the proposed subtenant; the nature of the proposed subtenant’s business to be carried on in the Premises; the terms and provisions of the proposed sublease and a copy of the proposed sublease form; and such financial information, including financial statements, as Landlord reasonably may request concerning the proposed subtenant.  Landlord shall have the option, exercisable by notice given to Tenant within ninety (90) days after Tenant’s notice is given, either to sublet from Tenant such space at the rental and other terms set forth in Tenant’s notice, or, if the proposed subletting is for the entire Premises and for the substantial balance of the Term of this Lease, to terminate this Lease.  If Landlord does not elect to terminate and has consented to such sublease, Tenant shall be free to sublet such space to any third party subject to the following conditions:

 

1.                                       The sublease shall be on the same terms set forth in the notice given to Landlord;

 

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2.                                       No sublease shall be valid and no sublessee shall take possession of the Premises subleased until an executed counterpart of such sublease has been delivered to Landlord;

 

3.                                       No sublessee shall have a right further to sublet; and

 

4.                                       One hundred percent (100%) of any sums or other economic consideration received by Tenant as a result of such subletting (excluding brokerage commissions amortized over the term of the sublease and rental or other payments received by Tenant which are attributable to the amortization of the costs of leasehold improvements, other than building standard tenant improvements, made by Tenant to the sublet portion of the Premises) whether denominated as rentals under the sublease or otherwise and which exceed, in the aggregate, the total sums which Tenant is obligated to pay Landlord under this Lease (prorated to reflect Tenant’s obligation to pay rent under this Lease allocable to that portion of the Premises subject to such sublease) shall be payable to Landlord.

 

8.03                         Permitted Assignment/Subletting .  Notwithstanding the provisions of Sections 8.01 and 8.02 above, Tenant may assign this Lease or sublet the Premises or any portion thereof, without Landlord’s consent and without extending any option to Landlord, to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from the merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant provided that said assignee (i) assumes each and every obligation of Tenant under this Lease and (ii) such assignee has a tangible net worth that equals or exceeds Tenant’s tangible net worth on the date of this Lease or on the date of the transfer, whichever is greater.

 

8.04                         Tenant Not Released .  Regardless of Landlord’s consent, no subletting or assignment shall release Tenant or Tenant’s obligations hereunder or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder.  The acceptance of Rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof.  Consent to one assignment or subletting shall not be deemed consent to any subsequent or different assignment or subletting.  In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor.

 

8.05                         Attorney Fees .  In the event Tenant shall assign or sublet the Premises or request the consent of Landlord to any assignment or subletting or if Tenant shall request the consent of Landlord for any act that Tenant proposes to do, then Tenant shall pay Landlord’s reasonable attorney fees incurred in connection therewith.

 

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9.                                       DAMAGE OR DESTRUCTION .

 

9.01                         Definitions .

 

“Premises Partial Damage” shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than fifty percent (50%) of the then replacement cost of the Premises.

 

“Premises Building Partial Damage” shall herein mean damage or destruction to the Building of which the Premises are a part to the extent that the cost of repair is less than fifty percent (50%) of the then replacement cost of such Building as a whole.

 

“Premises Total Destruction” shall herein mean damage or destruction to the Premises to the extent that the cost of repair is fifty percent (50%) or more of the then replacement cost of the Premises.

 

“Premises Building Total Destruction” shall herein mean damage or destruction to the Building of which the Premises are a part to the extent that the cost of repair is fifty percent (50%) or more of the then replacement cost of such Building as a whole.

 

“Insured Loss” shall herein mean damage or destruction which was caused by an event covered by insurance carried by Landlord and the proceeds payable under such insurance policy are sufficient to pay in full the cost to repair and restore such damage and destruction.

 

9.02                         Partial Damage - Insured Loss .  Subject to the provisions of Section 9.04, 9.05, and 9.06 hereof, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Premises Building Partial Damage, then Landlord shall, at Landlord’s expense, repair such damage, but not Tenant’s fixtures, equipment or tenant improvements unless the same have become a part of the Premises pursuant to the terms of the Lease as soon as reasonably practicable and this Lease shall continue in full force and effect.

 

9.03                         Partial Damage - Uninsured Loss .  Subject to the provisions of Section 9.04, 9.05 and 9.06 below, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Tenant (in which event Tenant shall make the repairs at Tenant’s expense), Landlord may at Landlord’s option either (i) repair such damage as soon as reasonably possible at Landlord’s expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Tenant within thirty (30) days after the date of the occurrence of such damage of Landlord’s intention to cancel and terminate this Lease, as of the date of the occurrence of such damage.  In the event Landlord elects to give such notice of Landlord’s intention to cancel and terminate this Lease, Tenant shall have the right within ten (10) days after the receipt of such notice to give written notice to Landlord of Tenant’s intention to repair such damage at Tenant’s expense, without reimbursement from Landlord, in which event this Lease shall continue in full force and effect, and Tenant shall proceed to make such repairs as soon as reasonably possible.  If Tenant does not give such notice within such ten (10) day period this Lease shall be canceled and terminated as of the date of the occurrence of such damage.

 

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9.04                         Total Destruction .  If at any time during the term of this Lease there is damage, whether or not an Insured Loss (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction or Premises Building Total Destruction, this Lease shall automatically terminate as of the date of such total destruction.

 

9.05                         Damage Near End of Term .  If at any time during the last six (6) months of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Landlord may at Landlord’s option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Tenant of Landlord’s election to do so within thirty (30) days after the date of occurrence of such damage.

 

9.06                         Abatement of Rent; Tenant’s Remedies .  In the event of damage described in Sections 9.02, or 9.03 hereof, and Landlord or Tenant repairs or restores the Premises pursuant to the provisions of this Section 9, the Rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Tenant’s use of the Premises is impaired.  Except for abatement of Rent, if any, Tenant shall have no claim against Landlord for any damage suffered by reason of any such damage, destruction, repair or restoration, unless such damage was caused by the gross negligence or willful misconduct of Landlord or its agents.  If Landlord shall be obligated to repair or restore the Premises under the provisions of this Section 9 and shall not commence such repair or restoration within ninety (90) days after such obligations shall accrue, Tenant may, at Tenant’s option, cancel and terminate this Lease by giving Landlord written notice of Tenant’s election to do so at any time prior to the commencement of such repair or restoration.  In such event this Lease shall terminate as of the date of such notice.

 

9.07                         Termination - Advance Payments .  Upon termination of this Lease pursuant to this Section 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Tenant to Landlord.  Landlord shall, in addition, return to Tenant so much of Tenant’s Security Deposit as has not theretofore been applied by Landlord.

 

9.08                         Waiver .  Landlord and Tenant waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease.

 

10.                                LANDLORD’S RIGHTS .

 

Landlord reserves the following rights:

 

1.                                       To change the name of the Building or the Project without notice or liability of Landlord to Tenant;

 

2.                                       At any time during the last ninety (90) days of the Term of this Lease or any renewal hereof or any part hereof, if during or prior to that time, Tenant has vacated the Premises, to decorate, remodel, repair, alter, or otherwise prepare the Premises for occupancy;

 

3.                                       To exhibit the Premises to others and to display “For Rent” signs on the Premises during the last ninety (90) days of the Term of this Lease or any renewal hereof;

 

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4.                                       To remove from the parking lot abandoned or unlicensed vehicles and vehicles that are unreasonably interfering with the use of said parking lot by others and to charge the responsible tenant for the expense of removing said vehicles; and

 

5.                                       To take any and all measures, including making inspections, repairs, alterations, additions, and improvements to the Premises or Project as may be necessary or desirable for the safety, protection, or preservation of the Premises or the Project or Landlord’s interests, or as may be necessary or desirable in the operation of the Premises or the Project.

 

Landlord may enter upon the Premises for the purpose of exercising any or all of the foregoing rights hereby reserved without being deemed guilty of an eviction or disturbance of Tenant’s use or possession of the Premises and without being liable in any manner to the Tenant.

 

11.                                HOLDING OVER .

 

In the event of a holding over by Tenant after the expiration or termination of this Lease without the written consent of Landlord, Tenant shall be deemed a month to month tenant upon all of the provisions of the Lease pertaining to the obligations of Tenant excepting, however, any option to renew extend or expand contained in this Lease, at 150% of the Base Rent for the entire holdover period, and all attorney fees and other expenses incurred by Landlord in enforcing its rights hereunder.  Any holding over with the consent of Landlord shall constitute Tenant a month-to-month Tenant at the same Base Rent and all other Rent paid or payable by Tenant for the last full month of this Lease or any renewal or extension hereof.

 

12.                                SIGNS AND ADVERTISEMENTS .

 

Tenant shall not put upon nor permit to be put upon or affixed to any part of the Premises or Project any signs, billboards, or advertisements of whatsoever kind or nature, except as Landlord has specifically approved in writing.

 

13.                                EMINENT DOMAIN .

 

If the Premises or any portion thereof (including parking spaces allotted thereto) are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called “condemnation”), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs.  If more than ten percent (10%) of the floor area of the Premises, or more than twenty five percent (25%) of the land area of the Project which is not occupied by any building, is taken by condemnation and such taking materially interferes with the conduct of or access to Tenant’s business, Tenant may, at Tenant’s option, by written notice to Landlord within ten (10) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes possession.  If Tenant does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the proportion that the floor area of the Premises taken bears to the total floor area of the Premises prior to such taking.  No reduction of Base Rent shall occur if the only area in the Project which is taken is that which

 

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does not have a Building located thereon.  Any award of the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Landlord, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Tenant shall be entitled to any award for loss of or damage to Tenant’s trade fixtures and removable personal property, moving expense and interruption of business so long as any such award does not diminish Landlord’s award.  In the event that this Lease is not terminated by reason of such condemnation, Landlord shall to the extent of severance damages received by Landlord in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Tenant has been reimbursed therefor by the condemning authority.  Tenant shall pay any amount in excess of such severance damages required to complete such repair.

 

14.                                LANDLORD’S INABILITY TO PERFORM .

 

If, by reason of Landlord’s reasonable inability to obtain and utilize labor, materials, or supplies; circumstances directly or indirectly the result of a state of war, act of terrorism or national or local emergency; laws, rules, orders, regulations, or requirements of any governmental authority now or hereafter in force; strikes or riots; accident in, damage to, or the making of repairs, replacements, or improvements to the Premises or any of the equipment thereof (except as provided in Section 9); or by reason of any other cause beyond the reasonable control of Landlord (collectively “Force Majeure”), Landlord shall be unable to perform or shall be delayed in the performance of any covenant to supply any service, such nonperformance or delay in performance shall not render Landlord liable in any respect for damages to either person or property, constitute a total or partial eviction (constructive or otherwise), work an abatement of Rent, or relieve Tenant from the fulfillment of any covenant or agreement contained in this Lease.

 

15.                                ASSIGNMENT TO TRUSTEE .

 

Neither this Lease nor any interest herein nor any estate hereby created shall pass to any trustee or receiver in bankruptcy or to any other receiver or assignee for the benefit of creditors, or otherwise by operation of law during the term of this Lease or any renewal or extension of the term hereof.

 

16.                                COMMON AREAS .

 

The term “Common Areas” means all the areas of the Project not intended for renting and, instead, designed for the common use and benefit of Landlord and all of the tenants, their employees, agents, customers, and invitees.  The Common Areas include, but not by way of limitation, parking lots, truck courts, landscaped and vacant areas, driveways, walks, and curbs, with facilities appurtenant to each, as such areas may exist from time to time.  Landlord expressly reserves the right to add additional Common Area to the Project from time to time.  Landlord shall operate and maintain in reasonably good condition the Common Areas of the Project, and the cost of same shall be reimbursed by Tenant to Landlord as provided for in Section 21.  Landlord may delegate its rights with regard to the Common Area to an independent contractor or management company, which may be an affiliate of Landlord.  Landlord hereby

 

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grants the non-exclusive, revocable right to use the Common Areas to Tenant, Tenant’s employees, agents, customers, and business invitees, which use shall be subject at all times to such reasonable, uniform, and nondiscriminatory rules and regulations as may from time to time be established by Landlord.

 

17.                                ACCEPTANCE OF PREMISES .

 

Except as otherwise provided in this Lease, Tenant hereby accepts the Premises in their condition existing as of the Commencement Date or the actual date that Tenant takes possession of the Premises, whichever is earlier.  Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty as to the present or future suitability of the Premise for the conduct of Tenant’s business.

 

18.                                MAINTENANCE, REPAIRS AND ALTERATIONS .

 

18.01                  Maintenance and Care by Tenant .  Tenant shall be responsible for all maintenance and repair to the Premises of whatsoever kind or nature that is not hereinafter set forth specifically as the obligation of Landlord.  Tenant shall take good care of the Premises and fixtures, and keep them in good repair (ordinary wear and tear excepted), free from filth, overloading, danger of fire, or any pest or nuisance, and shall repair any damage or breakage done by Tenant or its agents, employees, or invitees, including damage done to the Premises by Tenant’s equipment and/or installations.  Tenant shall be responsible for the repair and replacement of all glass and plate glass on the Premises.  Tenant shall maintain and pay for a service contract with a licensed contractor for the upkeep, maintenance, repair, and periodic servicing of the heating, ventilating, and air conditioning systems servicing the Premises.  Tenant shall supply Landlord, from time to time, such information as Landlord reasonably requests to verify the services being performed under the service contract.  The Landlord, at Landlord’s option, may elect to enter into a service contract for the maintenance and periodic inspection of the heating, ventilating, and air conditioning equipment in which event Tenant shall within ten (10) days of billing therefore, reimburse Landlord for the costs of such service contract allocated to the Premises.  In the event that Tenant fails to maintain the Premises as required herein, Landlord shall have the right, but not the obligation, to perform such maintenance and/or repairs, and Tenant shall, within ten (10) days of the billing by Landlord, reimburse Landlord for Landlord’s costs in providing such maintenance and/or repairs, together with a fifteen percent (15%) charge for Landlord’s overhead.  Upon termination of the Lease Tenant shall deliver the Premises to Landlord in a broom-clean condition.

 

18.02                  Maintenance and Repair by Landlord .  During the Term of this Lease, Landlord shall keep and maintain the roof, exterior walls (excluding glass or plate glass), gutters, and downspouts of the Building in good condition and repair.  Landlord shall be under no obligation and shall not be liable for any failure to make repairs that are Landlord’s responsibility as designated herein until and unless Tenant notifies Landlord in writing of the necessity therefor, and Landlord shall have a reasonable time after such notice to make such repairs.  Landlord reserves the right to the exclusive use of the roof and exterior walls of the Building.  If any portion of the Premises which Landlord is obligated to maintain or repair is damaged through the fault or negligence of Tenant, its agents, employees, or invitees, then repairs necessitated by such damage shall be paid for by Tenant on Landlord’s demand.  Except for the obligations of

 

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Landlord under Section 18.02 (relating to the condition of the Premises), Section 9 (relating to destruction of the Premises) and under Section 13 (eminent domain), it is intended by the parties hereto that Landlord have no obligation, in any manner whatsoever, to repair and maintain the Premises nor the Building located thereon nor the equipment therein, whether structural or nonstructural, all of which obligations are intended to be that of Tenant under Section 18.01 hereof.  Tenant expressly waives the benefit of any statute now or hereinafter in effect which would otherwise afford Tenant the right to make repairs at Landlord’s expense or to terminate this Lease because of Landlord’s failure to keep the Premises in good order, condition and repairs.

 

18.03                  Alterations and Additions .  Tenant shall not make any alterations, improvements, or additions to the Premises without Landlord’s prior written consent and approval of the plans and specifications.  Alterations, improvements, or additions so made by either of the parties upon the Premises, except movable furniture and equipment placed in the Premises at the expense of Tenant, shall become the property of Landlord and shall remain upon and be surrendered with the Premises as a part thereof at the termination of this Lease, without disturbance, molestation, injury, or damage unless Landlord, by written notice to Tenant, elects to require Tenant to remove such alterations, improvements, or additions from the Premises at the expiration of this Lease.  In the event damage to the Building shall be caused by moving said furniture and/or equipment in or out of the Premises, such damage shall be repaired at the expense of Tenant.  Any such alterations shall be made in compliance with all applicable laws, rules and regulations (including without limitation the Americans with Disabilities Act and other disabled person access requirements) to the extent applicable to such alterations or as may be required by any governmental authority in connection with such alterations.  Tenant shall not make any installations or penetrations on the roof of the Building, except with Landlord’s prior written consent and in strict compliance with the reasonable requirements of Landlord’s roofing contractor.  Landlord’s consent to or approval of any alterations, additions or improvements (or the plans therefor) shall not constitute a representation or warranty by Landlord, nor Landlord’s acceptance, that the same comply with sound architectural and/or engineering practices or with all applicable laws, and Tenant shall be solely responsible for ensuring all such compliance.

 

18.04                  Mechanic’s Liens .  Tenant shall not permit any mechanic’s liens or other liens to be placed upon the Premises, the Building, or the Project during the Term of this Lease, and in the case of the filing of any such lien, Tenant shall promptly pay same; however, Tenant shall have the right to contest the validity or amount of any such lien upon Tenant’s prior posting of security with Landlord, which security, in Landlord’s sole judgment, must be adequate to pay and discharge any such lien in full, plus Landlord’s reasonable estimate of its legal fees.  Tenant agrees to pay all legal fees that might be incurred by Landlord because of any mechanic’s liens or other liens placed upon the Premises.

 

19.                                INSURANCE .

 

19.01                  Coverages Required .  Tenant hereby agrees to maintain in full force and effect at all times during the term of this Lease, at its own expense, for the protection of Tenant and Landlord, as their interest may appear, policies of insurance issued by a responsible carrier or carriers licensed to do business in the State of Utah and which are rated A and have a financial size category of at least VIII in the most recent Best’s Key Rating Guide, or any successor

 

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thereto (or if there is none, an organization having a national reputation), which afford the following coverages:

 

(A)                                commercial general liability insurance, including contractual liability (specifically covering this Lease), fire legal liability, and premises operations, with the following minimum limits:  General Aggregate $2,000,000.00; Products/Completed Operations Aggregate $2,000,000.00; Each Occurrence $1,000,000.00; Personal and Advertising Injury $1,000,000.00; Medical Payments $5,000.00 per person;

 

(B)                                Umbrella/Excess Liability on a following form basis with the following minimum limits:  General Aggregate $3,000,000.00; Each Occurrence $3,000,000.00;

 

(C)                                Workers’ Compensation with statutory limits;

 

(D)                                Employer’s Liability insurance with the following limits:  Bodily injury by disease per person $1,000,000.00; Bodily injury by accident policy limit $1,000,000.00; Bodily injury by disease policy limit $1,000,000.00;

 

(E)                                 A “causes of loss, special form of insurance” policy, commonly referred to in the industry as an “all risk, fire and extended coverage” policy, with vandalism and malicious mischief endorsements, covering Tenant’s furniture, equipment, and personal property, to the extent of not less than their full replacement value.

 

(F)                                  Loss of income/business interruption insurance in such amounts as will reimburse Tenant for direct or indirect loss of earnings attributable to all perils commonly insured against under an extended coverage property insurance policy or attributable to prevention of access to or use of the Premises or the Building as a result of such perils but in no event in an amount less than the Base Rent and all additional rent payable hereunder for six (6) months.

 

19.02                  Deductibles .  Tenant may, with the written consent of Landlord, elect to have reasonable deductibles in connection with coverages required in Section 19.01 above.

 

19.03                  Certificates .  Tenant shall deliver to Landlord at least thirty (30) days prior to the time such insurance is first required to be carried by Tenant, and thereafter at least thirty (30) days prior to expiration of such policy, Certificates of Insurance evidencing the above coverage with limits not less than those specified above.  Such Certificates, with the exception of Workers Compensation, shall name Landlord, Landlord’s property manager and such other persons as Landlord may reasonably designate as additional insureds as their interests may appear and shall expressly provide that the interest of each shall not be affected by a breach by Tenant of any policy provision for which such Certificates evidence coverage.  All Certificates of Insurance shall provide not less than thirty (30) days’ prior written notice to Landlord in the event of material alteration to or cancellation of the coverage evidenced by such Certificates of Insurance.

 

19.04                  Mutual Waiver of Subrogation .  Landlord and Tenant do each hereby release the other from any and all liability or responsibility (to the other or to anyone claiming through or under the other by way of subrogation or otherwise) for any loss or damage to the property caused by

 

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fire, any of the extended coverage perils, or any other insured peril, even if such fire or other casualty shall have been caused by the negligence of the other party or anyone who shall be covered under such policy, to the extent of coverage under the relevant policy.  Such waiver of subrogation shall be effective with respect to loss or damage occurring only during such time as Landlord’s and Tenant’s policies shall be in force and effect with respect to such loss or damage and shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the releasing party to recover thereunder.  Landlord and Tenant each agree that their policies shall include such a clause or endorsement.

 

19.05                  Indemnification of Landlord .  Tenant shall indemnify, protect and defend Landlord, Landlord’s property manager and their respective agents, contractors and employees (collectively, the Indemnified Parties ) and save them harmless from and against any and all loss (including loss of Rents payable by Tenant or by other tenants), and against all claims, actions, damages, liability, costs, fees and expenses (including, without limitation, attorneys and consultants fees) in connection with loss of life, bodily and personal injury, or damage to property (real or personal) arising from any occurrence in, upon, or at the Premises or any part thereof, or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, licensees, concessionaires, or invitees or by anyone permitted to be on the Premises by Tenant.  Tenant assumes all risks of and Landlord shall not be liable for injury to person or damage to Tenant’s property (real or personal) or the property of Tenant’s agents, servants, or employees resulting from the condition of the Premises, or from the bursting or leaking of any and all pipes, utility lines, connections, or air conditioning, ventilating, or heating equipment in, on, or about the Premises, or from water, rain, or snow which may leak into, issue from, or flow from any part of the roof or the Building.  Tenant agrees, at all times, to indemnify and hold the Indemnified Parties harmless against all actions, claims, demands, costs, damages, or expenses or any kind which may be brought against or made against the Indemnified Parties or which the Indemnified Parties may pay or incur by reason of Tenant’s occupancy of the Premises or Tenant’s negligent performance or failure to perform any of its obligations under this Lease.  In the event that Landlord shall, without fault on its part, be made a party to any litigation commenced by or against Tenant, Tenant shall protect and hold the Indemnified Parties harmless and shall pay all costs, expenses, and reasonable attorney fees incurred or paid by the Indemnified Parties in connection with such litigation.  The obligations of this Section 19.05 shall survive the expiration or earlier termination of the Lease.

 

19.06                  Increased Insurance Risk .  Tenant shall not permit the Premises to be used for any purpose which would render the insurance thereon void or the insurance risk more hazardous or cause the State Board of Insurance, any other insurance authority or Landlord’s insurance carrier to disallow any of Landlord’s sprinkler credits.  If any penalty, surcharge or increase in Landlord’s insurance premiums is imposed because of Tenant’s original or subsequent placements or use of storage racks or bins, Tenant’s method of storage, the nature of Tenant’s inventory, Tenant’s abandonment of the Premise or any other act of Tenant, Tenant shall pay as additional Rent, the increase in Landlord’s insurance premiums, and, upon demand by Landlord, Tenant agrees to correct at Tenant’s expense the cause of such penalty, surcharge or increase to the satisfaction of the particular insurance authority or carrier.

 

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20.                                HAZARDOUS MATERIALS .

 

20.01                  Lessor’s Prior Consent .  Notwithstanding anything contained in this Lease to the contrary, Tenant shall not cause or permit any Hazardous Materials (as defined in Section 20.02 below) to be brought upon, kept, stored, discharged, released or used in, under or about the Premises by Tenant, its agents, employees, contractors, subcontractors, licensees or invitees, without the prior written consent of Landlord, which Landlord may grant or withhold in Landlord’s sole discretion.

 

20.02                  Compliance with Hazardous Materials Laws .  Tenant shall at all times and in all respects comply with all federal, state and local laws, ordinances and regulations relating to or involving the use, generation, manufacture, storage, discharge, release, disposal or transportation of any materials, substances or wastes which are considered to be or may be hazardous to human health or safety or to the environment due to their radioactivity, ignitability, corrositivity, reactivity, carcinogenicity, infectiousness or other harmful or potential harmful properties and which are defined as or included within the definition of “hazardous materials,” “toxic substances” or “chemicals known to cause cancer or reproductive toxicity” under any Hazardous Materials Laws (collectively, “Hazardous Materials”).  All laws, ordinances and regulations relating to industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, discharge, release, disposal or transportation of Hazardous Materials are collectively referred to herein as “Hazardous Materials Laws”.

 

Tenant shall handle, treat, deal with and manage any and all Hazardous Materials in, on, under or about the Premises in total conformity with all applicable Hazardous Materials Laws and prudent industry practices regarding management of such Hazardous Materials.  Upon expiration or earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense, cause all Hazardous Materials brought or allowed on the Premises during the Lease Term to be removed from the Premises and transported for use, storage or disposal in accordance and in compliance with all applicable Hazardous Materials Laws.  Tenant shall not take any remedial action in response to the presence of any Hazardous Materials in or about the Premises or enter into any settlement agreement, consent decree or other compromise in respect to any claims relating to any Hazardous Materials in any way connected with the Premises, without first notifying Landlord of Tenant’s intention to do so and affording Lessor ample opportunity to appear, intervene or otherwise appropriately assert and protect Landlord’s interests with respect thereto.

 

20.03                  Notices .  Tenant shall immediately notify Landlord in writing of:  (i) any enforcement, cleanup, removal or other governmental or regulatory action threatened, instituted, or completed pursuant to any Hazardous Materials Laws; (ii) any claim made or threatened by any person against Tenant or the Premises relating to damage, contribution, cost recovery compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials on or removed from the Premises, including any complaints, notices, warnings or asserted violations in connection therewith.  Tenant shall also supply to Landlord as promptly as possible, and in no event later than five (5) business days after Tenant first receives or sends the same, copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises or Tenant’s use thereof.  Tenant shall maintain copies of hazardous

 

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waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises and supply Landlord with copies of same on request.

 

20.04                  Indemnification of Landlord .  Tenant shall indemnify, protect, defend and hold the Indemnified Parties harmless from any and all damages, losses, expenses, liabilities, obligations, costs, fees and expenses (including without limitation attorneys and consultants fees), in any way arising out of or related to the use, generation, storage, handling, transportation, release, discharge or disposal of Hazardous Materials on or about the Premises during the term of this Lease.  The obligations of this Section 20.04 shall survive the expiration or earlier termination of the Lease.

 

20.05                  Landlord’s Right to Order Environmental Studies .  From time to time during the term of this Lease, if Landlord shall have reasonable cause to believe that a release of Hazardous Materials has occurred at the Premises, or from the Premises into the Common Areas or the environment, Landlord may retain a qualified environmental consultant (a “Consultant”) to conduct an environmental investigation of the Premises, Common Areas, or other areas that may be affected by the suspected release of Hazardous Materials (1) for Hazardous Materials contamination in, about or beneath such areas and (2) to assess the compliance of Tenant with the provisions of this Section 20 of the Lease.  Additionally, Landlord shall have the right within the last one hundred twenty (120) days of the term of this Lease to order an environmental assessment to determine whether the Premises, Common Areas or the environment surrounding the Premises contain any Hazardous Materials that may be attributable to Tenant’s use of the premises.  In the event Landlord’s Consultant determines that a release of Hazardous Materials has occurred at the Premises, or from the Premises into the Common Areas or the environment, Tenant shall pay the cost of any such environmental assessment and comply with all reasonable recommendations of the Consultant as to any precautions to be taken with respect to the storage, use, disposal, handling or emission of Hazardous Materials.  Landlord will provide Tenant with written notice five (5) days prior to any proposed investigation to be undertaken hereunder.  Tenant shall cooperate with the Consultant to allow entry and reasonable access of the Consultant to all portions of the Premises for the purposes of the investigation.

 

21.                                ADDITIONAL RENT .

 

21.01                  Real Estate Taxes .

 

1.                                       Tenant shall pay to Landlord, as additional Rent, Tenant’s Proportionate Share of Landlord’s Real Estate Taxes for the Project for each Tax Year during the Term of this Lease or any renewal, extension, or holding over hereof.  Such additional Rent payments by Tenant shall be due and payable on the first day of each month during each Tax Year, each such payment in an amount equal to one-twelfth (1/12) of Tenant’s Proportionate Share of Landlord’s obligation for Real Estate Taxes for the applicable Tax Year.  The sum set out in Section 1.01M shall be the monthly charge for the first Tax Year.  For each subsequent Tax Year the amount payable under Section 1.01M shall be adjusted to reflect Landlord’s estimate of Tenant’s obligation for Real Estate taxes for that Tax Year.  In the event the sum of such monthly payments by Tenant for a particular Tax Year exceeds Tenant’s Proportionate Share of Landlord’s Real Estate Taxes for the applicable Tax Year,

 

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provided Tenant is not in default, Landlord shall refund or credit such excess payment to Tenant.  In the event the sum of Tenant’s monthly payments for a particular Tax Year is less than Tenant’s Proportionate Share of Landlord’s Real Estate Taxes for the applicable Tax Year, Tenant shall pay such deficiency upon demand.  “Tax Year”, as used herein, shall mean each calendar year during the Term of the Lease or any renewal, extension, or holding over hereof in which Real Estate Taxes are billed against the Project regardless of the Year in which the assessment for Real Estate Taxes occurs.  For the purposes of this Section, the first Tax Year shall be the calendar year in which the Lease Term commences.

 

2.                                       “Real Estate Taxes” shall mean:  (a) all ad valorem Real Estate Taxes on the Project (adjusted after protest or litigation, if any) for any part of the Term of this Lease, exclusive of penalties; (b) any taxes which shall be levied in lieu of any such ad valorem Real Estate Taxes; (c) any special assessments for benefits on or to the Project paid or payable in annual installments by Landlord; (d) occupational taxes or excise taxes levied on rentals derived from the operation of the Project for the privilege of leasing property; and (e) the expense of protesting, negotiating, or contesting the amount or validity of any such taxes, charges, or assessments, such expense to be applicable to the Tax Year of the item contested, protested, or negotiated.

 

3.                                       If the Term of this Lease shall end during a Tax Year of which only part is included in the Term hereof, the amount of such additional Rent shall be prorated on a per diem basis and shall be paid on or before the last day of the Term.  If the Term of this Lease ends during any Tax Year before the amount of the Real Estate Taxes is established and the amount payable by Tenant has not been finally determined under the provisions of this Section, an amount payable for that portion of the Lease Term during the Tax Year shall be reasonably estimated by Landlord, and the estimated amount shall be promptly paid by Tenant should such estimated amount paid by Tenant exceed its actual obligation under this Section then Landlord shall refund such excess amount.

 

21.02                  Common Expenses .

 

1.                                       During the Term of this Lease or any renewal, extension, or holding over hereof, Tenant shall pay to Landlord, as additional Rent, Tenant’s Proportionate Share of the Common Expenses.

 

2.                                       For the purpose of this Section, the “Common Expense” means Landlord’s total costs and expenses incurred during each Lease year in connection with owning, operating, maintaining, and repairing the Project, herein defined, including, but without limitation by enumeration:  costs for all management fees, electrical current, gas, water, sewer, or fuels used in connection with the operation, maintenance, and repair of the Common Areas or the Building; the amount paid for all electricity furnished to the Common Area to light the parking lots or for any other common purpose; the amount paid for all labor and/or wages and other payments, including costs to Landlord of worker’s compensation and disability

 

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insurance, payroll taxes, and welfare and fringe benefits, made to janitors, employees, contractors, and subcontractors of Landlord who are involved in the operation and maintenance of the Common Areas and the Project; charges of any independent contractors employed in the care, operation, maintenance, cleaning, and landscaping of the Common Areas; the amount paid for all supplies, tools, replacements parts or components, equipment, and necessities which are occasioned by everyday wear and tear; the premiums for all insurance maintained by Landlord for the Project; and the pro rata costs of machinery and equipment purchased and/or leased by Landlord in order to perform Common Area maintenance.  To the extent that Landlord provides services which are not separately metered or directly billed to Tenant the costs of such services shall be included in the Common Expenses.  Common Expenses shall not include interest on debt, capital retirement of debt and depreciation; however Common Expenses shall include Landlord’s capital expenditures incurred for the purpose of reducing Common Area or Building operating costs and capital expenditures incurred by Landlord that are required by changes or amendments in laws or regulations governing the Premises or the Project, plus interest on the unamortized costs of each such capital expenditure at the rate of 10% per annum or such higher rate as Landlord may have incurred on funds borrowed to construct such improvements, amortized over the useful life of the respective improvements of a capital nature.  If Landlord elects to self-insure or includes the Project under blanket insurance policies covering multiple properties, then the term “Common Expenses” shall also include the portion of the cost of such self-insurance or blanket insurance allocated by Landlord to this Project.

 

3.                                       For the purposes of this Section, the term “Lease Year” shall mean in the case of the first Lease Year, that period from the Commencement Date of the Term to the first succeeding December 31; thereafter, “Lease Year” shall mean each successive twelve (12) calendar month period following the expiration of the first Lease Year except that should the Expiration Date be any day other than on December 31, then the last Lease Year shall be the period from the end of the preceding Lease Year to the Expiration Date.

 

21.03                  Payment of Common Expense .  Tenant’s obligation for the Common Expenses for each Lease Year during the Lease Term shall be paid in monthly installments on the first day of each calendar month in advance.  The first Lease Year’s monthly installment amount is set out in Section 1.01L above.  Within a reasonable period after the end of the first Lease Year and within a reasonable period after the end of each Lease Year thereafter, Landlord shall notify Tenant of Tenant’s monthly obligation for Common Expenses which Landlord estimates it will incur for the then current Lease Year and the Common Expenses provided for in Section 1.01L shall be adjusted accordingly on the first day of the first month following such notice.  Within a reasonable period after the end of each Lease Year, Landlord shall furnish Tenant with a statement of the actual amount of Tenant’s obligation for Common Expenses for such period.  In the event the total of Tenant’s monthly installments paid for any Lease Year does not equal Tenant’s Proportionate Share as shown on such statement, then Tenant shall, within ten (10) days of the mailing of the statement, pay Landlord any deficiency, or Landlord upon receipt of such annual statement shall issue to Tenant a credit invoice for such excess, as the case may be.  Upon

 

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request delivered by Tenant within thirty (30) days after the date that Landlord delivers Landlord s statement, Landlord shall provide additional detail to Tenant regarding the calculation of Common Expenses for the year in question.  The statement of Common Expenses shall be presumed correct and shall be deemed final and binding upon Tenant unless Tenant in good faith objects in writing thereto within thirty (30) days after delivery of the statement to Tenant (which writing shall state, in reasonable detail, all of the reasons for the objection); and Tenant pays in full, within ten (10) days after delivery of the statement to Tenant, the amount shown on the statement as being owed by Tenant, regardless of whether such amount is in dispute.  Tenant’s dispute of any amount shown on Landlord’s statement shall not excuse Tenant from promptly paying such amount as required above, provided however if it is determined that the amount specified in Landlord’s statement as being payable by Tenant was over stated and Tenant has otherwise complied with the requirements of this Section, then Landlord shall pay or credit to Tenant the amount of such overcharge.  Tenant’s failure to pay the amount shown on Landlord’s statement within ten (10) days after delivery thereof or Tenant’s failure to pay in a timely manner the revised estimate of Landlord’s determination of Common Expenses shall be deemed an irrevocable waiver of Tenant s right to contest and/or receive any credit or reimbursement for an overcharge of Common Expenses shown on the Landlord’s statement under which payment is required at that time.

 

22.                                DEFAULT AND REMEDIES .

 

22.01                  Events of Default .  The occurrence of any of the following events shall constitute an Event of Default on the part of Tenant.

 

(A)                                Tenant shall at any time fail to pay Rent when due; or

 

(B)                                Tenant shall fail to keep, perform, or observe any other covenant, agreement, condition, or undertaking described hereunder and shall fail to remedy such default within ten (10) days after written notice thereof has been mailed by Landlord to Tenant; or if such default is one that will take longer than ten (10) days to remedy, Tenant fails to commence the cure of such default within said ten (10) day period and/or fails to diligently pursue such cure to completion; or

 

(C)                                This Lease or the Premises or any part thereof shall be taken upon execution or by other process of law directed against Tenant or shall be taken upon or subject to any attachment at the instance of any creditor of or claimant against Tenant and said attachment shall not be discharged or disposed of within fifteen (15) days after the levy thereof; or

 

(D)                                There is a filing of any petition or commencement of any case or proceeding by Tenant under any provision or chapter of the Federal Bankruptcy Act or any other federal or state law relating to Tenant’s insolvency, bankruptcy, or reorganization; or

 

(E)                                 There is a filing of any petition or commencement of any case or proceeding described in subparagraph (D) above against Tenant, unless such petition and all

 

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proceedings initiated thereby are dismissed within sixty (60) days from the date of such filing; or

 

(F)                                  The Premises shall be vacated or abandoned by Tenant, regardless of whether or not Tenant continues to pay Rent.

 

22.02                  Remedy .  Upon the occurrence of an Event of Default Landlord shall have the right, without further notice to or demand upon Tenant, to re-enter and take exclusive possession of the Premises, with or without force or legal process; to refuse to allow Tenant to enter the same or have possession thereof; to change the locks on the doors to the Premises; to take possession of any furniture or other property in or upon the Premises (Tenant hereby waiving the benefit of all exemptions by law) and to sell the same at public or private sale without notice and apply the proceeds thereof to the costs of sale, payment of damages, and payment of the Rent due under this Lease; all without Landlord being liable to Tenant for any damages or any prosecution therefor; and Landlord shall have the right;

 

(i)                                      As an agent of Tenant, to relet the Premises for the balance of the Term of this Lease or for a shorter or longer Term, with or without the granting of free rent or other market concessions, and to receive the rents therefor; applying them first to the payment of all of Landlord’s expenses of such reletting, such as, reasonable and customary repairs, improvements, broker’s commissions and, second, to the payment of remedying all damages suffered to the Premises and, third, to all Rent due and thereafter becoming due under this Lease, with Tenant remaining liable for and hereby agreeing to pay Landlord any such deficiency on a monthly basis during the Lease Term on the days Rent would be due hereunder; or

 

(ii)                                   To cancel and terminate the remaining Term of this Lease, regardless of whether Landlord has previously elected to relet or has relet the Premises as permitted in (i) above, to re-enter and take possession of the Premises free of this Lease, and thereafter this Lease shall be null and void, and the Rent in such case shall be apportioned and paid on and up to the date of such entry and possession by Landlord.  Thereafter Tenant shall be liable for and pay all Rents accrued, due or owing as of the date or termination, as well as the costs to repair damage to the Premises incurred by Landlord by reason of Tenants breach or default of this Lease; or

 

(iii)                                To treat such default as a breach of this Lease and terminate this Lease by written notice to Tenant and recover from Tenant as damages for such breach:

 

(a)                                  the worth at the time of award of any unpaid Rent which had been earned at the time of such termination; plus

 

(b)                                  the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination

 

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until the time of award exceeds the amount of such rental loss Tenant proves could have been reasonably avoided; plus

 

(c)                                   the worth at the time of award of the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus

 

(d)                                  any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; plus

 

(e)                                   such reasonable attorneys’ fees incurred by Landlord as a result of such default, and costs in the event suit is filed by Landlord to enforce such remedy; and

 

(f)                                    at Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

 

As used in subparagraphs (a) and (b) above, the “worth at the time of award” is computed by allowing interest at the rate of ten percent (10%) per annum.  As used in subparagraph (c) above, the “worth at the time of award” is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%).

 

All rights and remedies expressly provided in the Lease for Landlord’s protection shall be cumulative and shall be in addition to any other rights and remedies provided by law.  Landlord shall be entitled to recover from Tenant reasonable attorneys’ fees and costs incurred by Landlord in enforcing its rights hereunder.  In the event Landlord elects to re-enter or take possession of the Premises, Tenant agrees to quit and peaceable surrender the Premises and possess and repossess itself thereof, and may have, hold, and enjoy the Premises and the right to receive all rental income of and from the same.  No such re-entry and taking of possession by Landlord shall be construed as an election on Landlord’s part to terminate or surrender this Lease unless Landlord gives notice to Tenant specifically terminating the Lease.  Unless a written notice of such intention is served on Tenant, any service of demand for the payment of rent or possession required under applicable law to recover the Premises does not constitute an election on the part of Landlord to terminate this Lease, nor shall such notice or re-entry by Landlord or forfeiture by Tenant relieve Tenant of its continuing liability for unaccrued rent.

 

A waiver by Landlord of any breach or default by Tenant under the terms and conditions of this Lease shall not be construed to be a waiver of any subsequent breach or default or of any other term or condition of this Lease, and a failure of Landlord to assert any breach or to declare a default by Tenant shall not be construed to constitute a waiver thereof, so long as such breach or default continues unremedied.

 

22.03                  Landlord’s Default .  Landlord shall not be deemed to be in default in the performance of any obligation required to be performed by Landlord hereunder unless and until Landlord has

 

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failed to perform the obligation within fifteen (15) days after receipt of written notice by Tenant to Landlord specifying wherein Landlord has failed to perform the obligation; provided, however, that if the nature of Landlord’s obligation is such that more than fifteen (15) days are required for its performance, then Landlord shall not be deemed to be in default if Landlord shall commence the performance within the fifteen (15) day period and thereafter shall diligently prosecute the same to completion.  Upon Landlord’s default, Tenant shall be entitled to exercise all rights, powers and remedies provided hereunder, at law, or in equity.  In addition, during such default, rent shall be abated as appropriate.

 

22.04                  Landlord’s Right to Perform Tenant’s Covenants .  If Tenant shall at any time fail to make any payment or perform any other act on its part to be made or performed under this Lease, Landlord may, but shall not be obligated to, make the payment or perform any other act to the extent Landlord may deem desirable and, in connection therewith, pay expenses and employ counsel.  Any payment or performance by Landlord shall not waive or release Tenant from any obligations of Tenant under this Lease.  All sums so paid by Landlord, and all penalties, interest and costs in connection therewith, shall be due and payable by Tenant on the next day after any payment by Landlord, together with interest thereon at the Interest Rate (as defined in Section 32), from that date to the date of payment thereof by Tenant to Landlord, plus collection costs and attorneys’ fees.  Landlord shall have the same rights and remedies for the nonpayment thereof as in the case of default in the payment of Rent.

 

23.                                NOTICES .

 

Except as other wise herein provided, whenever by the terms of this Lease notice shall or may be given either to Landlord or to Tenant, such notice shall be in writing and shall be deemed to have been properly served if delivered personally, sent by Federal Express or other national overnight courier or through the U.S. Postal Service, certified mail, postage prepaid, to Landlord at the addresses set forth below or such other person or place as Landlord may designate in writing and to Tenant at the Premises.  The date of personal delivery or receipt of the notice, one (1) business day after deposit with such overnight courier or three (3) business days after mailing, whichever is earlier shall be deemed the date of service of notice.  Notice may also be served by Landlord or Tenant in the same manner as provided for personal service under the Rules of Civil Procedure in the State of Utah.  Landlord’s addresses for notice are as follows:

 

Landlord:

WDCI, Inc.

 

ATTN: Vice President - Property Management

 

822 Bishop Street

 

Honolulu, HI 96813

 

 

With a copy to:

WDCI, Inc.

 

ATTN: General Counsel

 

822 Bishop Street

 

Honolulu, HI 96813

 

 

Tenant:

Control4 Corporation

 

Attn: President

 

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11734 South Election Drive, Suite 200

 

Draper, Utah 84020

 

24.                                PERSONS BOUND .

 

The agreements, covenants, and conditions of this Lease shall be binding upon and shall insure to the benefit of the heirs, legal representatives, successors, and assigns of each of the parties hereto, except that no assignment, encumbrance, or subletting by Tenant, unless permitted by the provisions of this Lease, without the prior written consent of Landlord, shall vest any right of an assignee, encumbrance, or sublessee of Tenant.  The singular herein, in referring to either Landlord or Tenant, shall be deemed to include the plural where the context so requires.  If there be more than one Tenant herein named, the provisions of this Lease shall be applicable to and binding upon such Tenant jointly and severally.

 

25.                                SECURITY DEPOSIT .

 

Tenant herewith deposits with Landlord the sum referenced in the Basic Terms as a Security Deposit for the performance by Tenant of every covenant and condition of this Lease.  Said deposit may be commingled with other funds of Landlord and shall bear no interest.  If Tenant shall default with respect to any covenant or condition of this Lease, Landlord may apply the whole or any part of such Security Deposit to the payment of any sum in default or any sum which Landlord may be required to spend by reason of Tenant’s default, including, but not limited to, applying the Security Deposit first to the costs of any restoration and/or cleanup made necessary by reason of above normal wear and tear of the Premises.  It is agreed that the Security Deposit is not to be considered as the last month’s Rent under this Lease.  Should Tenant comply with all of the covenants and conditions of this Lease, the Security Deposit or any balance thereof shall be returned to Tenant within a reasonable time after the expiration of the Term hereof.  If Landlord uses or applies all or any portion of the deposit, Tenant shall within ten (10) days after written demand therefore deposit cash with Landlord in an amount sufficient to restore the deposit to the full amount hereinabove stated and Tenant’s failure to do so shall be a material breach of this Lease.  If the Base Rent shall, from time to time, increase during the term of this Lease, Tenant shall thereupon deposit with Landlord additional sums so that the amount of Security Deposit held by Landlord shall at all times bear the same proportion to current Base Rent as the original Security Deposit bears to the original Base Rent set forth in Section 1.01I hereof.

 

26.                                [INTENTIONALLY OMITTED]

 

27.                                SUBORDINATION/FINANCIAL DISCLOSURE .

 

Landlord shall have the right to transfer, mortgage, pledge or otherwise encumber, assign or convey in whole or in part the Premises, building, Project, this Lease and all rents and amounts payable by Landlord under the provisions hereof, and Tenant shall continue its performance hereunder notwithstanding any such transfer.  At Landlord’s option, or at the option of any mortgagee or ground lessee of Landlord, this Lease shall be made subordinate to any ground lease, mortgage, deed of trust or any other hypothecation or security now or hereafter placed upon or affecting real property of which the premises are a part and to any and all

 

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advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof pursuant to a written subordination agreement between Tenant and any such ground lessee or mortgagee.  Notwithstanding the foregoing, the subordination of Tenant’s interest pursuant to the terms hereof shall be conditional on such mortgagee or ground lessee entering into a commercially reasonable non-disturbance agreement with Tenant, which shall provide for the continuation of the Lease for the remaining term hereof on the terms and conditions hereof, notwithstanding the termination of any relevant ground lease or a foreclosure, deed in lieu of foreclosure or other transfer under any mortgage or deed of trust affecting the Project or the Premises, so long as Tenant shall have paid rent and all other sums required to be paid under this lease and shall otherwise be in compliance with the terms hereof.  Tenant agrees to execute any documents required to effectuate an attornment or subordination pursuant to the terms hereof and Tenant hereby irrevocably appoints Landlord as its agent and attorney to execute and deliver any such instrument for and in the name of Tenant if Tenant fails to do so within ten (10) days after written notice by Landlord or any ground lessee or mortgagee.  Any mortgagee, trustee or ground lessor may elect to have the Lease prior to the lien of its mortgage, deed of trust or ground lease and upon written notice to Tenant this lease shall be deemed prior to such mortgage, deed of trust or ground lease whether this Lease is dated prior subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof.

 

If Landlord desires to finance, refinance, or sell the Premises or any part thereof, Tenant hereby agrees to deliver to any lender or purchaser designated by Landlord such financial statements of Tenant as may be reasonably requested by such lender or purchaser.  Such statements shall include the past three (3) years’ financial statements of Tenant.  All such financial statements shall be received by Landlord and such lender or purchaser in confidence and shall only be used for the purposes herein set forth.

 

28.                                ATTORNEY’S FEES .

 

If either party brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to its reasonable attorney’s fees to be paid by the losing party as fixed by the court.

 

29.                                PARKING .

 

Tenant’s employees, customers, invitees and visitors shall park only in areas designated for parking of vehicles.

 

30.                                EXAMINATION OF LEASE .

 

Submission of this document for examination or signature by Tenant does not constitute a reservation of or option for space and it is not effective as a lease or otherwise until execution by both Tenant and Landlord.

 

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31.                                BROKER’S COMMISSIONS .Tenant and Landlord each represent and warrant to the other that neither has had any dealings with any person, firm, broker or finder (other than those persons, if any, whose names are set forth in this Paragraph 31) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and no other broker or other person, firm or entity is entitled to any commission or finder’s fee in connection with said transaction and Tenant and Landlord do each hereby indemnify and hold the other harmless from and against any costs, expenses, attorneys’ fees or liability for compensation, commission or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying party.  Named brokers:

 

Landlord’s Broker:

CB Richard Ellis

 

 

Tenant’s Broker:

Cottonwood Realty Group

 

The commission payable to Landlord’s Broker with respect to this Lease shall be pursuant to the terms of the separate commission agreement in effect between Landlord and Landlord’s Broker.  Landlord’s Broker shall pay a portion of its commission to Tenant’s Broker, if so provided in any agreement between Landlord’s Broker and Tenant’s Broker.  Nothing in this Lease shall impose any obligation on Landlord to pay a commission or fee (a) to any party other than Landlord’s Broker or (b) to any party with respect to (i) the exercise by Tenant of any option or right of first refusal pursuant to this Lease, or (ii) any extension or renewal of this Lease.

 

32.                                LATE PAYMENT/INTEREST .

 

Tenant’s failure to pay Rent or any other payment required of Tenant hereunder within five (5) days of the due date therefor shall result in the imposition of a service charge for such late payment in the amount of five percent (5%) of such required payment to cover Landlord’s administrative costs to handle late payments.  Imposition of and/or payment of a service charge for late payment shall not constitute a cure or waiver for such default in payment.  In addition, any amount which is not paid when due shall bear interest from the date due until the date paid at the rate (“Interest Rate”) which is the lesser of fifteen percent (15%) per annum or the maximum rate permitted by law.

 

33.                                ESTOPPEL CERTIFICATE .

 

Tenant shall upon not less than ten (10) day’s prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and is full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the Rent and other charges are paid in advance, if any; (ii) acknowledging that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed; and (iii) stating the correctness or incorrectness of any other fact related to Tenant’s use and occupancy of the Premises or either or both Landlord’s and Tenant’s rights and obligations under this Lease as may be reasonably requested.  Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises.

 

25



 

At Landlord’s option, Tenant’s failure to deliver such statement within such time shall be a material default under this Lease or shall be conclusively entitle Landlord or any third party to rely on the facts (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord’s performance, and (iii) that not more than one month’s rent has been paid in advance.

 

34.                                PARTIAL INVALIDITY .

 

If any term, covenant, condition or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, or violate a party’s legal rights, then such term, covenant, condition or provision shall be deemed to be null, void, and unenforceable; however, all provisions of this Lease, or the application of such term or provision to persons or circumstances other than those to which are held invalid, unenforceable, or violative of legal rights, shall not be affected thereby, and each and every other term, covenant, condition or provision of this Lease shall be valid and shall be enforced to the fullest extent permitted by law.

 

35.                                CAPTIONS .

 

The captions used throughout this Lease are for convenience and reference only and shall in no way be held to explain, modify, amplify, or aid in the interpretation, construction, or meaning of any provisions in this Lease.

 

36.                                ENTIRE AGREEMENT .

 

This Lease, together with the referenced Rider and Exhibits (which are incorporated herein by this reference), contains the entire agreement between the parties, and no modification of this Lease shall be binding upon the parties unless evidenced by an agreement, in writing, signed by Landlord and Tenant after the date hereof.  No prior agreements or understandings pertaining to this Lease prior to the date hereof shall be effective.

 

37.                                LANDLORD’S LIABILITY .

 

37.01                  Transfer of the Project .  Upon transfer of the Project and assignment of this Lease, Landlord shall be entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease occurring after the consummation of the transfer and assignment, and from all liability for the Security Deposit.  Tenant shall attorn to any entity purchasing or otherwise acquiring the Premises at any sale or other proceeding.

 

37.02                  Landlord’s Exculpation .  In the event of default, breach or violation by Landlord of any of Landlord’s obligations under this Lease, Landlord’s liability to Tenant shall be limited to its ownership interest in the Building and Project or the proceeds of a public sale of the ownership interest pursuant to the foreclosure of a judgment against Landlord.  Landlord shall not be personally liable, or liable in any event, for any deficiency beyond its ownership interest in the Building and Project.

 

26



 

38.                                SURRENDER OF PREMISES .

 

On the expiration or early termination of this Lease, Tenant shall surrender the Premises to Landlord “broom-clean”, in its condition as of the Commencement Date, normal wear and tear excepted.  Tenant shall remove from the Premises all of Tenant’s personal property, trade fixtures and any alterations required to be removed by Landlord.  Tenant shall repair damage or perform any restoration work required by the removal.  If Tenant fails to remove any personal property, trade fixtures or alterations after the end of the Term as required by Landlord, Landlord may remove the property and store it at Tenant’s expense, including interest at the Interest Rate.  If the Premises are not so surrendered at the termination of this Lease, Tenant shall indemnify Landlord against all loss or liability resulting from delay by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenant, losses to Landlord due to lost opportunities to lease to succeeding tenants, and attorneys’ fees and costs.

 

39.                                MORTGAGEE PROTECTION .

 

In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgagee of a mortgage covering the Building and shall offer the beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Building or the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure.

 

40.                                NO OPTION TO EXTEND LEASE .

 

Tenant does not have the option to extend this Lease.

 

41.                                WAIVER OF TRIAL BY JURY .

 

LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY AND CONSENT TO TRIAL WITHOUT A JURY IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER LANDLORD OR TENANT AGAINST THE OTHER IN CONNECTION WITH THIS LEASE.

 

IN WITNESS WHEREOF the parties have signed triplicate copies hereof.

 

TENANT:

 

LANDLORD:

 

 

 

Control4 Corporation, a Delaware corporation

 

WDCI, INC. , a Hawaii corporation

 

 

 

 

 

 

 

By:

/s/ Norbert Buelsing

By:

/s/ William B. West

 

 

Name:

NORBERT BUELSING

 

William B. West, CEO

 

 

Its:

PRESIDENT

 

[Printed Name and Title]

 

 

 

 

 

By:

/s/ Charles W. Loomis

 

 

Name:

CHARLES W. LOOMIS

 

 

Its:

ASST. SECRETARY

 

27



 

EXHIBIT A

 

PREMISES

 

 

A-1



 

EXHIBIT B

 

RULES AND REGULATIONS

 

The following rules and regulations constitute a part of the Lease and are hereby incorporated herein:

 

1.                                       During periods of freezing weather conditions, Tenant shall maintain sufficient heat within the demised premises to insure that water and fire sprinkler pipes do not freeze.  Tenant hereby acknowledges that the fire protection system in the building is a “wet” (water filled) system.

 

2.                                       All shipping pallets shall be stored within the demised premises and not outside of the building unless they are to be disposed of during the business day.

 

3.                                       Tenants shall deposit all trash and rubbish in their own container in such a manner that styrofoam packing and other materials are not scattered throughout the complex by natural forces i.e., the wind.

 

4.                                       Tenant shall cooperate with the other tenants within the complex as to truck parking and/or “spotting” to insure all tenants have easy access to their respective loading areas.  All automobiles shall be parked in the designated areas.

 

SIGNS

 

All signs must be approved in writing and must conform to the following standards in addition to any sign regulations adopted by Salt Lake City Corporation.  All existing signs not conforming to these standards, which conformed to the Salt Lake City regulations when erected, are considered to be a legal nonconforming sign, the continued use of which shall be governed by the Salt Lake City Corporation sign regulations relating to nonconforming signs.

 

Only the following signs are allowed:

 

a.                                       public necessity signs identifying danger or hazard on or near the premises.

 

b.                                       property signs offering the property for sale or lease, or announcing contemplated improvements.

 

c.                                        on-premises business signs directing attention to a use, product, or service conducted on the premises on which it is located.

 

d.                                       identification signs indicating nature of buildings or uses other than commercial or industrial.

 

e.                                        service signs giving information to public such as directions to parking facilities.

 

B-1


 

In addition to signs prohibited in Salt Lake City sign regulations, the following signs are specifically prohibited:

 

a.                                       off-premises business signs advertising products or services not provided on the premises.

 

b.                                       roof signs erected partly or wholly on or over the roof of a building.

 

c.                                        wall signs painted or giving the appearance of being painted on the wall of a building.

 

Business signs shall be limited to one or more signs not exceeding one (1) squared foot for each two (2) linear feet of frontage occupied by owner or occupant, but in no case shall the total area of all business signs associated with one building exceed one hundred seventy (170) square feet.

 

Where buildings are owned or occupied by more than one business entity in the same building, business signs must be standardized flat signs.  Standards must include shape, back ground color, and size which will be limited to twelve (12) square feet per occupant.

 

B-2



 

EXHIBIT C

 

COMMENCEMENT DATE MEMORANDUM

 

LANDLORD:

 

WDCI, INC. , a Hawaii corporation

 

 

 

TENANT:

 

Control4 Corporation, a Delaware corporation

 

 

 

LEASE DATE:

 

September 1, 2004

 

 

 

PREMISES:

 

 

 

Pursuant to Section 4.02 of the above-referenced Lease, the Commencement Date hereby is established as September 1, 2004, and the Expiration Date is hereby established as August 31, 2007.

 

TENANT:

LANDLORD:

 

 

Control4 Corporation , a Delaware corporation

WDCI, INC. , a Hawaii corporation

 

 

 

 

 

 

 

 

By:

/s/ Norbert Buelsing

By:

/s/ William B. West

 

 

NORBERT BUELSING PRESIDENT

 

William B. West, CEO

 

 

[Printed Name and Title]

 

[Printed Name and Title]

 

 

 

 

By:

/s/ Charles W. Loomis

 

 

CHARLES W. LOOMIS ASST. SECRETARY

 

 

[Printed Name and Title]

 

C-1



 

EXHIBIT D

 

LANDLORD’S WORK

 

Landlord shall complete the following prior to the commencement date:

 

·                                           Repair damaged overhead door

 

·                                           Repair damaged soffit and truck loading area

 

D-1



 

 

Date:

 

June 23, 2004

 

 

 

To:

 

Greg Gunn

 

 

 

From:

 

Michael Jeppesen

 

 

 

Subject:

 

Control4 at Centennial Plaza

 

This memo shall outline the additional agreements for the lease between Control4 Corporation (“Tenant”) and WDCI, Inc. (“Landlord”) for the property located at 3612 West 1820 South, Salt Lake City, Utah.

 

1.                                       Landlord will provide a rent credit to Tenant in the amount of $1,000 towards the first month’s net rental in lieu of the trip giveaway promotion.

 

2.                                       Month one of the lease shall be free of base rent charges to Tenant.  Operating expenses shall still be due and payable by Tenant.

 

3.                                       Landlord has performed the repair requirements under Exhibit “D” of the lease.

 

4.                                     Tenant shall be granted Early Possession to the premises as per section 4.05 of the Lease., so long as Tenant has paid the first month’s rent and security deposit as provided for in the Lease, and provided a Certificate of Insurance naming the Landlord, and CBRE as additional insureds.

 

If you have any questions regarding the lease please feel free to contact me.

 

Respectfully,

 

CB RICHARD ELLIS

 

Michael Jeppesen

 



 

FIRST AMENDMENT TO LEASE

 

This First Amendment to Lease Agreement (the “First Amendment”) is made and entered into this 24 th  day of May 2006, by and between WDCI, Inc. (the “Landlord”) and Control4 Corporation , (the “Tenant”).

 

WITNESSETH:

 

WHEREAS , Landlord and Tenant have entered into that certain Lease Agreement dated June 29, 2004 for premises consisting of approximately 15,000 leaseable square feet located at 3612 West 1820 South, Salt Lake City, Utah (Existing Premises), and,

 

WHEREAS , the Lease Agreement and this First Amendment shall be hereinafter collectively be referred to as the “Lease”, and,

 

NOW THEREFORE, the parties hereto hereby agree as follows:

 

1.                                       Effective June 1, 2006 the Premises shall include 3614 West 1820 South, Salt Lake City, Utah (“Expansion Space”), comprising an additional approximately 20,000 square feet of leaseable area as shown on the attached site plan (Exhibit A).  The Existing Premises and the Expansion Area, together have an area of 35,000 square feet, more or less, and from and after June 1, 2006, shall be referred to as the “Premises”.

 

2.                                       The Expiration Date of the Lease is hereby amended to be May 31, 2011.

 

3.                                       Base Rent shall be as follows:

 

June 1, 2006- December 31, 2006

 

$5,400.00 per month

 

January 1, 2007 - May 31, 2007

 

$9,450.00 per month

 

June 1, 2007 - May 31, 2008

 

$9,800.00 per month

 

June 1, 2008- May 31, 2009

 

$10,150.00 per month

 

June 1, 2009- May 31, 2010

 

$10,500.00 per month

 

June 1, 2010- May 31, 2011

 

$10,850.00 per month

 

 

4.                                       Upon execution of this Amendment by Landlord and Tenant, Landlord shall promptly commence the following permanent improvements (“Tenant Improvements”) to the Premises, and shall promptly complete them in a timely manner using Landlord’s good faith efforts (subject to force majeure or any delays caused by Tenant).  Furthermore, Tenant may elect to have Landlord competitively bid any materials, contractors, or subcontractors to no less than three sources (unless three sources do not exist) and pick the vendor or service provider as determined by Tenant.  Tenant shall notify Landlord in writing in advance of Tenant’s intent to do so, and any delays resulting from this process (except delays caused solely by Landlord) shall be attributed to Tenant

 

·                                           Add two restrooms in the Expansion Premises.  (One men’s having one toilet, one urinal, and one sink and one women’s having one toilet and one sink.)

 



 

·                                           One 10’ wide by 12’ tall penetration in the demising wall between the Existing Premises and Expansion Space, the exact location of which shall be mutually agreed upon by Landlord and Tenant.

 

·                                           Change the lighting in the Expansion Space to Halogen lamps, the exact layout of which shall be mutually agreed upon by both Landlord and Tenant once Tenant has established its space plan.

 

·                                           Install adequate swamp coolers in both the Existing Premises and Expansion Space to maintain the Premises at a commercially reasonable temperature throughout the Summer months.

 

·                                           Install fiber optic cable to the Existing Premises.  Landlord and Tenant agree that Tenant has already paid $16,064 to Qwest for the installation of the fiber optic cable.  Upon execution of this Amendment and receipt by Landlord of evidence of payment (paid invoice, cancelled check), Landlord shall reimburse Tenant for this expense (which shall be deducted from the available allowance described below).

 

·                                           Build a basic break room with cabinets/counters, sink, and electrical outlets for a refrigerator, microwave, and vending machines (but Landlord is not obligated to provide such refrigerator, microwave, or vending machine, all of which are Tenant’s responsibility).  The location, layout, and design of the break room shall be mutually agreed upon by both Landlord and Tenant.

 

·                                           Install two dock levelers at Tenant’s discretion, should the Tenant Improvement budget allow.

 

Landlord shall be responsible for payment of all Tenant Improvement costs up to $35,000.00.  Should Tenant Improvement costs exceed this amount, Landlord shall provide an Additional Tenant Improvement Allowance in a maximum amount of $15,000, to be repaid by Tenant to Landlord over the remaining Lease Term.  The Additional Tenant Improvement Allowance shall be fully amortized as additional rent over the balance of the Lease Term commencing January 1, 2007, using an 8.5% per annum amortization rate.  In such event, Landlord will calculate the amount of additional rent payable by Tenant and deliver to Tenant in writing a payment schedule for such amount.  Costs for any Tenant Improvements in excess of $50,000 shall be the responsibility of the Tenant.  In the event Landlord pays such costs, Tenant shall reimburse Landlord within ten (10) days of receipt of an invoice therefor, and such amount shall be considered additional rent under the Lease.

 

The Lease is amended to conform to the terms and conditions of this First Amendment and in the event of any conflict between the provisions of this First Amendment and the Lease, the provisions of this First Amendment shall control; but in all other respects, the provisions of the Lease shall continue in full force and effect, and are hereby ratified and affirmed.

 



 

IN WITNESS HEREOF, the parties hereto have executed this First Amendment on the day and year written above.

 

TENANT

LANDLORD

CONTROL4 CORPORATION

WDCI, INC.

 

 

 

 

 

 

 

By:

/s/ Rhonda Basset Spears

 

By:

/s/ Norbert Buelsing

 

 

 

 

NORBERT BUELSING
PRESIDENT

 

 

 

 

 

Its:

 

 

By:

/s/ Charles W. Loomis

 

 

 

CHARLES W. LOOMIS
ASST. SECRETARY

 



 

SECOND AMENDMENT TO LEASE

 

THIS SECOND AMENDMENT TO LEASE (this “ Amendment’ ) is entered into as of the 25 th  day of February, 2011, by and between WDCI, INC. , a Hawaii corporation (“ Landlord ”) and CONTROL4 CORPORATION , a Delaware corporation (“ Tenant ”).

 

WITNESSETH

 

WHEREAS, Landlord is the landlord and Tenant is the tenant under that certain Industrial Lease dated June 29, 2004, as amended by First Amendment to Lease dated May 24, 2006 (as amended, the “ Lease ”) demising Suites 3612 and 3614 in the Centennial Plaza complex, comprising approximately 35,000 square feet of space, all as more particularly described in the Lease.

 

WHEREAS, Landlord and Tenant desire to extend the term of the Lease, set the rent for such extended term, and update various provisions of the Lease, all on the terms and conditions set forth below;

 

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, Landlord and Tenant make this Amendment.  All terms capitalized and not otherwise defined in this Amendment shall have the respective meanings ascribed to them by the Lease.

 

AMENDMENT TO LEASE

 

1.                                       Premises .  Inadvertently, Exhibit A of the Lease, outlining the Premises, was not attached to the Lease.  Accordingly, Exhibit A attached to this Amendment is hereby added as Exhibit A to the Lease.

 

2.                                       Lease Term .  The Lease Term is extended for six (6) months, such that the new Expiration Date shall be November 30, 2011.

 

3.                                       Base Rent .  Base Rent for the extended portion of the Lease Term shall be as follows:

 

June 1, 2011 - November 30, 2011 $10,850.00 per month

 

4.                                       Option to Extend .  Provided that Tenant is not then in default under the Lease, Tenant shall have the right to extend the Lease Term for one additional six (6) month period, such that the Expiration Date would be May 31, 2012, at the same Base Rent of $10,850.00 per month, plus all other amounts that comprise “Rent” under the Lease.  To exercise its right, Tenant must give Landlord notice in writing of its intent to extend the Lease Term no later than August 3 1, 201 1.  Should Tenant exercise its right, except only the Expiration Date, the extension shall be on the same terms and conditions set forth in this paragraph for the first extension period.

 

5.                                       Right of First Offer .  Landlord grants to Tenant a one time right of first offer (“ ROFO ”) to lease Suite 3610, totaling 10,000 square feet (the “ ROFO Space ”), should it come

 

1



 

available during the Lease Term.  The ROFO shall be subordinate and secondary to all rights of expansion, rights of first refusal, rights of first offer, or similar rights granted to tenants under any existing tenant space leases within the Building and existing as of the date of the ROFO Notice (as defined below).  The rights described in this paragraph shall be known collectively as “ Superior Rights .” Landlord shall give Tenant written notice when Landlord determines that the ROFO Space is available for lease (the “ ROFO Notice ”), as long as no Superior Right has been exercised or asserted.

 

The ROFO Notice shall (a) state the Base Rent proposed by Landlord for the ROFO Space (the “ ROFO Rent ”); and (b) slate the estimated date that Landlord then-anticipates the ROFO Space will be available for delivery to Tenant.  All other terms and conditions for leasing the ROFO Space shall be as set forth in the Lease, except for any improvement allowances, tenant improvements by Landlord, and other tenant inducements therein, if Tenant wishes to exercise the ROFO, Tenant shall deliver to Landlord written notice (“ Exercise Notice ”), which shall be irrevocable, within ten (10) business days after receipt of the ROFO Notice.  The ROFO Rent shall be as set forth in the ROFO Notice, except that if Tenant disagrees with the ROFO Rent proposed by Landlord, Tenant shall include in the Exercise Notice Tenant’s counter-proposal for ROFO Rent.  Tenant must elect to exercise the ROFO, if at all, only with respect to all of the ROFO Space, and Tenant may not elect to lease only a portion of such space.  If Tenant fails to timely deliver the Exercise Notice, Tenant shall be deemed to have waived its ROFO and Landlord shall thereafter be free to lease the ROFO Space to any third party.

 

If Landlord and Tenant are unable to agree on ROFO Rent by the date thirty (30) days after the Exercise Notice, the ROFO Rent shall be determined by arbitration as set forth herein, in such event, ROFO Rent shall be at the “Market Rate”, which is described as follows:

 

The Base Rent that would be agreed to by a landlord and a new tenant, each of whom is willing, but neither of whom is compelled, to enter into the lease transaction, The Market Rate shall not take into account any existing tenant improvements or any special uses or rights afforded to Tenant under the Lease in connection with the Premises, but shall take into account the following factors:

 

i.                                           Rent for comparable premises in comparable existing buildings (taking into consideration, but not limited to, use, location within the applicable building, definition of net rentable area, quality, age, and location of the applicable buildings):

 

ii.                                        The length of the remaining Lease ‘term; and

 

iii.                                   The extent to which inducements such as tenant improvement allowances, rent credits, moving allowances, space planning allowances, or similar inducements given to tenants affect the determination of Market Rent for the Base Rate.

 

The determination of the appraiser(s) shall be limited to the sole issue of whether Landlord’s or Tenant’s proposed ROFO Rent is the closest to the Market Rate as determined by the appraiser(s).  if the parties agree upon a single appraiser, such appraiser’s decision shall be

 

2



 

final and binding upon both parties, if the parties fail to agree upon a single appraiser within forty (40) days after the Exercise Notice, there shall be an arbitration by three (3) appraisers, in which case either party shall name one appraiser by written notice to the other party, whereupon the other party shall, within ten (10) days after receipt of such notice, name the second appraiser, and in case of failure to do so, the party who has already named an appraiser may have the second appraiser selected or appointed by a judge of the trial court of the county in which the Premises is located.  The two appraisers so appointed shall appoint a third appraiser, and if the two appraisers shall fail to appoint such third appraiser within ten (10) days after the naming of the second appraiser, cither party may have the third appraiser appointed by such judge, and the three appraisers so appointed shall thereupon proceed to make the determination required by this section.  The decision and award of any two appraisers shall be final, conclusive and binding upon both parties, unless such decision and award shall be vacated, modified or corrected, all as provided by in the arbitration statute (if any) of the state in which the Premises is located.  The appraisers shall notify the parties of their decision within thirty (30) days after initiation of the arbitration proceeding.

 

The appraisers shall have the MAI designation and a minimum of ten (10) years experience in the Salt Lake City market, and shall have all of the powers and duties prescribed by the laws of the state in which the Premises is located, and judgment may be entered upon any such decision and award as therein provided.  If, and whenever the fixing of ROFO Rent is under arbitration, Tenant, pending the determination thereof, shall continue to pay the same Base Rent per square foot for the ROFO Space that it is then paying for the Premises, and shall promptly pay the deficiency, if any upon the conclusion of the arbitration proceedings, if Base Rent paid by Tenant is more than the ROFO Rent.  Landlord shall reimburse or credit Tenant for such difference.  The cost of such arbitration shall be borne by the losing party, except attorneys’ fees and witness fees that shall be borne by the party engaging such attorney or witness.

 

6.                                       Patriot Act .  Tenant covenants that the use of the Premises will not violate (a) the Trading with the Enemy Act, as amended, or (b) any of the foreign assets control regulations of the United States Treasury Department or any enabling legislation or order relating thereto.  Without limiting the foregoing, neither Tenant nor any guarantor (i) is, or will become a person described in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or as described by Section 1 of Executive Order 13224 of September 24, 2001, Blocking Property and Prohibiting Transactions With Persons Who Commit, or Support Terrorism (3 1 CFR Part 595 et seq.) or (ii) to its knowledge, engages in any dealings or transactions, or is otherwise associated, with any such person.  Tenant covenants that Tenant is in compliance, in all material respects, with the USA Patriot Act, to the extent applicable.  Tenant will indemnify, defend, and hold harmless Landlord from any claims, costs, expenses, demands, fees (including reasonable attorneys’ fees), penalties, and amounts related to Tenant’s violation of the provisions of this Section, or the failure of any of the provisions in this Section to be true or accurate at any time during the Term.  The indemnification provisions of this Section shall survive termination of the Lease for any reason.

 

7.                                       Certification .  As an essential inducement to Landlord to execute this Amendment.  Tenant hereby certifies and warrants to and agrees with Landlord that to Tenant’s knowledge (a) no event of default by Landlord under the Lease exists as of the dale of this Amendment, nor has any event occurred which, with the passage of time or the giving of notice,

 

3


 

or both, would constitute an event of default, (b) Landlord is not in any manner in default in the performance or observance of any obligation or duty owned to Tenant, under the Lease or otherwise, and (c) Tenant has no defenses, offsets, claims or counterclaims to the observance and performance by Tenant of any provision of the Lease.

 

8.                                       Full Force and Effect .  The provisions of the Lease are hereby amended to conform herewith, and in the event of any conflict between the provisions of the Lease or this Amendment, the provisions of this Amendment shall control; but in all other respects, the provision of the Lease shall continue in full force and effect.

 

9.                                       Severability .  If for any reason any of the provisions of this Amendment shall be unenforceable or ineffective, all of the other provisions shall remain in full force and effect.

 

10.                                Entire Agreement .  The provisions of this Amendment constitute, and are intended to constitute, the entire agreement of Landlord and Tenant regarding this Amendment.  No terms, conditions, warranties, promises or undertakings of any nature whatever, express or implied, exist between Landlord and Tenant except as expressly set forth in the Lease as amended by this Amendment.  Any amendment or modification of the Lease must be in writing and signed by both Landlord and Tenant.

 

11.                                Miscellaneous .  The section headings herein are for convenience of reference, and shall in no way define, limit or describe the scope or intent of any provisions of this Amendment.  This Amendment may be signed in counterparts and by facsimile signature.

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date above set forth.

 

LANDLORD:

TENANT:

 

 

WDCI, INC.

CONTROL4 CORPORATION

 

 

 

 

 

By:

[Illegible]

 

By:

/s/ Mark Novakovich

Its:

EXECUTIVE VICE PRESIDENT

 

Its:

VP Finance

 

 

 

 

 

By:

[Illegible]

 

By:

 

Its:

ASST. SECRETARY

 

Its:

 

 

4



 

EXHIBIT A

 

Premises Outline

 

[insert drawing showing outline of Premises]

 

5



 

EXHIBIT A

 

 



 

EXHIBIT E

 

Schedule 1

 

INSURANCE QUESTIONNAIRE

 

1.                                      Do you use store or contemplate using at any time fluids or other materials having a closed cup flash point 80 degrees or less including, but not limited to, gasoline, benzene, carbon disulfide, naphtha, kerosene, LPG, or other materials?  Yes o No o

 

If yes, please answer the following:

 

A.                                     Will you use Underwriter’s Laboratories approved self-closing cans?
Yes
o No o

 

B.                                     What is the gallon capacity you anticipate storing or using?

 

 

C.                                     Will the above be “shelf stock” stored in original sealed containers?
Yes
o No o

 

D.                                     Do you plan to store or use the above outside of the building?
Yes
o No o

 

If yes, will it be within 30 feet of the building? Yes o No o

 

2.                                       Do you have or plan to have a gasoline engine or other gasoline powered equipment to be used in the building (other than forklifts)? Yes o No o

 

3.                                       Do you contemplate the use of any spray painting equipment? Yes o No o

 

If yes, please answer the following:

 

A.                                     Will an Underwriter’s Laboratory approved booth be installed?
Yes
o No o

 

B.                                     If yes, submit the specifications for the booth or furnish the name of the booth company and person to contact including telephone number and address.

 

 

4.                                       Do you contemplate or plan to operate a restaurant or similar cooking facility?
Yes
o No o

 

If yes, will you install an Underwriter’s Laboratory approved hood and dust fire extinguisher system? Yes o No o

 



 

5.                                       If building is sprinklered, please answer the following:

 

A.                                     Do you contemplate storing stock over 1 5 feet without racks, or over 12 feet with racks?
Yes
o No o

 

B.                                     How many feet in height will you store goods?

 

C.                                     Will you store goods closer than within 3 feet of the sprinkler heads?
Yes
o No o

 

D.                                     Will you use racks or shelves for storage? Yes o No o

 

E.                                      If answer to “D” above is “Yes”, please answer the following:

 

1.                                       Are racks slatted, solid, or open?

 

2.                                       What is the width of racks?

 

3.                                       Will racks be single or multi-row?

 

4.                                       What is the aisle width between racks?

 

F.                                       Describe the goods to be stored:

 

 

G.                                     What materials are the products made of?

 

 

H.                                    Will your inventory consist of any of the following? Please check the appropriate item(s).

 

o  Linoleum products

o  Lacquers in cans or in cartons

o  All high-hazard plastics

o  Upholstered furniture

o  Wooden furniture

o  Eighty-six proof or higher liquors

o  Pharmaceuticals in bottles

o  Rugs or carpets

o  Rolled pulp and paper light tissue crepe grade (horizontal storage or racked)

o  Balled waste paper

o  Alcohol in cans or bottles or in cartons

o  Baled cork

o  Wooden patterns, pallets, and flats

o  Rolled pulp and paper (vertical storage)

o  Unhanded or light tissue crepe paper

o  Rolled asphalt paper (vertical)

 

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o  Rubber Tires

o  Foam or sponge rubber

o  Crude or synthetic rubber

o  Roamed plastic products (with or without cartons)

o  Goods encapsulated by plastic

 

If any of the above is “checked”, do you plan to install approved in-rack or in-bin sprinklers?
Yes
o No o

 

Do you plan to install other fire protection devices? Yes o No o

 

If yes, describe:

 

 

6.                                       Do you contemplate any of the following operations? If yes, please check the appropriate occupancy.

 

o  Storage of dynamite, dynamite caps, or gunpowder

o  Woodworking (any kind)

o  Paper Box Manufacturing

o  Excelsior Works

o  Paper Shredding Plants

o  Upholstery Works

o  Cotton Storage

o  Broom Manufacturing

o  Calcium Carbide (Slocks)

o  Celluloid Goods

o  Fireworks

o  Furniture Repairing

o  Furniture Factories

o  Moving Picture Film (Slock)

o  Paint Manufacturing

o  Printer’s Ink Manufacturing

o  Rubber Tire Recap or Retread

 

7.                                       What is your contemplated usage if not previously covered?                                   

 

COMPANY NAME:

 

LOCATION OF PREMISES:

 

SIGNED BY:

 

 

DATE:

 

 

 

TITLE:

 

 

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Schedule 2

 

ENVIRONMENTAL QUESTIONNAIRE

 

The protection of the environment and compliance with all applicable environmental laws are of extreme importance to Landlord.  As part of Landlord’s leasing procedures, please complete this Environmental Questionnaire (“ Questionnaire ”) for every business that will be conducted from the leased premises.  Use additional sheets if there is insufficient space for your response.  Thank you for your cooperation.

 

1.                                       Tenant’s name:

 

2.                                       Location of leased premises:

 

3.                                       Each business to be conducted by Tenant at the leased premises ( please be specific ):

 

 

 

4.                                       Will all or any portion of the premises be subleased to others? Yes o No o
If yes, identify each subtenant and each business to be conducted by the subtenant at the premises ( please be specific ):

 

 

Subtenant Name

 

Business

 

 

 

 

a)

 

 

 

 

 

 

 

b)

 

 

 

 

5.                                       Please indicate which of the following items will be placed, used, stored, treated or generated at the leased premises by Tenant or any subtenant ( check all applicable categories ):

 

o  Underground storage tank.

 

o  Above-ground storage tank.

 

o  Any hazardous materials or wastes that are regulated by state or federal law.  (If this category is checked, please complete Part A on page 3 of this questionnaire.)

 

o  Any other materials which, if not properly stored, treated or handled, could pose a risk of harm to the environment.  (If this category is checked, please complete Part B on page 3 of this questionnaire.)

 

o  None of the above.

 

6.                                       Will any by-product of any business conducted at the leased premises by Tenant or any subtenant be released or discharged into the atmosphere, the ground or any waterway,

 

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drainage ditch, or private cesspool or septic tank?
Yes
o No o ( If yes, please complete Part C on page 3 of this questionnaire .)

 

7.                                       Has Tenant or any proposed subtenant been subject to any warning from or citation, penalty, lawsuit or administrative action by any government agency under any hazardous materials law?
Yes
o No o ( If yes, please complete Part D on page 3 of this questionnaire .)

 

Tenant hereby certifies that each of the above questions has been answered accurately and completely.  Tenant acknowledges that neither the above answers nor Landlord’s receipt and review of this Questionnaire will release Tenant from any liability or responsibility for environmental matters or from any liability or obligation under Tenant’s lease with Landlord, or result in any transfer or assumption of any liability or responsibility to or by Landlord.

 

Signature:

 

 

Date:

 

 

 

Title:

 

 

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ENVIRONMENTAL QUESTIONNAIRE

 

Additional Information

 

Please use additional sheets if there is insufficient space for your response.

 

A.                                     The following regulated hazardous materials or wastes will be used, stored, treated or generated at the leased premises:

 

 

B.                                     The following other materials, if not properly stored, treated or handled, could pose a risk of harm to the environment:

 

 

C.                                     The following by-products will be released or discharged into the atmosphere, the ground, a waterway, a drainage ditch or a private cesspool or septic tank:

 

 

D.                                     The following warning from, or citation, penalty, lawsuit or administration by a government agency under a hazardous materials law was brought against me or my proposed subtenant
( please describe ):

 

 

Tenant hereby certifies that each of the above questions has been answered accurately and completely.  Tenant acknowledges that neither the above answers nor Landlord’s receipt and review of this Questionnaire will release Tenant from any liability or responsibility for environmental matters or from any liability or obligation under Tenant’s lease with Landlord, or result in any transfer or assumption of any liability or responsibility to or by Landlord.

 

Signature:

 

 

Date:

 

 

 

Title:

 

 

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THIRD AMENDMENT TO LEASE

 

THIS THIRD AMENDMENT TO LEASE (this “ Amendment ”) is entered into as of the 7 th  day of November, 2011, by and between WDCI, INC. , a Hawaii corporation (“ Landlord ”) and CONTROL4 CORPORATION , a Delaware corporation (“ Tenant ”).

 

WITNESSETH

 

WHEREAS, Landlord is the landlord and Tenant is the tenant under that certain Industrial Lease dated June 29, 2004, as amended by First Amendment to Lease dated May 24, 2006, and Second Amendment to Lease dated February 25, 2011 (as amended, the “ Lease ”) demising Suites 3612 and 3614 in the Centennial Plaza complex, comprising approximately 35,000 square feet of space;

 

WHEREAS, Landlord and Tenant desire to extend the term of the Lease, set the rent for such extended term, and update various provisions of the Lease, all on the terms and conditions set forth below;

 

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, Landlord and Tenant make this Amendment.  All terms capitalized and not otherwise defined in this Amendment shall have the respective meanings ascribed to them by the Lease.

 

AMENDMENT TO LEASE

 

1.                                       Lease Term .  The Lease Term is extended for sixty four (64) months, such that the new Expiration Date shall be March 31, 2017.

 

2.                                       Base Rent .  Base Rent for the extended portion of the Lease Term shall be as follows

 

Term

 

Base Rent Per Month

12/1/11 -3/31/12

 

$

0.00

4/1/12-3/31/13

 

$

11,550.00

4/1/13-3/31/14

 

$

11,896.50

4/1/14-3/31/15

 

$

12,253.40

4/1/15-3/31/16

 

$

12,621.00

4/1/16-3/31/17

 

$

12,999.63

 

3.                                       Option to Extend .  Provided that Tenant is not then in default under the Lease, Tenant shall have the right to extend the Lease Term for one additional period of either thirty-six (36) or sixty (60) months, as determined by Tenant pursuant to this Paragraph 3 (the “ Extension Option ”).

 

a.                                       The Extension Option is subject to the following conditions:

 

i.                                           Other than a Permitted Assignment as defined in Section 8.03 of the Lease, the rights contained in this Paragraph shall be personal to the originally named and

 

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may be exercised only by the originally named Tenant (and not any other non permitted assignee, subtenant, or other non permitted transferee of Tenant’s interest in the Lease).

 

ii.                                        Tenant shall not be in default when it exercises its option or at the commencement of the Option Term (defined below), nor shall Tenant have been in material default under the Lease (regardless of whether such default was ultimately cured) more than three (3) times during the Lease Term.  Whether a default is material is in Landlord’s reasonable discretion, but shall include without limitation, failure to pay Rent when due.

 

iii.                                     If Tenant properly exercises the Extension Option and all conditions set forth in this Paragraph are satisfied, the term shall be extended for the Option Term.  Tenant’s exercise of the Extension Option is irrevocable.

 

iv.                                    Tenant must exercise the Extension Option, if at all, only at the lime and in the manner provided in this Paragraph.

 

b.                                       Exercise of Extension Option:

 

i.                                           If Tenant wishes to exercise the Extension Option, Tenant shall deliver written notice (“ Interest Notice ”) to Landlord no less than six (6) months before the expiration of the initial Lease Term.  The Interest Notice shall state whether Tenant elects to exercise the Extension Option for a thirty-six (36) month term, or a sixty (60) month term, and whichever Tenant elects in the Interest Notice shall be the “ Option Term .” Within sixty (60) days after Landlord’s receipt of Tenant’s Interest Notice, Landlord shall deliver notice (“ Option Rent Notice ”) to Tenant stating the Base Rent for the Option Term (the “ Option Rent ”), based upon Landlord’s determination of fair market rental value of the Premises as of the commencement date of the Option Term.

 

ii.                                        If Tenant wishes to exercise the Extension Option, Tenant must, on or before the earlier of (1) the date occurring three (3) months prior to the commencement of the Option Term, or (2) the date occurring thirty (30) days after Tenant’s receipt of the Option Rent Notice, exercise the Extension Option by delivering written notice (“ Exercise Notice ”) to Landlord.  If Tenant wishes to contest the Option Rent stated in the Option Rent Notice, Tenant must provide, with the Exercise Notice, written notice to Landlord that Tenant objects to the stated Option Rent and include Tenant’s determination of the fair market rental value of the Premises.  If Tenant provides such written objection and includes Tenant’s determination of fair market rental value, the Option Rent shall be determined in accordance with the procedure set forth below for determining fair market rental value.  Otherwise, the Option Rent shall be as set forth in the Option Rent Notice.  If Tenant fails to deliver a timely Interest Notice or Exercise Notice, Tenant shall be considered to have elected not to exercise the Extension Option.

 

iii.                                     If Tenant timely exercises its Extension Option, Landlord and Tenant shall, within thirty (30) days after the Option Rent is determined, execute an amendment to the Lease extending the Term on the terms and conditions set forth in this Paragraph.  If Landlord and Tenant are unable to agree on the Option Rent for the Option Term, the Option Rent shall be the fair market rental value of the Premises (at least commensurate with rents typical of other similar space in other comparable projects), including amenities offered, but in

 

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no event shall the monthly Option Rent be less than the Base Rent for the immediately preceding month.  Determination of such fair market rental shall include consideration of any commercially-reasonable, industry-standard commissions payable, incentives, free rent, tenant improvement allowances, or any other incentives offered by a landlord to a new tenant, each of whom is willing, but neither of whom is compelled, to enter into a lease transaction.  If each party makes a timely determination of the fair market rental value, those determinations shall be submitted to an appraiser as provided herein.  Such appraisal shall commence as soon as practicable following the Exercise Notice.  If there is an appraisal, the determination of the appraiser(s) shall be limited to the sole issue of whether Landlord’s or Tenant’s submitted fair market rental value is the closest to the actual fair market rental value as determined by the appraisers in accordance with the limitations set forth in this Paragraph.  Such Option Rent shall be payable in advance on the first day of each month.  If the parties agree upon a single appraiser, such appraiser’s decision shall be final, conclusive and binding upon both parties, subject to the minimum limitations stated above.  If the parties fail to agree upon a single appraiser within ten (10) days of the Exercise Notice, there shall be an arbitration by three (3) appraisers, in which case either party shall name one of the appraisers by written notice to the other party, whereupon the other party shall, within ten (10) days after receipt of such notice, name a second appraiser, and in case of failure to do so, the party who has already named an appraiser may have the second appraiser selected or appointed by a judge of the trial court of the county in which the Premises is located; and the two appraisers so appointed, in either manner, shall select and appoint a third appraiser, and if the two appraisers so appointed shall fail to appoint the third appraiser within ten (10) days after the naming of the second appraiser, either party may have the third appraiser selected or appointed by such judge; and the three appraisers so appointed shall thereupon proceed to make the determination required by this Paragraph, and the decision and award of any two of them shall be final, conclusive and binding upon both parties, subject to the minimum limitations stated in this Paragraph, unless such decision and award shall be vacated, modified or corrected, all as provided by in the arbitration statute (if any) of the state in which the Premises is located.  The appraisers shall be recognized real estate appraisers who are members of the American Institute of Real Estate Appraisers (MAI) or Society of Real Estate Appraisers or any similar appraisal organization, shall have a minimum of 5 years experience in the Salt Lake City market, and shall have all of the powers and duties prescribed by the laws of the state in which the Premises is located, and judgment may be entered upon any such decision and award as therein provided,

 

iv.                                    In ascertaining the fair market rental value of the Premises, the appraisers shall assume for purposes of their appraisal that the Premises are available for immediate utilization to the greater of the use then being made of the Premises by Tenant or the then-highest and best use therefor.  Subject to the foregoing provisions, the process or method of appraisal shall be that receiving general acceptance among competent, experienced and recognized appraisers in the field of real estate valuation in the state in which the Premises is located.  If, and whenever the fixing of such fair market rental value is under arbitration, Tenant, pending the determination thereof, shall continue to pay the same Rent that it had been paying during the last preceding rental period and shall promptly pay the deficiency, if any, upon the conclusion of the arbitration proceedings.  If Tenant does not pay the deficiency within 10 days following the determination of fair market rental through arbitration, Tenant shall owe Landlord the deficiency plus interest at the rate of twelve percent (12%) per annum on the amount of such deficiency computed from the date or dates when the amount of such deficiency would have

 

3



 

been payable but for the pendency of the arbitration.  The cost of such arbitration shall be borne by the losing party, except attorneys’ fees and witness fees that shall be borne by the party engaging such attorney or witness.

 

4.                                       Tenant Improvements :  Landlord will provide Tenant with an improvement allowance in the maximum amount of $105,000.00 (the “ Allowance ”).  The Allowance shall be used by Tenant solely for improvements to the Premises as previously approved by Landlord in writing on the attached Exhibit A, including office space, a customer waiting area, and new lighting; but in no event may the Allowance be used for personal property, including but not limited to data cabling and wiring.  After completion of Tenant’s work and the expiration of the statutory period in which mechanics and materialmen can file liens or the furnishing of lien releases acceptable to Landlord from all contractors and suppliers, Tenant shall deliver to Landlord a copy of the construction contract, all bills and invoices and such other documentation as Landlord may reasonably require to evidence payment of the expenses incurred by Tenant for which Tenant seeks reimbursement of the Allowance.  Upon Landlord’s receipt of such items and verification of Tenant’s costs.  Landlord shall pay to Tenant the Allowance, reduced by any Landlord project management fee, within fifteen (15) days of receipt of all of such documentation and verification.  Landlord’s project management fee shall not exceed $750, provided Landlord has approved, in writing, all mechanical, electrical and plumbing contractors selected by Tenant for the Tenant Improvements.  Landlord reserves the right, but not the obligation, to charge a three percent (3%) project management fee on the total cost of the Tenant Improvements should Tenant use a contractors) that has not been approved by the Landlord.  Tenant must request reimbursement of the Allowance pursuant to this Paragraph 4 no later than December 31, 2012.  If Tenant does not timely make such request, then all of Tenant’s rights to such Allowance or any portion thereof shall automatically terminate and be null and void as of such date, and Tenant shall no longer be entitled to any portion or all of the Allowance.  In the event the costs of the approved improvements for which Tenant seeks reimbursement are less than the full amount of the Allowance, Landlord shall be obligated to reimburse Tenant only the actual amount of such costs, and Tenant shall not be entitled to payment or credit of any remaining balance.  In the event the costs of Tenant’s improvements to the Premises exceed the Allowance, Tenant and not Landlord shall be solely responsible for such excess amounts.  The provisions of this Paragraph 4 shall supersede any other improvement allowances, Landlord build-out obligations, and reimbursements previously set forth in the Lease, Landlord’s performance obligations having been satisfied with respect thereto.

 

5.                                       Landlord’s Work .  Landlord has agreed to make the following improvements to the Building:  (a) upgrade the Building’s fire alarm panel, including horns and strobes; (b) construct an ADA-accessible ramp at the Building entrance, if required by law; and (c) upgrade any Building amenities that do not currently comply with the building or fire code (“ Landlord’s Work ”).  In no event shall Landlord’s Work include any code compliance associated with Tenant’s specific use of the Premises or necessitated by Tenant’s improvements to the Premises, provided that if Tenant is unable to secure a permit or proceed with its improvements to the Premises because of any noncompliance with the building or fire code as of the date of this Amendment and not caused by Tenant, then Landlord acknowledges and agrees that Landlord shall be responsible, at its own cost and expense, for promptly curing such noncompliance Landlord shall use “building standard” materials applicable to the Project.  Any

 

4



 

upgrades requested by Tenant of Landlord’s Work beyond “building standard” shall be at Tenant’s sole cost and expense, chargeable to Tenant as additional rent.

 

In no event may Tenant interfere with the pace or performance of Landlord’s Work, or cause any delay to the construction schedule.  Additional costs to Landlord resulting from such interference and delay shall be payable by Tenant as additional rent.  The provisions of this Paragraph 5 shall supersede any other improvement allowances (except the Allowance described in Paragraph 4 of this Amendment), Landlord build-out obligations, and reimbursements previously set forth in the Lease, Landlord’s performance obligations having been satisfied with respect thereto.

 

Landlord shall be responsible for ensuring that the Common Areas comply with the requirements of Title III of the Americans with Disabilities Act of 1990 (42 U.S.C. 12181, et seq., The Provisions Governing Public Accommodations and Services Operated by Private Entities), and all regulations promulgated thereunder, and all amendments, revisions or modifications thereto now or hereafter adopted or in effect in connection therewith, or any other similar Laws (hereinafter collectively referred to as the “ADA”), and to take such actions and make such alterations and improvements as are necessary for such compliance.  The cost of such compliance shall be included in the Operating Expenses of the Project.

 

6.                                       Right of First Offer .  Landlord grants to Tenant a right of first offer (“ ROFO ”) to lease Suite 3610, totaling approximately 10,000 square feet (the “ ROFO Space ”), should it come available during the Lease Term.  The ROFO shall be subordinate and secondary to all rights of expansion, rights of first refusal, rights of first offer, or similar rights granted to tenants under any existing tenant space leases within the Building and existing as of the effective date of this Amendment.  The rights described in this Paragraph shall be known collectively as “ Superior Rights .” Landlord shall give Tenant written notice when Landlord determines that the ROFO Space is available for lease (the “ ROFO Notice ”), as long as no Superior Right has been exercised or asserted.

 

The ROFO Notice shall state the estimated date that Landlord then-anticipates the ROFO Space will be available for delivery to Tenant.  All other terms and conditions for leasing the ROFO Space shall be as set forth in the Lease, including the Base Rent rate per square foot, Common Expenses, and remaining Lease Term, and a tenant improvement allowance of $3.00 per square foot prorated by the number of months left in the Term upon rent commencement of the ROFO Space divided by 64, but excluding any tenant improvements by Landlord and other tenant inducements similar thereto.  If Tenant wishes to exercise the ROFO, Tenant shall deliver to Landlord written notice (“ Exercise Notice ”), which shall be irrevocable, fifteen (15) business days after receipt of the ROFO Notice, Tenant must elect to exercise the ROFO, if at all, only with respect to all of the ROFO Space, and Tenant may not elect to lease only a portion of such space.  If Tenant fails to timely deliver the Exercise Notice, Tenant shall be deemed to have waived its ROFO and Landlord shall thereafter be free to lease the ROFO Space to any third party.

 

If Tenant timely delivers the Exercise Notice, (a) Landlord and Tenant shall execute an amendment to the Lease to incorporate the ROFO Space, and to set Base Rent and Tenant’s new proportionate share of Common Expenses, as well as any other matters that depend

 

5



 

for their calculation on the area of the Premises; and (b) Landlord, at its sole expense, will either remove the demising wall between the Premises and the ROFO Space, or provide openings in the demising wall between the Premises and the ROFO Space to facilitate Tenant’s use of the combined premises.  The ROFO described in this Paragraph 6 supersedes and replaces any rights of first offer, rights of first refusal, and similar rights set forth in the Lease prior to this Amendment.

 

7.                                       Hazardous Materials .  Section 20 of the Lease entitled “Hazardous Materials” is hereby deleted and replaced by the following:

 

20.                                HAZARDOUS MATERIALS .

 

a.                                       Use, Storage, Handling and Disposal of Hazardous Materials.  Except as explicitly provided in this Lease, Tenant shall not cause any Hazardous Materials (as such term is defined below) to be used, generated, stored, transported, handled or disposed of in, on, under, or about the Premises or the Project at any time (such activities are hereinafter referred to as “ Environmental Activities ”).  Tenant further agrees that (i) Tenant will not engage in any activity on the Premises that will produce any Hazardous Materials; (ii) Tenant will not install any underground tanks of any type; (iii) Tenant will not use any portion of the Premises as a landfill or a dump; and (iv) Tenant will not cause any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute, a public or private nuisance.  Tenant shall be responsible for assuring compliance by such persons with the foregoing prohibition, which shall survive the expiration or early termination of this Lease and extend to Tenant, and its officers, directors, employees, agents, contractors, and invitees, and any assignees claiming by, through, or under Tenant, any subtenants claiming by, through, or under Tenant (“ Tenant Party ”), and Tenant’s failure to abide by the terms of this Section shall be restrainable by injunction.  Notwithstanding the foregoing, and subject to Tenant’s covenant to strictly comply with all Hazardous Materials Laws (as such term is defined below) and all other terms and conditions of this Lease, Tenant may bring upon, keep and use general office and cleaning supplies typically used in the ordinary course of business of an office, such as copier toner, liquid paper, glue, ink, and cleaning solvents, for use in the manner for which they were designed.  From time to time during the Term, Tenant may request Landlord’s approval of Tenant’s use of other Hazardous Materials, which approval may be withheld in Landlord’s sole discretion.

 

b.                                       Compliance with Laws .  Tenant, at its sole cost and expense, shall comply and shall cause all Tenant Parties to comply, with all federal, state and local laws, ordinances and regulations and all rules, licenses, permits, orders, decrees and judgments relating to the environment and/or Environmental Activities (collectively referred to as “ Hazardous Materials Laws ”) conducted on the Premises.  Tenant’s willful breach of any of its covenants or obligations under this Section shall constitute a material event of default under the Lease.  The obligations of Tenant under this Section shall survive the expiration or earlier termination of the Lease without any limitation, and shall constitute obligations that are independent and severable from Tenant’s covenants and obligations to pay rent under this Lease.

 

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c.                                        Exculpation of Landlord .  Other tenants of the Project may be using, handling, or storing certain Hazardous Materials in connection with such tenants’ use of their premises.  The failure of another tenant to comply with applicable laws and procedures could result in a release of Hazardous Materials and contamination to improvements within the Project or the soil and groundwater thereunder.  In the event of such release, the tenant responsible for the release, and not Landlord, shall be solely responsible for any claim, damage, or expense incurred by Tenant by reason of such contamination.  Tenant waives any rights it may have to later assert that the foregoing release does not cover unknown claims.

 

d.                                       Disclosure and Notification .  Tenant shall promptly complete and return to Landlord all environmental questionnaires and hazardous materials disclosures submitted by Landlord to Tenant from time to time.  In addition, on January 1 of each calendar year during the Term (each such date being hereafter referred to as a “ Disclosure Date ”), Tenant shall complete and deliver to Landlord the form attached hereto as Exhibit E and shall disclose to Landlord the names and amounts of all Hazardous Materials other than general office and cleaning items and other supplies referred to in Subsection (a) above that were used, generated, treated, handled, stored or disposed of at the Premises or that Tenant intends to use, generate, treat, handle, store or dispose of at the Premises, for the year prior to and after such Disclosure Date.  The foregoing in no way shall limit the necessity of Tenant obtaining Landlord’s consent pursuant to Subsection (a) above.

 

At any time Tenant becomes aware of any violation of any Hazardous Materials Laws or of any claim made pursuant to any Hazardous Materials Laws that has occurred or that Tenant reasonably believes may have occurred with respect to the Premises or the Project, Tenant shall immediately (but in no event later than five (5) business days) advise Landlord in writing and provide Landlord with a copy of any notices, correspondence, and other materials relating to (i) any violation or potential or alleged violation of any Hazardous Materials Laws that are received by Tenant from any governmental agency concerned with Tenant’s or any other Tenant Party’s Environmental Activities; (ii) any and all inquiry, investigation, enforcement, clean-up, removal or other governmental or regulatory actions instituted or threatened relating to Tenant, the Premises, or the Project; (iii) all claims made or threatened by any third party against Tenant, the Premises, or the Project relating to any Hazardous Materials; and (iv) any release of Hazardous Materials on or about the Premises or the Project that Tenant knows of or reasonably believes may have occurred.

 

e.                                        Inspection of Premises .  Tenant shall permit Landlord and Landlord’s agents, servants, and employees, including but not limited to legal counsel and environmental consultants and engineers, access to the Premises for the purposes of environmental inspections and sampling during normal business hours, or during other hours either by agreement of the parties or in the event of any environmental emergency.  Tenant shall not restrict access to any part of the Premises, and Tenant shall not impose any conditions to access.  From time to time, Landlord may retain a registered environmental consultant (the “ Consultant ”) to conduct an investigation of the Premises (“ Environmental Assessment ”) (i) for Hazardous Materials contamination in, about, or beneath the Premises and (ii)to assess all Environmental Activities at the Premises for

 

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compliance with all applicable laws, ordinances and regulations and for the use of procedures intended to reasonably reduce the risk of a release of Hazardous Materials.  Tenant covenants to reasonably cooperate with the Consultant and to allow entry and reasonable access to all portions of the Premises for the purpose of Consultant’s investigation.

 

f.                                         Indemnification of Landlord .  Tenant shall indemnify, defend (with counsel satisfactory to Landlord) and hold harmless Landlord, its affiliates, partners, directors, shareholders, officers, employees, agents, assigns and any successors to Landlord’s interest in the Project, from and against any and all foreseeable and unforeseeable consequential damages or loss (including without limitation, any loss in fair market value, damages for the loss or restriction on use and damages arising from any adverse impact on marketing of the Premises or the Project, and sums paid in settlement of all claims), cost, damage, expense (including reasonable attorneys5 fees and litigation costs, consultant fees and expert fees), claim, cause of action, demand, obligation, judgment, penalty, fine or liability directly attributable to and arising from (i) any Environmental Activity undertaken by Tenant or any other Tenant Party at the Premises, (ii) any remedial or clean-up work undertaken by or for Tenant in connection with Tenant’s or any other Tenant Party’s Environmental Activities or its compliance with Hazardous Materials Laws, or (iii) the breach by Tenant of any of its obligations and covenants set forth in this Section.  Landlord shall have the right but not the obligation to join and participate in, and control, if it so elects, any legal proceedings or actions initiated in connection with Tenant’s or any other Tenant Party’s Environmental Activities.  Landlord may also negotiate, defend, approve and appeal any action taken or issued by any applicable governmental authority with regard to contamination of the Premises or the Project by a Hazardous Material.  Tenant shall reimburse any costs or expenses incurred by Landlord for which Tenant is responsible under this Section or for which Tenant has indemnified Landlord on demand as additional rent.  At the request of Landlord, Tenant shall promptly provide to Landlord evidence of insurance or financial resources available to satisfy the obligations of Tenant under this Lease, including the obligations under this Section.

 

g.                                        Remediation .  If any Environmental Activities undertaken by Tenant or any other Tenant Party result in contamination of the Premises or any other portion of the Project or the soil or ground water thereunder, subject to Landlord’s prior written approval and any conditions imposed by Landlord, Tenant shall promptly take all actions, at its sole expense and without abatement of rent, as are necessary to return the affected portion to the condition existing prior to the introduction of the contaminating Hazardous Material.  Landlord shall also have the right to approve any and all contractors hired by Tenant to perform such remedial work.  All such remedial work shall be performed in compliance with all applicable Hazardous Materials Laws and in such a manner as to minimize any interference with the use and enjoyment of the Project.  Appearance of a Hazardous Material caused by Tenant in or about the Premises or the Project shall not be deemed an occurrence of damage or destruction that is subject to the terms of the Lease respecting damage or destruction.

 

8



 

h.                                       Surrender of Premises .  Prior to or after the expiration or termination of the Term and prior to surrendering possession of the Premises, Tenant shall cause all Hazardous Materials previously owned, stored or used by Tenant to be removed from the Premises and disposed of in accordance with applicable provisions of Hazardous Materials Laws.  Landlord may have an Environmental Assessment of the Premises performed in accordance with Subsection (e) above.  Tenant shall perform, at its sole cost and expense, any clean-up or remedial work recommended by the Consultant that is necessary to remove, mitigate, or remediate any Hazardous Materials contamination of the Premises or the Project in connection with Tenant’s or any other Tenant Party’s or their agent’s Environmental Activities.

 

i.                                           Definition of Hazardous Materials .  As used in this Lease, the term “ Hazardous Materials ” shall mean all of the following introduced to the Premises by Tenant or a Tenant Party:  asbestos, any petroleum fuel or petroleum product, chemicals known to cause cancer or reproductive toxicity, pollutant, contaminant, organic matter (including but not limited to mold), and any hazardous, toxic, or other substance, material or waste which is or becomes regulated by any local governmental authority, the state in which the Premises is located, or the United States government, including, but not limited to, any material or substance defined as a “hazardous waste,” “extremely hazardous waste,” “restricted hazardous waste,” “hazardous substance,” “hazardous material,” “toxic substance” or “toxic pollutant” under Hazardous Materials Laws.  If any such Hazardous Materials is introduced to the Premises by Tenant or a Tenant Party, the same shall be immediately removed by Tenant, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Hazardous Materials Laws, by Tenant, at Tenant’s sole expense.

 

8.                                       Certification .  As an essential inducement to Landlord to execute this Amendment, Tenant hereby certifies and warrants to and agrees with Landlord that to Tenant’s knowledge:  (a) no event of default by Landlord under the Lease exists as of the date of this Amendment, nor has any event occurred which, with the passage of time or the giving of notice, or both, would constitute an event of default, (b) Landlord is not in any manner in default in the performance or observance of any obligation or duty owed to Tenant, under the Lease or otherwise, and (c) Tenant has no defenses, offsets, claims or counterclaims to the observance and performance by Tenant of any provision of the Lease.

 

9.                                       Full Force and Effect .  The provisions of the Lease are hereby amended to conform herewith, and in the event of any conflict between the provisions of the Lease or this Amendment, the provisions of this Amendment shall control; but in all other respects, the provision of the Lease shall continue in full force and effect.

 

10.                                Severability .  If for any reason any of the provisions of this Amendment shall be unenforceable or ineffective, all of the other provisions shall remain in full force and effect.

 

11.                                Entire Agreement .  The provisions of this Amendment constitute, and are intended to constitute, the entire agreement of Landlord and Tenant regarding this Amendment.  No terms, conditions, warranties, promises or undertakings of any nature whatever, express or implied, exist between Landlord and Tenant except as expressly set forth in the Lease as

 

9



 

amended by this Amendment.  Any amendment or modification of the Lease must be in writing and signed by both Landlord and Tenant.

 

12.                                Miscellaneous .  The section headings herein are for convenience of reference, and shall in no way define, limit or describe the scope or intent of any provisions of this Amendment.  This Amendment may be signed in counterparts and by facsimile signature.

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date above set forth.

 

LANDLORD:

 

TENANT:

 

 

 

WDCI, INC.

 

CONTROL4 CORPORATION

 

 

 

By:

[Illegible]

 

By:

/s/ Mark Novakovich

 

Its:

PRESIDENT

 

 

Its:

VP Finance

 

 

 

 

 

 

 

By:

[Illegible]

 

By:

 

 

Its:

SECRETARY

 

 

Its:

 

 

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EXHIBIT A

 

Tenant Improvement Plans approved by the Landlord

 

 

11


 

 

12



 

EXHIBIT E

 

Schedule 1

 

INSURANCE QUESTIONNAIRE

 

1.                                       Do you use, store or contemplate using at any time fluids or other materials having a closed cup flash point 80 degrees or less including, but not limited to, gasoline, benzene, carbon disulfide, naphtha, kerosene, LPG, or other materials? Yes o   No x

 

If yes, please answer the following:

 

A.                                     Will you use Underwriter’s Laboratories approved self-closing cans?
Yes
o   No o

 

B.                                     What is the gallon capacity you anticipate storing or using?
                                                                                                                                                                                                     

 

C.                                     Will the above be “shelf stock” stored in original sealed containers?
Yes
o   No o

 

D.                                     Do you plan to store or use the above outside of the building?
Yes
o   No o

 

If yes, will it be within 30 feet of the building? Yes o   No o

 

2.                                       Do you have or plan to have a gasoline engine or other gasoline powered equipment to be used in the building (other than forklifts)? Yes o   No x

 

3.                                       Do you contemplate the use of any spray painting equipment? Yes o   No x

 

If yes, please answer the following:

 

4.                                       Do you contemplate or plan to operate a restaurant or similar cooking facility?
Yes
o   No x

 

If yes, will you install an Underwriter’s Laboratory approved hood and dust fire extinguisher system? Yes o   No o

 

5.                                       If building is sprinklered, please answer the following:

 

A.                                     Do you contemplate storing stock over 15 feet without racks, or over 12 feet with racks?
Yes
x   No o

 

B.                                     How many feet in height will you store goods? 20 feet

 

C.                                     Will you store goods closer than within 3 feet of the sprinkler heads?
Yes
o   No x

 



 

D.                                     Will you use racks or shelves for storage? Yes x   No o

 

E.                                      If answer to “D” above is “Yes”, please answer the following:

 

1.                                       Are racks slatted, solid, or open? Open

 

2.                                       What is the width of racks? 48”

 

3.                                       Will racks be single or multi-row? Multi-Row

 

4.                                       What is the aisle width between racks? Minimum 10 ft.

 

F.                                       Describe the goods to be stored:  Consumer Electronics
                                                                                                                                                                                                     

 

G.                                     What materials are the products made of? Plastic, Metal, Silicon

                                                                                                                                                                                                    

 

H.                                    Will your inventory consist of any of the following? Please check the appropriate item(s).

 

o             Linoleum products

o             Lacquers in cans or in cartons

o             All high-hazard plastics

o             Upholstered furniture

o             Wooden furniture

o             Eighty-six proof or higher liquors

o             Pharmaceuticals in bottles

x           Rugs or carpets

o             Rolled pulp and paper light tissue crepe grade (horizontal storage or racked)

o             Balled waste paper

o             Alcohol in cans or bottles or in cartons

o             Baled cork

x           Wooden patterns, pallets, and flats

o             Rolled pulp and paper (vertical storage)

o             Unbanded or light tissue crepe paper

o             Rolled asphalt paper (vertical)

o             Rubber Tires

o             Foam or sponge rubber

o             Crude or synthetic rubber

o             Roamed plastic products (with or without cartons)

x           Goods encapsulated by plastic

 

If any of the above-is “checked”, do you plan to install approved in-rack or in-bin sprinklers?
Yes
o   No x

 

Do you plan to install other fire protection devices? Yes x   No  o

 

2



 

If yes, describe:  Smoke alarms, File alarms, Fire hoses & sprinklers
                                                                                                                                                                                                                        

 

6.                                       Do you contemplate any of the following operations? If yes, please check the appropriate occupancy.

 

o             Storage of dynamite, dynamite caps, or gunpowder

o             Woodworking (any kind)

o             Paper Box Manufacturing

o             Excelsior Works

o             Paper Shredding Plants

o             Upholstery Works

o             Cotton Storage

o             Broom Manufacturing

o             Calcium Carbide (Stocks)

o             Celluloid Goods

o             Fireworks

o             Furniture Repairing

o             Furniture Factories

o             Moving Picture Film (Stock)

o             Paint Manufacturing

o             Printer’s Ink Manufacturing

o             Rubber Tire Recap or Retread

 

7.                                       What is your contemplated usage if not previously covered?

 

COMPANY NAME:  Control4 Corporation

 

LOCATION OF PREMISS:  Centennial Plaza

 

SIGNED BY:

/s/ Mark Novakovich

 

DATE:

11/7/2011

 

 

 

TITLE:

VP Finance

 

 

 

3



 

Schedule 2

 

ENVIRONMENTAL QUESTIONNAIRE

 

The protection of the environment and compliance with all applicable environmental laws are of extreme importance to Landlord.  As part of Landlord’s leasing procedures, please complete this Environmental Questionnaire (“ Questionnaire ”) for every business that will be conducted from the leased premises.  Use additional sheets if there is insufficient space for your response.  Thank you for your cooperation.

 

1.                                       Tenant’s name:  Control4 Corporation

 

2.                                       Location of leased premises:  Centennial Plaza

 

3.                                       Each business to be conducted by Tenant at the leased premises (please be specific):

Product Warehousing

 

 

4.                                       Will all or any portion of the premises be subleased to others? Yes o   No x
If yes, identify each subtenant and each business to be conducted by the subtenant at the premises ( please be specific ):

 

 

 

Subtenant Name

 

Business

 

 

 

 

 

a)

 

 

 

 

 

 

 

 

 

b)

 

 

 

 

 

5.                                       Please indicate which of the following items will be placed, used, stored, treated or generated at the leased premises by Tenant or any subtenant ( check all applicable categories ):

 

o             Underground storage tank.

o             Above-ground storage tank.

o             Any hazardous materials or wastes that are regulated by state or federal law.
( If this category is checked, please complete Part A on page 3 of this questionnaire .)

o             Any other materials which, if not properly stored, treated or handled, could pose a risk of harm to the environment.  ( If this category is checked, please complete Part B on page 3 of this questionnaire .)

x           None of the above.

 

6.                                       Will any by-product of any business conducted at the leased premises by Tenant or any subtenant be released or discharged into the atmosphere, the ground or any waterway, drainage ditch, or private cesspool or septic tank?
Yes
o   No x ( If yes, please complete Part C on page 3 of this questionnaire .)

 

4



 

7.                                       Has Tenant or any proposed subtenant been subject to any warning from or citation, penalty, lawsuit or administrative action by any government agency under any hazardous materials law?
Yes
o   No x ( If yes, please complete Part D on page 3 of this questionnaire .)

 

Tenant hereby certifies that each of the above questions has been answered accurately and completely.  Tenant acknowledges that neither the above answers nor Landlord’s receipt and review of this Questionnaire will release Tenant from any liability or responsibility for environmental matters or from any liability or obligation under Tenant’s lease with Landlord, or result in any transfer or assumption of any liability or responsibility to or by Landlord.

 

Signature:

/s/ Mark Novakovich

 

Date:

11/7/2011

 

 

 

 

 

Title:

VP Finance

 

 

 

 

5



 

ENVIRONMENTAL QUESTIONNAIRE

 

Additional Information

 

Please use additional sheets if there is insufficient space for your response.

 

A.                                     The following regulated hazardous materials or wastes will be used, stored, treated or generated at the leased premises:

 

Liquid Nitrogen, Propane for Forklifts

 

 

B.                                     The following other materials, if not properly stored, treated or handled, could pose a risk of harm to the environment:

 

 

C.                                     The following by-products will be released or discharged into the atmosphere, the ground, a waterway, a drainage ditch or a private cesspool or septic tank:

 

 

D.                                     The following warning from, or citation, penalty, lawsuit or administration by a government agency under a hazardous materials law was brought against me or my proposed subtenant ( please describe ):

 

 

Tenant hereby certifies that each of the above questions has been answered accurately and completely.  Tenant acknowledges that neither the above answers nor Landlord’s receipt and review of this Questionnaire will release Tenant from any liability or responsibility for environmental matters or from any liability or obligation under Tenant’s lease with Landlord, or result in any transfer or assumption of any liability or responsibility to or by Landlord.

 

Signature:

/s/ Mark Novakovich

 

Date:

11/7/2011

 

 

 

 

 

Title:

VP Finance

 

 

 

 

6




Exhibit 10.13

 

ADVISOR AGREEMENT

 

WHEREAS Tom Kuhn (“Advisor”) has served as a member of the Board of Directors of Control4 Corporation (“Company”) since April 2010;

 

WHEREAS Advisor desires to resign from the Board of the Directors of the Company effective as of February 28, 2013 (“Effective Date”);

 

WHEREAS the Company desires that Advisor continue to provide the Company with certain consulting services during the period of time from the Effective Date until April 26, 2014 (“Expiration Date”), or such earlier date that this Advisor Agreement (“Agreement”) is terminated (collectively the “Termination Date”); and

 

WHEREAS Advisor is willing to provide such services during the period of time from the Effective Date until the Termination Date (the “Term”).

 

NOW THEREFORE , in consideration of the rights and obligations of Advisor and the Company (each a “party” and collectively the “parties”) as set forth in this Agreement, the sufficiency of which is hereby acknowledged, the “parties hereby agree as follows:

 

1.                                       Services .  During the Term of this Agreement, Advisor shall consult with and advise the Company from time-to-time upon activities relating to the Company’s strategic direction and customer relationships (“Services”).  Advisor shall provide the Services as needed and when requested by the Company.  During the Term of this Agreement, Advisor will not provide consulting services to any company that directly competes with the business of Company.

 

2.                                       Consideration .  In consideration of the Services provided by Advisor during the Term, Advisor shall, until the Termination Date, continue to vest in the outstanding unvested options previously granted to Advisor by the Company.

 

3.                                       Ownership .  Company shall own all right, title and interest (including patent rights, copyrights, trade secret rights, mask work rights, trademark rights, sui generis database rights and all other intellectual and industrial property rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), works of authorship, mask works, designations, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by Advisor that arise out of or in connection with the Services or any Proprietary Information (as defined below) (collectively, “Inventions”) and Advisor will promptly disclose and provide all Inventions to Company. Advisor agrees to make and hereby makes all assignments necessary to accomplish the foregoing. Advisor shall further assist Company, at Company’s expense, to further evidence, record and perfect such assignments, and to perfect, obtain, maintain, enforce and defend any rights assigned.  Advisor agrees and warrants that all Inventions will be original to and owned by Advisor and Advisor will use and disclose only Inventions in the course of providing Services.

 

4.                                       Proprietary Information .  Advisor agrees that all Inventions and other business, technical and financial information (including, without limitation, the identity of and information relating to Company’s customers or employees) that Advisor obtains from or assigns to Company, or learns in connection with the Services or his prior services to the Company, constitute “Proprietary Information.”  Advisor will hold in confidence and not disclose or, except in performing the Services, use any Proprietary Information.  However, Advisor shall not be so obligated with respect to

 



 

information that Advisor can document (i) is or becomes readily publicly available without restriction through no fault of Advisor, or (ii) that Advisor knew without restriction prior to its disclosure by Company. Upon termination or as otherwise requested by Company, Advisor will promptly return to Company all items and copies containing or embodying Proprietary Information.

 

5.                                       Solicitation .  Advisor agrees that during the Term of this Agreement and for one year thereafter, Advisor will not encourage or solicit any employee or consultant of the Company to leave Company for any reason.

 

6.                                       Termination .  Prior to the Expiration Date, either party may terminate this Agreement at any time, for any reason, by giving the other party ten (10) days’ written or electronic notice.  Sections 2 through 9 of this Agreement and any remedies for breach of this Agreement shall survive any termination or expiration.

 

7.                                       Relationship of the Parties; No Conflicts Promotional Rights .  Notwithstanding any provision hereof, for all purposes of this Agreement, each party shall be and act as an independent contractor and not as a partner, joint venturer, agent or employee of the other and shall not bind nor attempt to bind the other to any contract. Advisor represents and warrants that neither this Agreement nor the performance thereof will conflict with or violate any obligation of Advisor or right of any third party. Advisor shall not be eligible to participate in any of Company’s employee benefit plans, fringe benefit programs, group insurance arrangements or similar programs. Company may use and authorize the use of Advisor’s name, likeness and biographical information in promotional materials, websites and the like.

 

8.                                       Resignation from Board .  The Advisor hereby resigns from the Company’s Board of Directors and from any committee of such Board of Directors as of the Effective Date.

 

9.                                       Miscellaneous .  This Agreement and the Services performed hereunder are personal to Advisor and Advisor shall not have the right or ability to assign, transfer or subcontract any obligations under this Agreement without the written consent of Company. Any attempt to do so shall be void. Company shall be free to transfer any of its rights under this Agreement to a third party. Any breach of Section 2, 3, or 4 will cause irreparable harm to Company for which damages would not be an adequate remedy, and therefore, Company shall be entitled to injunctive relief with respect thereto in addition to any other remedies. This is the entire agreement between the parties with respect to the subject matter hereof and no changes or modifications or waivers to this Agreement shall be effective unless in writing and signed by both parties. In the event that any provision of this Agreement is determined to be illegal or unenforceable, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah without regard to the conflicts of law provisions thereof. In any action or proceeding to enforce rights under this Agreement, the prevailing party shall be entitled to recover costs and attorneys fees. Any notice shall be given in writing by first class mail and addressed to the party to be notified at the address below, or at such other address as the party may designate by ten (10) days’ advance written notice to the other party.

 

[Signature page follows.]

 

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THOMAS R. KUHN

CONTROL4 CORPORATION

 

 

 

 

/s/ Thomas R. Kuhn

 

By:

/s/ Martin Plaehn

(Signature)

Name:

Martin Plaehn

 

Title:

President and Chief Executive Officer

 

3




Exhibit 21.1

 

Subsidiaries of Control4 Corporation

 

Control4 EMEA Ltd (United Kingdom)

 

Control4 HK Limited (Hong Kong)

 

Control4 India Private Limited (India)

 

Control4 Smart Control Technology Shanghai Co., Ltd. (PR China)

 




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Exhibit 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

              We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 15, 2013, in the Registration Statement (Form S-1) and related Prospectus of Control4 Corporation for the registration of shares of its common stock.

/s/ ERNST & YOUNG LLP  

Salt Lake City, Utah
July 1, 2013




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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM