As filed with the Securities and Exchange Commission on August 31, 2017.
Registration No. 333-219992
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment
No. 1
to
Form S-1
REGISTRATION
STATEMENT
Under
THE SECURITIES ACT OF 1933
Techpoint,
Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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3674
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80-0806545
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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2550 N. First Street, #550
San Jose, CA 95131 USA
(408) 324-0588
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Fumihiro Kozato
President and Chief Executive Officer
2550 N. First Street, #550
San Jose, CA 95131 USA
(408) 324-0588
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
James J. Masetti, Esq.
Matthew K. Desharnais, Esq.
Pillsbury Winthrop Shaw Pittman LLP
2550 Hanover Street
Palo
Alto, California 94304 USA
(650) 233-4500
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. ☐
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. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering. ☐
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,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒ (Do not check if a smaller reporting company)
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Smaller reporting company
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☐
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Emerging Growth Company
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☒
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☒
CALCULATION OF REGISTRATION FEE
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Title of each class of
securities to be registered
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Amount
to be
registered (1)
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Proposed
maximum
offering
price
per share (2)
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Proposed
maximum
aggregate
offering price (2)
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Amount of
registration fee (5)
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Japanese Depositary Shares (3)
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1,748,000
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$7.00
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$12,236,000
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$1,418.15
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Common Stock, par value $0.0001 per share (4)
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1,748,000
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$7.00
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$12,236,000
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(1)
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Includes shares that the underwriters have the option to purchase to cover over-allotments, if any.
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(2)
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Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(a) under the Securities Act of 1933.
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(3)
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Each Japanese Depositary Share will represent one share of Common Stock.
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(4)
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Pursuant to Rule 457(i), no additional filing fee is payable with respect to the shares of Common Stock issuable upon cancellation of the Japanese Depositary Shares because no additional consideration will be received
in connection with any such cancellation.
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(5)
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A registration fee of $1,274.90 was previously paid in connection with this Registration Statement based on a proposed maximum aggregate offering price of $11,000,000. The additional registration fee of $143.25 related
to the increase in the maximum aggregate offering price has been calculated accordingly.
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The Registrant hereby amends
this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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 is not soliciting an offer to buy these
securities in any jurisdiction where such offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 31, 2017
Preliminary Prospectus
1,520,000
Japanese Depositary Shares
Representing 1,520,000 Shares of Common Stock
Japanese Depositary Shares
This is the initial public offering of Techpoint, Inc. Prior to this offering, there has been no public market for the Japanese depositary
shares, or JDSs. We are offering 1,520,000 shares of our common stock, represented by 1,520,000 JDSs. The initial public offering price of the JDSs is expected to be between $5.00 and $7.00 per share. These JDSs will be offered in Japan and to
investors located in jurisdictions other than the United States.
All of the shares of common stock sold to the public in this offering
will be sold in the form of JDSs. Each JDS represents an ownership interest in one share of common stock.
We intend to apply for the
listing of the JDSs on the Mothers market of the Tokyo Stock Exchange under the securities identification code
“M-6697.”
Our shares of common stock will not be traded on any securities exchange in
connection with this offering.
We are an ‘‘emerging growth company,” as defined in section 2(a) of the Securities Act of 1933, and may elect to comply with
reduced U.S. public company reporting requirements. Investing in the JDSs or our underlying common stock involves a high degree of risk. Please read “
Risk Factors
” beginning on page 11 of this prospectus.
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Per JDS
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Total
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Price to public
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$
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$
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Underwriting discounts and commissions(1)
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$
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$
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Proceeds to Techpoint, Inc., before expenses
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$
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$
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(1)
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See “Underwriting” for a description of the compensation payable to the underwriters.
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The underwriters have an option to purchase a maximum of 228,000 additional shares of common stock represented by 228,000 JDSs from us at the
public offering price, less underwriting discounts and commissions. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.
Neither the Securities and Exchange Commission, the Tokyo Stock Exchange, the Japanese Financial Services Agency, 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 underwriters expect to deliver the JDSs to purchasers on or
about , 2017.
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Mizuho Securities Co., Ltd
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Daiwa Securities Co. Ltd.
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SBI Securities Co. Ltd.
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The date of this prospectus
is , 2017
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by or on behalf of us and delivered or made
available to you. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, JDSs only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the JDSs. Our business, financial condition, results of operations and prospects
may have changed since that date.
We intend to apply for the listing of the JDSs on the Mothers market of the Tokyo Stock Exchange. No
additional action is being taken in any jurisdiction outside the United States to permit a public offering of the JDSs or our underlying common stock, or possession or distribution of this prospectus in that jurisdiction. Persons who come into
possession of this prospectus in jurisdictions outside the United States and Japan 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.
Until the JDSs or our underlying common stock are listed for trading on a U.S. national securities exchange, trading in, or the offer and resale
of, the JDSs or our underlying common stock will be subject to the securities laws of the various states of the United States in addition to the federal securities laws. These state securities laws cover all secondary trading of the JDSs and our
underlying common stock that could enter a U.S. purchaser’s home state. As a result, investors in the JDSs may not resell their JDSs or our underlying common stock in the United States without satisfying the applicable state securities law or
qualifying for an exemption therefrom, including the exemptions made available under the U.S. National Securities Markets Improvement Act of 1996.
Until (the 90th day after the date of this prospectus), all dealers that buy, sell
or trade in the JDSs or our underlying common stock in the United States, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
As used in this prospectus, unless the context
otherwise requires or indicates, “Techpoint,” “the Company,” “our company,” “we,” “our” and “us” refer to Techpoint, Inc., a Delaware corporation, and its subsidiaries on a consolidated
basis.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the
information that is important to you or that you should consider before investing in the JDSs and our underlying common stock. You should carefully read the entire prospectus, including the risk factors, financial data, and financial statements
included herein, before making a decision about whether to invest in the JDSs and our underlying common stock.
Overview
We are a fabless semiconductor company that designs, markets and sells mixed-signal integrated circuits for multiple video applications in the
security surveillance and automotive markets. Our integrated circuits are enabling the transition from standard definition, or SD, video to high definition, or HD, video in the security surveillance and automotive industries. We target specific
video applications that receive and process high definition analog video signals, including surveillance cameras, surveillance digital video recorders, or DVRs, as well as cameras in automobiles. We design application specific products that utilize
our HD analog transmission technology and perform advanced digital video processing to facilitate the display, transmission and storage of video content. We believe designing our integrated circuits for specific applications allows us to better
address varying end-customer requirements, fully leverage our technological capabilities and achieve greater share within our target markets.
Our solutions take HD video signals from a camera and convert them into analog signals for reliable long distance transmission, then convert
the HD analog signal into the appropriate format for video processing and display. Our HD analog technology operates at the same 1080p HD resolution as digital HD, but processes video in an HD analog format and transmits the video in this same
analog format, thereby eliminating the need for any compression or decompression. Our integrated circuits are based on our proprietary architecture and mixed signal technologies that we believe provide high video quality, enable high levels of
integration and are cost effective.
Our integrated circuits are used by leading security surveillance manufacturers, such as Hikvision in
China, IDIS in South Korea and AVTech in Taiwan. These three manufacturers are each a leading security surveillance manufacturer in its respective country. We work directly with these, and other end-customers to qualify our solutions in their
product designs. We sell our products to distributors, who in turn, sell to our end-customers. Distributor purchases are a result of end-customer demand for our specific products. In fiscal year 2016, one of our distributors, Phitec, accounted for
85% of our revenue. One of our end-customers, Hikvision, accounted for 62% of our revenue in fiscal year 2016, substantially all of which occurred through Phitec. In the six months ended June 30, 2017, Phitec accounted for 70% of our revenue
and Hikvision accounted for 61%, which primarily occurred through Phitec. Our sales made directly to Phitec are a result of demand from Hikvision for our specific products. We have also secured design wins with major automotive equipment
manufacturers to sell our solutions to them for automotive backup cameras. We sold approximately $0.6 million and $1.2 million of our products into the automotive market in fiscal year 2016 and the six months ended June 30, 2017, respectively.
We began shipping our integrated circuits in 2013 and to date, we have sold over 50 million integrated circuits. Our revenue has
increased from $13.6 million in the six months ended June 30, 2016 to $15.3 million in the six months ended June 30, 2017, and our net income increased from $1.7 million in the six months ended June 30, 2016 to $2.4 million in
the six months ended June 30, 2017. Our revenue increased from $20.2 million in fiscal year 2015 to $27.2 million in fiscal year 2016, and our net income decreased from $4.1 million in fiscal year 2015 to $3.5 million in fiscal year 2016. The
decrease in our net income in fiscal year 2016 is primarily attributable to increased tax payments due to a higher effective tax rate in fiscal year 2016, as a result of the release of our valuation allowance in fiscal year 2015. As of June 30,
2017, we had 58 employees, 21 of whom
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are in research and development. We also had 4 full-time contractors based in China and South Korea. Our headquarters are located in San Jose, California, with additional operations in Japan,
Taiwan, China and South Korea.
Industry Background
There has been rapid growth for video applications in the security surveillance and automotive markets. We believe this growth is largely
attributable to significant improvements in the user experience, including improvements in video quality, functionality, form factor and the cost of these systems.
We believe the video surveillance market will grow in the next several years. According to Markets and Markets, the worldwide revenue for
video surveillance equipment is projected to increase from approximately $30 billion in 2016 to more than $75 billion in 2022, a compound annual growth rate of approximately 15.4%. As the surveillance market expands, we believe newly installed
systems are more likely to implement an HD system and existing standard definition systems are increasingly being replaced with HD systems.
There are two principal digital HD technologies for the surveillance market, each of which presents tradeoffs. The first is an Internet
Protocol, or IP, based solution. An IP-based system generally requires new infrastructure, can be complex to set up and creates a delay in the video because it must be compressed before being transmitted from the camera to a screen where it is
subsequently decompressed and displayed. HD-serial digital interface, or HD-SDI, is a newer solution, which sends uncompressed digital video. In order to extend the transmission distance and lower the risk of picture cutoff, however, HD-SDI systems
may require higher quality cable than standard definition solutions, which can result in significant costs. Finally, because each of these solutions transmit information digitally, significant interference or disruption in the signal can result in a
complete cutoff of the picture. Even with these challenges, however, the higher quality video afforded by HD solutions has driven demand for HD security surveillance applications.
In the automotive industry, there are an increasing number of video applications, including backup cameras, surround view cameras, car black
boxes and e-mirrors. There are several factors driving this trend in the automotive industry, including consumer demand as well as automotive safety regulations. For example, the United States Congress passed the Cameron Gulbransen Kids
Transportation Safety Act in 2008, which required the United States Department of Transportation to implement rules requiring all automobiles sold in the United States to have backup cameras. As a result, all automobiles sold in the United States
and built after May 1, 2018 must have backup cameras.
There are two primary digital HD solutions currently in the automotive
marketplace: an IP -based solution and a serializer/deserializer, or SERDES, HD solution. The current IP-based HD solutions suffer from some of the same challenges these solutions face in surveillance systems, including high costs and performance
issues. The SERDES HD solution also suffers from high cable costs, as expensive shielded cable must be installed throughout the car, while also having reliability concerns and high connector costs. Additionally, due to space constraints in vehicles,
cables are frequently required to make sharp bends or twists that greatly increase the chances of signal interference and loss of signal. For a back-up camera, latency due to compression, or signal cutoff due to interference, can be a significant
problem as the driver may hit an object before it is displayed on the screen. As in the security surveillance market however, demand for HD in automotive applications has been driven by the higher quality image it creates.
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Our Strengths
Our integrated circuits are based on our proprietary high definition transport video interface, or HD-TVI, technology, which serves as the
common foundation across most of our application specific products. Our integrated circuits have the following key strengths:
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High Performance.
Our integrated circuits are designed to deliver high performance by providing high video quality, no visual latency, and enabling long distance transmission of HD video without significant
degradation and with high reliability. Our HD analog technology operates at the same 1080p HD resolution as digital HD, but processes video in an HD analog format and transmits the video in this same analog format, thereby eliminating the need for
any compression or decompression. The result is that our HD-TVI integrated circuits can process high-quality HD video that can be transmitted without visual latency and can be sent reliably over long cable distances. We believe this helps address
the shortcomings of alternative HD solutions, including latency in automobile back-up cameras.
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Cost Effectiveness
. Because our technology can utilize existing SD cables and does not require complicated configuration, it avoids the installation, retrofitting and set-up costs of IP-based solutions, as well
as the expensive retrofitting and cabling that can be required for HD-SDI solutions. Our HD-TVI technology enables us to transmit video in an analog format, which means that surveillance systems and in-car video systems can also use less expensive
cabling, including existing cabling from legacy SD surveillance systems. This lowers the overall systems cost for our end-customers.
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High Levels of Integration.
We integrate our HD-TVI receiver with sophisticated analog video and audio decoders to allow our HD-TVI products to support both high definition video, including other HD analog
variants, as well as legacy standard definition video for both the security surveillance and automotive backup camera market. This compatibility provides our end-customers, and in particular our surveillance end-customers, with more flexibility in
designing their system, and allows them to stage their system upgrades over time.
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Design Efficiency.
Our digital and analog design architecture allows us to operate at small process geometries for both our analog and digital technologies to achieve small die sizes resulting in advantages in
cost, performance and power consumption. We believe this enables us to provide a comprehensive solution at a cost effective price point, without sacrificing our business objectives.
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Additionally, our experienced leadership team brings over 34 years of management experience at semiconductor companies targeting the security
surveillance and automotive markets. Our CEO and CTO have worked together for over 19 years at three companies including Techpoint. We believe that our leadership team’s experience with one another and in the industry helps to bring stability
to our company and set the tone for our company culture of practical innovation and growth.
Our Growth Strategy
Key elements of our strategy include:
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Target Multiple High Growth Video Applications.
We intend to address a number of video applications in the security surveillance and automotive markets that provide us with multiple high growth opportunities,
including HD analog cameras, HD surveillance DVRs, in-car HD backup cameras and HD surround view cameras. As the transition from standard definition to HD video continues, we expect the opportunities that we have within our current target markets to
continue to grow.
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Develop Additional Application Specific Products.
We believe that our application specific product strategy allows us to better address varying end-customer requirements, fully leverage our technology
capabilities and achieve a greater share within our target markets. We plan to maintain and expand upon this product strategy in the future.
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Develop New Technologies.
We plan to continue to develop additional technologies to address evolving end-customer requirements. For example, we are developing technologies that are important for next generation
Ultra HD resolution camera and video products.
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Expand Customer Relationships.
Our integrated circuits are used by leading security surveillance manufacturers, such as Hikvision in China, IDIS in South Korea and AVTech in Taiwan. We also have design wins with
major automotive equipment manufacturers. We intend to continue to expand our sales, marketing and technical support capabilities to pursue additional design wins with our existing end-customers and to develop relationships with new end-customers in
our target markets. We believe that due to the lengthy sales and product cycles, design wins in the automotive industry have the potential to translate into several years of product sales.
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Strengthen Our Market Presence Through Selected Acquisitions
. We intend to actively consider acquisitions of companies or technologies that can add to or complement our solutions. We believe well-conceived and
implemented acquisitions can enable us to increase our market penetration and broaden our technology and product offerings.
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Risk Factors
Our business, the JDSs and our underlying common stock are subject to numerous risks, including those described in the section titled
“Risk Factors” immediately following this prospectus summary. Some of the more significant risks are:
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Our limited operating history, which makes it difficult to evaluate our current business and future prospects.
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The intense competition we face, including from our end-customers and potential end-customers. If we fail to compete effectively, our market share, revenue and profitability will be materially adversely affected.
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We depend on key and highly skilled personnel to operate our business. If we are unable to retain our current personnel and hire additional personnel, our ability to develop and market our products could be harmed.
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We primarily sell our products through a limited number of distributors and to a limited number of end-customers. If our relationships with one or more of those distributors or end-customers were to terminate, our
operating results may be harmed.
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Our revenue and operating results will fluctuate from period to period, which could cause the market price of your JDSs to decline.
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We rely on third parties to manufacture, package, assemble and test our products.
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The market for our products is characterized by declines in average selling prices, which could negatively affect our revenue and margins.
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We may not sustain or increase profitability in the future, which may cause the market price of your JDSs to decline.
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There has been no prior offering of JDSs, a relatively new and previously unused form of representative security, and there is no current or planned market for our underlying common stock, each of which may negatively
impact the liquidity and market price of your JDSs or result in other negative consequences.
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We do not presently intend to facilitate secondary trading of our JDSs or common stock in the United States and we are not taking any of the steps necessary to register our JDSs or common stock with the securities
division of any state within the United States or seek an exemption for such secondary trading.
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Corporate Information
We were originally incorporated in California in April 2012, and we reincorporated into Delaware in July 2017. Our principal executive offices
are located at 2550 N. First Street, #550, San Jose, California 95131, and our telephone number is (408) 324-0588. Our website is techpointinc.net. Information contained on, or that can be accessed through, our website is not incorporated
by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
Unless otherwise
indicated, the terms “Techpoint,” “we,” “us” and “our” refer to Techpoint, Inc., a Delaware corporation, together with its consolidated subsidiaries.
The Techpoint logo and the marks “Techpoint,” “TVI,” and “HD-TVI,” are the property of Techpoint, Inc. This
prospectus contains additional trade names, trademarks, and service marks of other companies. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or
sponsorship of us by, these other companies.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as
defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally not available to public companies. These provisions
include:
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a requirement to have only two years of audited financial statements and only two years of related management’s discussion and analysis;
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an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;
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an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional
information about the audit and the financial statements;
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reduced disclosure about our executive compensation arrangements; and
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exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or shareholder approval of any golden parachute arrangements.
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We will remain an emerging growth company until the earliest to occur of: (1) the last day of the first fiscal year in which we have more
than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million in market value of common equity securities held by non-affiliates; (3) the issuance, in any three-year
period, by us of more than $1.07 billion in non-convertible debt securities; (4) and the last day of the fiscal year ending after the fifth anniversary of this offering. We may choose to take advantage of some, but not all, of the available
benefits under the JOBS Act. We are choosing to irrevocably “opt out” of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards, but we intend to take advantage of the other
exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold shares.
5
THE OFFERING
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Japanese Depositary Shares, or JDSs, to be offered
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1,520,000 JDSs
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JDSs to be outstanding after this offering
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1,520,000 JDSs
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Common Stock to be outstanding after this offering
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16,693,905 shares
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Underwriter’s option to purchase additional JDSs
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The underwriters have an option to purchase a maximum of 228,000 additional shares of common stock represented by 228,000 JDSs. All of the shares subject to the option would be sold by us. The underwriters may exercise this option at any time
within 30 days from the date of this prospectus.
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The JDSs
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Each JDS represents an interest in one share of our common stock. The trust will be the holder of the common stock underlying the JDSs and you will have the rights of a JDS holder as provided in the trust agreement among us, the trustees, the
settlor and the holders.
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JDSs are units of beneficial ownership in our shares of common stock held in trust by the Trustees. The JDSs entitle holders to dividends, if any, and other rights economically equivalent to our shares of common stock on a one-for-one basis,
including the right to attend stockholders’ meetings. The JDSs are also convertible at the option of the holders into our shares of our common stock on a one-for-one basis, such that for every one JDS converted, a holder will receive one share
of common stock. The trust, as the stockholder of record, will vote the underlying shares in accordance with the directions of the JDSs holders.
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To better understand the terms of the JDSs, you should carefully read the section in this prospectus entitled “Description of Japanese Depositary Shares.” We also encourage you to read the trust agreement,
which is an exhibit to the registration statement that includes this prospectus.
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Use of proceeds
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We estimate that the net proceeds to us from this offering will be $5.8 million, assuming an initial public offering price of $6.00 per JDS,
the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated expenses payable by us. We intend to use the net proceeds received by us from this offering
primarily for general corporate purposes, including working capital, to fund further expansion of our sales and marketing efforts, continued investments
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in research and development, capital expenditures, general corporate purposes and for working capital. In addition, we may use a portion of the net proceeds of this offering for acquisitions of
complementary businesses, technologies or other assets. However, we do not have any agreements or understandings for any acquisitions at this time.
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Risk factors
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See “Risk Factors” beginning on page 11 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in the JDSs and our underlying common stock.
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Proposed Mothers market of the Tokyo Stock Exchange securities identification code
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M-6697
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Trustees
|
Mitsubishi UFJ Trust and Banking Corporation, and The Master Trust Bank of Japan, Ltd.
|
|
Settlor
|
Mizuho Securities Co., Ltd.
|
|
Japanese Offering
|
We are filing a securities registration statement to permit a public offering of the JDSs in Japan and intend to offer the JDSs through Japanese underwriters. The JDSs will be offered in Japan and to investors located in jurisdictions other than
the United States. No offering of the JDSs or our common stock is presently planned in the United States. Additionally, we do not presently intend to facilitate a secondary market in the United States, or anywhere outside of Japan, for the JDSs or
our common stock.
|
The number of shares of common stock to be outstanding after this offering is based on 14,760,238
shares of our common stock outstanding as of June 30, 2017, on an as converted basis, and excludes 413,667 shares of issued but unvested restricted stock as of June 30, 2017, which are not considered issued for accounting purposes, and the
following:
|
|
•
|
|
1,248,834 shares of common stock issuable upon the exercise of outstanding stock options as of June 30, 2017 under our 2012 Stock Incentive Plan with weighted-average exercise price of $1.79 per share;
|
|
|
•
|
|
1,608,649 shares of common stock reserved for future issuance under our 2012 Stock Incentive Plan; and
|
|
|
•
|
|
2,500,000 shares of common stock, subject to increase on an annual basis, reserved for future issuance under our 2017 Stock Incentive Plan, which will become effective in connection with this offering. On the date of
this prospectus, any shares available for issuance under our 2012 Stock Incentive Plan will be added to the shares reserved under our 2017 Stock Incentive Plan, and we will cease granting awards under our 2012 Stock Incentive Plan.
|
Except as otherwise indicated, all information in this prospectus assumes:
|
|
•
|
|
that our restated certificate of incorporation, which we will file immediately prior to the completion of this offering, and our restated bylaws, which we intend to adopt immediately prior to the completion of this
offering, each are in effect;
|
7
|
|
•
|
|
the conversion of all outstanding shares of our preferred stock into an aggregate of 10,742,500 shares of common stock immediately upon the closing of this offering;
|
|
|
•
|
|
no exercise of outstanding stock options subsequent to June 30, 2017;
|
|
|
•
|
|
no exercise by the underwriters of their option to purchase up to 228,000 additional shares of common stock from us represented by 228,000 JDSs; and
|
|
|
•
|
|
an exchange rate of ¥109.75 Japanese yen to $1.00 U.S. dollar, which was the exchange rate as of August 29, 2017, as quoted by Bloomberg Markets.
|
8
SUMMARY CONSOLIDATED FINANCIAL DATA
We derived the summary consolidated statement of operations data for the years ended December 31, 2016 and 2015 from our audited
consolidated financial statements included elsewhere in this prospectus. The summary condensed consolidated statements of operations data for the six months ended June 30, 2017 and 2016, and the condensed consolidated balance sheet data as of June
30, 2017 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future and
results of interim periods are not necessarily indicative of the results of the entire year. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
20,245
|
|
|
$
|
27,156
|
|
|
$
|
13,640
|
|
|
$
|
15,269
|
|
|
Cost of revenue (1)
|
|
|
8,803
|
|
|
|
12,735
|
|
|
|
6,448
|
|
|
|
6,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
11,442
|
|
|
|
14,421
|
|
|
|
7,192
|
|
|
|
8,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,964
|
|
|
|
4,380
|
|
|
|
2,196
|
|
|
|
2,662
|
|
|
Selling, general and administrative
|
|
|
2,592
|
|
|
|
4,678
|
|
|
|
2,462
|
|
|
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,556
|
|
|
|
9,058
|
|
|
|
4,658
|
|
|
|
5,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,886
|
|
|
|
5,363
|
|
|
|
2,534
|
|
|
|
3,702
|
|
|
Other income (expense)
|
|
|
3
|
|
|
|
—
|
|
|
|
11
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,889
|
|
|
|
5,363
|
|
|
|
2,545
|
|
|
|
3,692
|
|
|
Income taxes
|
|
|
(168
|
)
|
|
|
1,882
|
|
|
|
833
|
|
|
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
3,481
|
|
|
$
|
1,712
|
|
|
|
2,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
0.24
|
|
|
$
|
0.12
|
|
|
$
|
0.17
|
|
|
Diluted
|
|
|
0.28
|
|
|
|
0.23
|
|
|
|
0.11
|
|
|
|
0.16
|
|
|
Unaudited pro forma basic
|
|
|
|
|
|
|
0.24
|
|
|
|
|
|
|
|
0.17
|
|
|
Unaudited pro forma diluted
|
|
|
|
|
|
|
0.23
|
|
|
|
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
Weighted average shares used in net income per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,007
|
|
|
|
3,494
|
|
|
|
3,426
|
|
|
|
3,849
|
|
|
Diluted
|
|
|
3,774
|
|
|
|
4,358
|
|
|
|
4,298
|
|
|
|
4,648
|
|
|
Unaudited pro forma basic
|
|
|
|
|
|
|
14,236
|
|
|
|
|
|
|
|
14,592
|
|
|
Unaudited pro forma diluted
|
|
|
|
|
|
|
15,101
|
|
|
|
|
|
|
|
15,391
|
|
|
(1)
|
Includes stock-based compensation expense as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
Cost of revenue
|
|
$
|
7
|
|
|
$
|
15
|
|
|
$
|
7
|
|
|
$
|
13
|
|
|
Research and development
|
|
|
73
|
|
|
|
102
|
|
|
|
48
|
|
|
|
77
|
|
|
Selling, general and administrative
|
|
|
84
|
|
|
|
322
|
|
|
|
132
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
164
|
|
|
$
|
439
|
|
|
$
|
187
|
|
|
$
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
|
|
Actual
|
|
|
Pro Forma (1)
|
|
|
Pro Forma as
Adjusted (2)
|
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,932
|
|
|
$
|
11,932
|
|
|
$
|
20,322
|
|
|
Property and equipment, net
|
|
|
375
|
|
|
|
375
|
|
|
|
375
|
|
|
Total assets
|
|
|
17,879
|
|
|
|
17,879
|
|
|
|
26,269
|
|
|
Current liabilities
|
|
|
1,742
|
|
|
|
1,742
|
|
|
|
1,742
|
|
|
Convertible preferred stock
|
|
|
8,794
|
|
|
|
—
|
|
|
|
—
|
|
|
Total stockholders’ equity
|
|
|
16,011
|
|
|
|
16,011
|
|
|
|
21,783
|
|
|
(1)
|
The pro forma column reflects the conversion of all outstanding shares of our convertible preferred stock into 10,742,500 shares of our common stock in connection with this offering.
|
|
(2)
|
The pro forma as adjusted column reflects the conversion of all outstanding shares of our convertible preferred stock into 10,742,500 shares of our common stock in connection with this offering and the receipt of
approximately $5.8 million in net proceeds from the sale of 1,520,000 shares of common stock by us in this offering at the initial public offering price of $6.00 per share of common stock, or $6.00 per JDS, the midpoint of the price range
set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
|
10
RISK FACTORS
Investing in the JDSs and our underlying 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 consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. 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 trading price of the JDSs could decline and you could lose part or all of your
investment.
Risks Related to Our Business and Industry
Our limited operating history makes it difficult to evaluate our current business and future prospects.
We were incorporated in 2012 and began shipping our integrated circuits in 2013. Our limited operating history and limited experience selling
products, combined with the rapidly evolving and competitive nature of our markets, makes it difficult to evaluate our current business and future prospects. In addition, we have limited insight into emerging trends that may adversely affect our
business, financial condition, results of operations and prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including unpredictable and
volatile revenue and increased expenses as we continue to grow our business. The viability and demand for our products may be affected by many factors outside of our control, such as the factors affecting the growth of the security surveillance and
automotive industries in general, and the growth and adoption of new security surveillance technologies and automotive video applications in particular, and changes in macroeconomic conditions. Our future revenue growth rate, and the success of our
business, will depend in particular upon the success of our automotive video business. We have not yet recognized significant revenue from the automotive market, and we may not be successful in growing our revenue in this area. If we do not manage
these risks and overcome these difficulties successfully, our business will suffer.
We face intense competition, including from our end-customers
and potential end-customers, and we may not be able to compete effectively, which could reduce our market share and decrease our revenue and profitability.
The markets in which we operate are extremely competitive and are characterized by rapid technological change, continuous evolving end-customer
requirements and declining average selling prices. We may not be able to compete successfully against current or potential competitors, which include our current or potential end-customers as they seek to internally develop solutions competitive
with ours. If we do not compete successfully, our market share and revenue may decline. We compete with large semiconductor manufacturers and designers, large automotive equipment manufacturers’ internally developed solutions, and others, and
our current and potential competitors have longer operating histories, significantly greater resources and name recognition and a larger base of customers than we do. This may allow them to respond more quickly than we can to new or emerging
technologies or changes in customer requirements. In addition, these competitors may have greater credibility with our existing and potential end-customers. Some of our current and potential end-customers with their own internally developed
solutions may choose not to purchase products from third-party suppliers like us.
We primarily sell our products through a limited number of
distributors and to a limited number of end-customers, and if our relationships with one or more of those distributors or end-customers were to terminate, our operating results may be harmed.
We market and distribute our products primarily through a limited number of distributors, most of which are located in Asia. This distribution
channel has been characterized by rapid change and consolidations. Distributors have accounted for a significant portion of our revenue in the past. Sales to our distributors represented substantially all of our revenue in the six months ended
June 30, 2017 and 2016, and the years ended
11
December 31, 2016 and 2015. One of our distributors, Phitec, accounted for 70%, 87%, 85% and 82% of our revenue in the six months ended June 30, 2017 and 2016, and the years ended
December 31, 2016 and 2015, respectively. We do not have any long-term contractual commitments with our distributors.
One of our
end-customers, Hikvision, the largest security surveillance manufacturer in China, accounted for 61%, 65%, 62%, and 78% of our revenue in the six months ended June 30, 2017 and 2016, and the years ended December 31, 2016 and 2015, respectively.
Another end-customer, XiongMai, accounted for 11% of our revenue in fiscal year 2016. Our sales to Hikvision and XiongMai primarily occur through Phitec, as distributor, who purchases our products as a result of demand from Hikvision and XiongMai
for our specific products. We do not have any long-term contractual commitment with Hikvision or XiongMai. Hikvision accounted for approximately 15% of worldwide security surveillance shipments in 2016, and losing them as an end-customer, or if they
decide to scale back use of our products, could have a material and adverse effect on our business.
Our operating results and financial
condition could be significantly disrupted by the loss of one or more of our current end-customers, distributors and sales representatives, volume pricing discounts, order cancellations, delays in shipment by one of our major distributors,
end-customers or sales representatives, or the failure of our distributors or sales representatives to successfully sell our products. Additionally, customer buying patterns change and can fluctuate from quarter to quarter and impact our results of
operations, particularly for significant end-customers. For example, in the second quarter of 2017, Hikvision purchased approximately $1.0 million more of our products than in the first quarter of 2017. These buying patterns can change as a result
of factors beyond our control, including inventory adjustments by our end-customers, or due to changes in their anticipated or forecasted demand, which could materially harm our results of operations.
Our revenue and operating results will fluctuate from period to period, which could cause the market price of your JDSs to decline.
Our revenue and operating results are difficult to predict, have in the past fluctuated, and may in the future fluctuate from period to period.
It is possible that our operating results in some periods will be below market expectations. This would likely cause the market price of your JDSs to decline. Our operating results in any given period may be affected by a number of factors,
including:
|
|
•
|
|
unpredictable volume and timing of end-customer orders, which are not fixed by contract and vary on a purchase order basis;
|
|
|
•
|
|
uncertain demand in our primary end markets for our products;
|
|
|
•
|
|
the loss of one or more of our distributors or end-customers, causing a significant reduction or postponement of orders from these end-customers;
|
|
|
•
|
|
decreases in the overall average selling prices of our products;
|
|
|
•
|
|
changes in the relative sales mix of our products;
|
|
|
•
|
|
changes in our cost of finished goods;
|
|
|
•
|
|
the availability, pricing and timeliness of delivery of other components used in our end-customers’ products;
|
|
|
•
|
|
our end-customers’ sales outlook, purchasing patterns and inventory adjustments based on demands and general economic conditions;
|
|
|
•
|
|
changes in end-customer order patterns including order cancellations;
|
|
|
•
|
|
product obsolescence and our ability to manage product transitions;
|
|
|
•
|
|
our ability to successfully develop, introduce and sell new or enhanced products in a timely manner;
|
|
|
•
|
|
the timing of new product announcements or introductions by us or by our competitors;
|
12
|
|
•
|
|
changes in business and economic conditions that could affect consumer confidence; and
|
|
|
•
|
|
fluctuations in our effective tax rate.
|
We base our planned operating expenses in part on our
expectations of future revenue, and a significant portion of our expenses is relatively fixed in the short-term. We have limited historical financial data from which to predict future sales for our products. As a result, it is difficult for us to
forecast our future revenue and budget our operating expenses accordingly. If revenue for a particular period is lower than we expect, we likely will be unable to proportionately reduce our operating expenses for that period, which would harm our
operating results for that period.
If the growth of demand for video applications for the security surveillance and automotive markets does not
continue, and if we are unsuccessful in selling into the automotive market our ability to increase our revenue and operating results could suffer.
Our ability to increase our revenue will depend on increased demand for video applications in the security surveillance and automotive markets.
In the six months ended June 30, 2017, 92% of our revenue was derived from the sale of our products designed for the security surveillance market. In fiscal year 2016, 98% of our revenue was derived from the sale of our products designed for the
security surveillance market. If our products sold into this market decline or do not increase, or if demand slows in this market generally, our operating results would suffer. In addition, we have increased our focus on the automotive market and
have devoted substantial resources to the development of products for video applications that address this market. We expect that the automotive market will be a substantial driver of our future business, however, we may not be successful developing
and marketing our solutions for this market, or gain significant market share. If we are not successful in selling our products into this market, or if the automotive industry in general experiences weak demand, we may not recover the costs
associated with our efforts in this area and our operating results could suffer.
The growth of our target markets is uncertain and will
depend in particular upon:
|
|
•
|
|
the pace at which new HD video applications are adopted;
|
|
|
•
|
|
evolving regulation in different jurisdictions governing backup cameras in automotive applications;
|
|
|
•
|
|
a continued reduction in the costs of products in these markets;
|
|
|
•
|
|
the availability, at a reasonable price, of components required by such products, such as LCD panels; and
|
|
|
•
|
|
consumer confidence and the continued increase of consumer spending levels.
|
We depend on key and highly
skilled personnel to operate our business, and if we are unable to retain our current personnel and hire additional personnel, our ability to develop and market our products could be harmed.
We believe our future success will depend in large part upon our ability to attract and retain highly skilled managerial, engineering and sales
and marketing personnel. We operate in locations where competition for engineering talent is particularly intense, including the Silicon Valley. If we are unable to recruit and retain skilled personnel, our business could suffer and our financial
results could decline. The loss of any key personnel or the inability to attract or retain qualified personnel could delay the development and introduction of, and harm our ability to sell, our products and harm the market’s perception of us.
We do not have long-term employment contracts with any of our employees, including our key personnel, and their knowledge of our business and industry would be extremely difficult to replace.
13
We may not sustain or increase profitability in the future, which may cause the market price of your JDSs
to decline.
To sustain or increase profitability, we will need to generate and sustain substantially higher revenue while
maintaining reasonable cost and expense levels. We recorded net income of $2.4 million and $1.7 million for the six months ended June 30, 2017 and 2016, respectively. We recorded net income of $3.5 million and $4.1 million for the years ended
December 31, 2016 and 2015, respectively, despite a 34% increase in revenue. The decrease in our net income in fiscal year 2016 is primarily attributable to increased tax payments due to a higher effective tax rate in fiscal year 2016, as a
result of the release of our valuation allowance in fiscal year 2015. In part, this decrease was also due to increased costs as we have begun to prepare to become a publicly traded company. We currently expect to increase expense levels in each of
the next several quarters to support increased research and development, sales and marketing, and regulatory compliance efforts. These expenditures may not result in increased revenue or end-customer growth. Because many of our expenses are fixed in
the short-term, or are incurred in advance of anticipated sales, we may not be able to decrease our expenses in a timely manner to offset any shortfall of sales. We also believe our future effective tax rate will be at or near the current statutory
tax rate, which is higher than our average historical annual effective tax rate. This will harm our future financial results and negatively impact our profitability. We may not be able to sustain or increase profitability on a quarterly or an annual
basis. This may, in turn, cause the price of your JDSs to decline.
We may not be able to manage our future growth effectively, and we may need to
incur significant expenditures to address the additional operational and control requirements of our growth.
We have experienced a
period of significant growth and expansion, which has placed, and any future expansion will continue to place, a significant strain on management, personnel, systems and financial resources. We have hired additional employees to support an increase
in research and development as well as increase our sales and marketing and general and accounting efforts, which resulted in increasing our headcount from 21 employees and full-time consultants as of December 31, 2013 to 58 employees and
full-time consultants as of June 30, 2017. To manage our growth successfully, we believe we must effectively:
|
|
•
|
|
train, integrate and manage additional qualified engineers for research and development activities, sales and marketing personnel and financial and information technology personnel;
|
|
|
•
|
|
continue to enhance our customer resource management and manufacturing management systems;
|
|
|
•
|
|
implement additional and improve existing administrative, financial and operations systems, procedures and controls, including the requirements of the U.S. Sarbanes-Oxley Act of 2002 and other regulations we are subject
to in the United States and in Japan;
|
|
|
•
|
|
expand and upgrade our technological capabilities; and
|
|
|
•
|
|
manage multiple relationships with our end-customers, distributors, suppliers and other third-parties.
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Our efforts may require substantial managerial and financial resources and may increase our operating costs even though these efforts may not
be successful. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, develop new products, satisfy end-customer requirements, execute our business plan or respond to competitive pressures.
Changes to industry standards and technical requirements relevant to our products and markets could adversely affect our business, results of
operations and prospects.
Our products are only a part of larger electronic systems. All products incorporated into these systems
must comply with various industry standards and technical requirements created by regulatory bodies or industry participants in order to operate efficiently together. Industry standards and technical requirements in our markets are evolving and may
change significantly over time. In addition, large industry-leading semiconductor and electronics companies play a significant role in developing standards and technical requirements for the product
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ecosystems within which our products can be used. Automotive companies typically have exacting requirements for components in their vehicles, which must meet a variety of standards. Our
end-customers also may design certain specifications and other technical requirements specific to their products and solutions. These technical requirements may change as the end-customer introduces new or enhanced products and solutions.
Our ability to compete in the future will depend in part on our ability to identify and comply with evolving industry standards and technical
requirements. The emergence of new industry standards and technical requirements could render our products incompatible with products developed by other suppliers or make it difficult for our products to meet the requirements of certain of our
end-customers in consumer, industrial, automotive and other markets. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards and
requirements. If our products are not in compliance with prevailing industry standards and technical requirements for a significant period of time, we could miss opportunities to achieve crucial design wins, our revenue may decline and we may incur
significant expenses to redesign our products to meet the relevant standards, which could adversely affect our business, results of operations and prospects.
The market for HD video application integrated circuits is characterized by declines in average selling prices, which we expect to continue, and which
could negatively affect our revenue and margins.
Our end-customers expect the average selling price of our products to decrease
year-over-year and we expect this trend to continue. When such pricing declines occur, we may not be able to mitigate the effects by selling more or higher margin units, or by reducing our manufacturing costs. In such circumstances, our operating
results could be materially and adversely affected. Our products have experienced declining average selling prices over their life cycle. The rate of decline may be affected by a number of factors, including relative supply and demand, the level of
competition, production costs and technological changes. As a result of the decreasing average selling prices of our products following their launch, our ability to increase or maintain our margins depends on our ability to introduce new or enhanced
products with higher average selling prices and to reduce our per-unit cost of sales and our operating costs. We may not be able to reduce our costs as rapidly as companies that operate their own manufacturing, assembly and testing facilities, and
our costs may even increase because we do not operate our own manufacturing, assembly or testing facilities, which could also reduce our gross margins. In addition, our new or enhanced products may not be as successful or enjoy as high margins as we
expect. If we are unable to offset any reductions in average selling prices by introducing new products with higher average selling prices or reducing our costs, our revenue and margins will be negatively affected and may decrease.
We have engaged in acquisitions in the past and may continue to expand through acquisitions of, or investments in, other companies, which may divert our
management’s attention, harm our operating results, result in additional dilution to stockholders and use resources that are necessary to operate our business.
In the past, we have grown our business through acquisitions and we may in the future seek to acquire or invest in businesses, products or
technologies that we believe could complement or expand our business, enhance our technical capabilities or otherwise offer growth opportunities. For example, in 2013, we acquired certain high-definition video assets from a third party. Such
acquisitions or investments could create risks for us, including:
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difficulties in assimilating acquired personnel, operations and technologies or realizing synergies expected in connection with an acquisition, particularly with acquisitions of companies with large and widespread
operations, complex products or that operate in markets in which we historically have had limited experience;
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unanticipated costs or liabilities, including possible litigation, associated with the acquisition;
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incurrence of acquisition-related costs and goodwill;
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diversion of management’s attention from other business concerns;
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use of resources that are needed in other parts of our business; and
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use of substantial portions of our available cash to consummate an acquisition.
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A significant
portion of the purchase price of companies we acquire may be allocated to acquired goodwill or other intangible assets, which must be assessed for impairment at least annually. If such acquisitions do not yield expected returns, we may be required
to take charges to our earnings based on this impairment assessment process, which could harm our results of operations.
We may be unable
to complete acquisitions at all or on commercially reasonable terms, which could limit our future growth. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating
results and result in a decline in our stock price and further restrict our ability to pursue business opportunities, including potential acquisitions. In addition, if an acquired business fails to meet our expectations, our operating results may
suffer.
We manufacture our products based on our estimates of end-customer demand, and if our estimates are incorrect or our end-customers cancel
their orders our financial results could be negatively impacted.
Our sales are made on the basis of purchase orders rather than
long-term purchase commitments. In addition, our distributors may cancel purchase orders or defer the shipments of our products. We manufacture our products according to our estimates of end-customer demand. This process requires us to make multiple
demand forecast assumptions, each of which may introduce error into our estimates. If we overestimate end-customer demand, we may manufacture products that we may not be able to sell. As a result, we would have excess inventory, which would increase
our losses. Conversely, if we underestimate end-customer demand or if sufficient manufacturing capacity were unavailable, we would forego revenue opportunities, lose market share and damage our relationships.
If we fail to develop new products and enhance our existing products in order to react to rapid technological change and market demands, our business
will suffer.
We must develop new products and enhance our existing products with improved technologies to meet rapidly evolving
end-customer requirements. We need to design products for end-customers who continually require higher performance and functionality at lower costs. For example, we anticipate that sales of 1080p products will decrease as the market moves to higher
resolution displays, such as 4K, in the coming years. We must, therefore, continue to cost-effectively add features that enhance performance and functionality to our products. The development process for these advancements is lengthy and requires us
to accurately anticipate market trends. Our failure to accurately anticipate market trends in a timely manner will harm the market acceptance of our products and the sales of our products.
Developing and enhancing these products is uncertain and can be time-consuming, costly and complex. There is a risk that these developments
and enhancements will be late, fail to meet end-customer or market specifications or not be competitive with products from our competitors that offer comparable or superior performance and functionality. Any new products or product enhancements may
not be accepted in new or existing markets. Our business will suffer if we fail to develop and introduce new products or product enhancements on a cost-effective basis.
We rely on a limited number of independent subcontractors for the manufacture, assembly and testing of our semiconductors, and the failure of any of
these third-party vendors to deliver products or otherwise perform as requested could damage our relationships with our end-customers, decrease our sales and limit our growth.
We do not have our own manufacturing or assembly facilities and have very limited in-house testing facilities. Therefore, we must rely on
third-party vendors to manufacture, assemble and test the products we
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design. We currently rely on Taiwan Semiconductor Manufacturing Company, or TSMC, to produce almost all of our semiconductors. We rely on Advanced Semiconductor Engineering, Inc., or ASE, to
assemble, package and test almost all of our products. If these vendors do not provide us with high-quality products, services and production and test capacity in a timely manner, or if one or more of these vendors terminates its relationship with
us, we may be unable to obtain satisfactory replacements to fulfill end-customer orders on a timely basis, our relationships with our end-customers could suffer and our sales could decrease. Other significant risks associated with relying on these
third-party vendors include:
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reduced control over product cost, delivery schedules and product quality;
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potential price increases;
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inability to achieve required production or test capacity and achieve acceptable yields on a timely basis;
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increased exposure to potential misappropriation of our intellectual property;
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shortages of materials that foundries use to manufacture products;
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labor shortages or labor strikes; and
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quarantines or closures of manufacturing facilities due to the outbreak of viruses, such as SARS, the avian flu or any similar future outbreaks in Asia.
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We currently do not have long-term supply contracts with any of our third-party vendors. Therefore, they are not obligated to perform services
or supply products to us for any specific period, in any specific quantities or at any specific price, except as may be provided in a particular purchase order. Neither TSMC nor ASE has provided contractual assurances to us that adequate capacity
will be available for us to meet future demand for our products. These third-party vendors may allocate capacity to the production of other companies’ products while reducing deliveries to us on short notice. In particular, other customers that
are larger and better financed than we are or that have long-term agreements with TSMC or ASE may cause either or both of them to reallocate capacity to those customers, decreasing the capacity available to us.
Changes to industry regulations relevant to our products and markets could adversely affect our business, results of operations and prospects.
In 2014 the U.S. National Highway Traffic Safety Administration issued new rules that require new cars sold in the United States
to have backup cameras by 2018. This date had been postponed in the past, and could be postponed again. Our market projections assume that the implementation of these rules is not delayed, and that the rules are not modified in a way that is
unfavorable to us and our products. Additionally, there is no guarantee that other jurisdictions will follow the lead of the United States and require backup cameras on vehicles. While we currently anticipate that consumers and regulators in other
jurisdictions, including the European Union, will adopt backup cameras, there is no guarantee that this will happen within a time frame that we can take advantage of, or at all. If automotive backup cameras do not become widespread our target market
may be much smaller than we anticipate, limiting our potential growth and revenue.
We rely on our relationships with Original Design Manufacturers,
or ODMs, to enhance our solutions and market position, and our failure to continue to develop or maintain such relationships in the future would harm our ability to remain competitive.
We develop our products for ODMs that serve a variety of end markets including home and office security surveillance, and automotive
applications. For each application, manufacturers create products that incorporate specialized semiconductor technology, which producers further down the supply chain integrate into their products. For example, our solutions may be integrated into a
more comprehensive video product that is
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incorporated into an automotive vehicle or aftermarket system and sold to consumers. We must work closely with manufacturers to ensure that each new generation of our solutions becomes qualified
for use in their products. As a result, maintaining close relationships with leading product manufacturers in our target markets is crucial to the long-term success of our business. We could lose these relationships for a variety of reasons,
including our failure to qualify as a vendor, our failure to demonstrate the value of our new solutions, declines in product quality, or if ODMs seek to work with vendors with broader product suites, greater production capacity or greater financial
resources. If our relationships with key industry participants were to deteriorate or if our solutions were not qualified by our end-customers, our market position and revenue could be materially and adversely affected.
Our business depends on customers, suppliers and operations in Asia, and as a result we are subject to regulatory, operational, financial and political
risks, which could adversely affect our financial results.
The percentage of our revenue attributable to sales to customers in
Asia was greater than 99% in the six months ended June 30, 2017 and 2016, and the years ended December 31, 2016 and 2015. We derived 84%, 90%, 88% and 87% of our revenue from sales to customers in China in the six months ended June 30, 2017 and
2016, and the years ended December 31, 2016 and 2015, respectively. We expect that revenue from customers in Asia will continue to account for substantially all of our revenue. All our sales currently are denominated in U.S. dollars. As a
result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets.
Currently, we rely on a network of sales representatives to sell our products internationally. We also have offices in Japan, which serves
various aspects of our business. Moreover, we have in the past relied on, and expect to continue to rely on, suppliers, manufacturers and subcontractors primarily located in Taiwan. Accordingly, we are subject to several risks and challenges, any of
which could harm our business and financial results. These risks and challenges include:
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difficulties and costs of staffing and managing international operations across different geographic areas and cultures;
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compliance with a wide variety of domestic and foreign laws and regulations, including those relating to the import or export of semiconductor products;
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legal uncertainties regarding taxes, tariffs, quotas, export controls, export licenses and other trade barriers;
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foreign currency exchange fluctuations relating to our international operating activities;
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our ability to receive timely payment and collect our accounts receivable;
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political, legal and economic instability, foreign conflicts and the impact of regional and global infectious illnesses in the countries in which we and our customers, end-customers, suppliers, manufacturers and
subcontractors are located;
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legal uncertainties regarding protection for intellectual property rights in some countries; and
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fluctuations in freight rates and transportation disruptions.
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We have operations outside of the United
States and intend to expand our international operations, which exposes us to significant risks.
We have offices in the United
States, Japan, South Korea, China and Taiwan. We presently intend to expand our operations in Asia, specifically in Japan. The success of our business depends, in large part, on our ability to operate successfully from geographically disparate
locations and to further expand our international operations and sales. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic and political risks that are different from
those we face in the United States. We cannot be sure that further international expansion will be successful. In addition, we face risks in doing
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business internationally that could expose us to reduced demand for our products, lower prices for our products or other adverse effects on our operating results. Among the risks we believe are
most likely to affect us are:
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difficulties, inefficiencies and costs associated with staffing and managing foreign operations, including the regulations we will be subject to as a U.S. company with securities publicly traded in Japan;
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longer and more difficult end-customer qualification and credit checks;
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greater difficulty collecting accounts receivable and longer payment cycles;
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the need for various local approvals to operate in some countries;
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difficulties in entering some foreign markets without larger-scale local operations;
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compliance with local laws and regulations;
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unexpected changes in regulatory requirements;
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reduced protection for intellectual property rights in some countries;
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adverse tax consequences as a result of repatriating cash generated from foreign operations to the United States;
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adverse tax consequences, including potential additional tax exposure if we are deemed to have established a permanent establishment outside of the United States;
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the effectiveness of our policies and procedures designed to ensure compliance with the U.S. Foreign Corrupt Practices Act and similar regulations, and foreign laws generally;
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fluctuations in currency exchange rates, which could increase the prices of our products to end-customers outside of the United States, increase the expenses of our international operations by reducing the purchasing
power of the U.S. dollar and expose us to foreign currency exchange rate risk if, in the future, we denominate our international sales in currencies other than the U.S. dollar;
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new and different sources of competition; and
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political and economic instability, and terrorism.
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Our failure to manage any of these risks
successfully could harm our operations and reduce our revenue.
We face risks associated with doing business in China.
We derived 84%, 90%, 88%, and 87% of our revenue in the six months ended June 30, 2017 and 2016, and the years ended December 31, 2016 and
2015, respectively, from distributors located in China. Additionally, in the six months ended June 30, 2017 and the year ended December 31, 2016 we derived 67% and 73%, respectively, of our revenue from sales to two of our China based end-customers,
which we primarily sell to through one of our China based distributors. As a result, the economic, political, legal and social conditions in China could have a material adverse effect on our business, results of operations and financial condition.
In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the
availability of credit or regulate growth and contain inflation. Various factors may in the future cause the Chinese government to impose controls on credit or prices, or to take other action, which could inhibit economic activity in China, and
thereby harm the market for our products. In addition, the legal system in China has inherent uncertainties that may limit the legal protections available in the event of any claims or disputes that we have with third parties, including our ability
to protect the intellectual property we develop in China or elsewhere. As China’s legal system is still evolving, the interpretation of many laws, regulations and rules is not always uniform and enforcement of these laws, regulations and rules
involve uncertainties, which may limit the remedies available in the event of any claims or disputes with third parties. In addition, any
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litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. Some of the other risks related to doing business in China include:
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the Chinese government exerts substantial influence over the manner in which we must conduct our business activities;
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restrictions on currency exchange may limit our ability to receive and use our cash effectively;
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increased uncertainties related to the enforcement of intellectual property rights;
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the Chinese government may favor local businesses and make it more difficult for foreign businesses to operate in China on an equal footing, or generally;
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increased uncertainties related to the enforcement of contracts with certain parties; and
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more restrictive rules on foreign investment could adversely affect our ability to expand our operations in China.
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As a result of our growing operations in China, these risks could have a material adverse effect on our business, results of operations and
financial condition.
Due to the cyclical nature of the semiconductor, electronics and automotive industries, our operating results may fluctuate
significantly, which could adversely affect the market price of your JDSs.
The semiconductor, electronics and automotive
industries are highly cyclical and subject to rapid change and evolving industry standards and, from time to time, have experienced significant downturns. These downturns are characterized by decreases in product demand, excess customer inventory
and in certain instances accelerated erosion of prices. Any downturns in any of these industries may be severe and prolonged, and any failure of any of these industries to fully recover from downturns could harm our business. The semiconductor
industry, in particular, also periodically experiences increased demand and production capacity constraints, which may affect our ability to ship products. Accordingly, our operating results have varied and may vary significantly as a result of the
general conditions in the semiconductor, electronics and automotive industries, which could cause our the market price of your JDSs to decline.
Our
headquarters are located in the State of California and we have operations in Japan, which we intend to expand, which are areas subject to significant earthquake risks and other natural disasters. Any disruption to our or our third-party
vendors’ operations resulting from earthquakes or other natural disasters could cause significant delays in the production or shipment of our product.
Our headquarters are located in Northern California and we have operations in Japan, which we intend to expand. Additionally, our third-party
vendors, including TSMC and ASE, are also located in the Pacific Rim region. The risk of an earthquake, typhoon, tsunami or other extreme weather in the Pacific Rim region including California, Japan, and Taiwan where some of our third-party vendors
are located, is significant due to the proximity of major earthquake fault lines. For example, the Kumamoto Great Earthquake in 2016 may impact our end-customers, as many buildings and factories in Japan were damaged, and as a result these
end-customers may purchase fewer semiconductors from us than they have historically, which may harm our results. We are also vulnerable to damage from other types of disasters, such as power loss, disruption due to nuclear disaster, fire, floods and
similar events. If any such disaster were to occur, our ability to operate our business could be seriously impaired. In addition, we may not have adequate insurance to cover our losses resulting from disasters or other similar significant business
interruptions. Any significant losses that are not recoverable under our insurance policies could seriously impair our business and financial condition.
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Uncertain geopolitical conditions could have a material adverse effect on our business and the market on
which your JDSs will trade, which could cause the market price of your JDSs to decline.
Our JDSs will be listed on the Mothers
market on the Tokyo Stock Exchange. In addition, a significant portion of our business is conducted internationally, particularly in Japan. The Japanese economy is exposed to uncertainty in geopolitical conditions, including concerns over North
Korea’s nuclear weapons program. Given Japan’s close proximity to North Korea, continuing tensions between North Korea and other countries could have adverse consequences in Japan. In recent months, there have been heightened security
concerns regarding North Korea’s nuclear weapons and long-range ballistic missile programs. This has resulted in increased uncertainty regarding both North Korea’s actions and those of the United States. If North Korea were to take an
aggressive action, including acts of war, trading on the Mothers market may be disrupted and our business operations in Japan and elsewhere could be disrupted as well. In addition, terrorist acts and other acts of violence and political unrest could
have an adverse impact on our business. If our business and the trading of our JDSs on the Mothers market is disrupted as a result of acts of war, hostilities, terrorism or other conditions leading to geopolitical unrest, particularly in the region
surrounding Japan, the market price of your JDSs could decline.
Our sales cycle can be lengthy, which could result in uncertainty and delays in
generating revenue.
We have experienced a lengthy sales cycle for some of our products, particularly those designed for HD video
applications in the automotive market. Our sales cycles typically ranges from three to six months for the security surveillance market and one to three years for the automotive industry. We may experience a delay between the time we increase
expenditures for research and development, sales and marketing efforts and inventory to the time we generate revenue, if any, from these expenditures. In addition, because we do not have long-term commitments from our end-customers, we must repeat
our sales process on a continual basis even for current end-customers looking to purchase a new product. As a result, our business could be harmed if an end-customer reduces or delays its orders, chooses not to release products incorporating our
semiconductors or elects not to purchase a new product or product enhancements from us.
We may experience difficulties in transitioning to new
wafer fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.
We periodically evaluate the benefits of migrating our solutions to other technologies in order to improve performance and reduce costs. These
ongoing efforts require us from time to time to modify the manufacturing processes for our products and to redesign some products, which in turn may result in delays in product deliveries. We may face difficulties, delays and increased expense as we
transition our products to new processes, and potentially to new foundries. We will depend on our third-party foundries as we transition to new processes. We cannot assure you that our third-party foundries will be able to effectively manage such
transitions or that we will be able to maintain our relationship with our third-party foundries or develop relationships with new third-party foundries. If we or any of our third-party foundries experience significant delays in transitioning to new
processes or fail to efficiently implement transitions, we could experience reduced manufacturing yields, delays in product deliveries and increased expenses, any of which could harm our relationships with our end-customers and our operating
results.
As smaller line width geometry manufacturing processes become more prevalent, we intend to move our future products to
increasingly smaller geometries in order to reduce costs while integrating greater levels of functionality into our products. This transition will require us and our third-party foundries to migrate to new designs and manufacturing processes for
smaller geometry products. We may not be able to achieve smaller geometries with higher levels of design integration or to deliver new integrated products on a timely basis. We periodically evaluate the benefits, on a product-by-product basis, of
migrating to smaller geometry process technologies to reduce our costs and increase performance. We are dependent on our relationships with our third-party foundries to transition to smaller geometry processes successfully. We cannot assure you that
our third-
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party foundries will be able to effectively manage any such transition. If we or our third-party foundries experience significant delays in any such transition or fail to implement a transition,
our business, financial condition and results of operations could be materially harmed.
The complexity of our products may lead to errors, defects
and bugs, which could negatively impact our reputation with end-customers and result in liability or a product recall, particularly in the automotive industry.
Products as complex as ours may contain errors, defects and bugs when first introduced to end-customers or as new versions are released. Our
products have in the past experienced such errors, defects and bugs. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of the products or result in a
costly recall and could damage our reputation and adversely affect our ability to retain existing end-customers and attract new end-customers. Errors, defects or bugs could cause problems with the functionality of our products, resulting in
interruptions, delays or cessation of sales of these products to our end-customers. We may also be required to make significant expenditures of capital and resources to resolve such problems. We cannot assure you that problems will not be found in
new products, both before and after commencement of commercial production, despite testing by us, our suppliers or our end-customers. Any such problems could result in:
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delays in development, manufacture and roll-out of new products;
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additional development costs;
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loss of, or delays in, market acceptance;
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diversion of technical and other resources from our other development efforts;
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claims for damages by our end-customers or others against us; and
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loss of credibility with our current and prospective end-customers.
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Any such event could have
a material adverse effect on our business, financial condition and results of operations.
The automotive industry, in particular,
experiences a significant number of product liability claims. As a supplier of products into the automotive market, we face an inherent business risk of exposure to product liability claims in the event that our products, or the equipment into which
our products are incorporated, malfunction and result in personal injury or death. We may be named in product liability claims even if there is no evidence that our systems or components caused the accidents. Product liability claims could result in
significant losses as a result of expenses incurred in defending claims or the award of damages. The sale of systems and components for the automotive industry entails a high risk of these claims. In addition, we may be required to participate in
recalls involving these systems if any of our systems prove to be defective, or we may voluntarily initiate a recall or make payments related to such claims as a result of various industry or business practices or the need to maintain good
end-customer relationships. Our other products may also be subject to product liability claims or recalls.
Our costs may increase substantially if
our third-party manufacturing contractors do not achieve satisfactory product yields or quality.
The fabrication process is
extremely complicated and small changes in design, specifications or materials can result in material decreases in product yields or even the suspension of production. From time to time, the third-party foundries that we contract to manufacture our
products may experience manufacturing defects and reduced manufacturing yields related to errors or problems in their manufacturing processes or the interrelationship of their processes with our designs. In some cases, our third-party foundries may
not be able to detect these defects early in the fabrication process or determine the cause of such defects in a timely manner.
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Generally, in pricing our products, we assume that manufacturing yields will continue to improve,
even as the complexity of our products increases. Once our products are initially qualified with our third-party foundries, minimum acceptable yields are established. We are responsible for the costs of the units if the actual yield is above the
minimum. If actual yields are below the minimum we are not required to purchase the units. Typically, minimum acceptable yields for our new products are generally lower at first and gradually improve as we achieve full production. Unacceptably low
product yields or other product manufacturing problems could substantially increase overall production time and costs and adversely impact our operating results. Product yield losses will increase our costs and reduce our gross margin. In addition
to significantly harming our results of operations and cash flow, poor yields may delay shipment of our products and harm our relationships with existing and potential end-customers.
If we fail to achieve initial design wins for our products, we may lose the opportunity for sales for a significant period of time to end-customers and
be unable to recoup our investments in our products.
We expend considerable resources in order to achieve design wins for our
products, especially our new products and product enhancements. Once an end-customer designs our solution into a product, it is likely to continue to use the same version of that component for a lengthy period of time due to the significant costs
associated with qualifying a new supplier and potentially redesigning the product to incorporate a different component, particularly in the automotive market. If we fail to achieve an initial design win in an end-customer’s qualification
process, we may lose the opportunity for significant sales to that end-customer for a number of its products and for a lengthy period of time. Additionally, manufacturers in certain markets, including the automotive market, may require that
third-party vendors undergo extensive qualification processes. This qualification process may take up to six months for the security surveillance market and up to three years for the automotive industry, or even longer for some end-customers. If we
experience difficulties qualifying our solutions, we may experience delayed or reduced revenue. Furthermore, even if we successfully qualify our solutions with an end-customer, such end-customer may need to qualify other components being sourced for
its system and qualify its system as a whole with its end-customers. This may cause us to be unable to recoup our investments in our products, which would harm our business.
If sales of our end-customers’ products decline or if their products do not achieve market acceptance, our business and operating results could be
adversely affected.
Our revenue depends on our end-customers’ ability to commercialize their products successfully. The
markets for our end-customers’ products are extremely competitive and are characterized by rapid technological change, and in certain instances, government regulation. Competition in our end-customers’ markets is based on a variety of
factors including price, performance, product quality, marketing and distribution capability, customer support, name recognition and financial strength. As a result of rapid technological change, the markets for our end-customers’ products,
particularly in the security surveillance market, are characterized by frequent product introductions, short product life cycles, fluctuating demand and increasing product capabilities. As a result, our end-customers’ products may not achieve
market success or may become obsolete. We cannot assure you that our end-customers will dedicate the resources necessary to promote and commercialize their products, successfully execute their business strategies for such products, or be able to
manufacture such products in quantities sufficient to meet demand or cost-effectively manufacture products at a high volume. Our end-customers do not have contracts with us that require them to manufacture, distribute or sell any products. Moreover,
our end-customers, or their customers, may develop internally, or in collaboration with our competitors, technology that they may utilize instead of the technology available to them through us. Our end-customers’ failure to achieve market
success for their products, including as a result of general declines in our end-customers’ markets or industries, could negatively affect their willingness to utilize our products, which may result in a decrease in our revenue and negatively
affect our business and operating results.
Our revenue also depends on the timely introduction, quality and market acceptance of our
end-customers’ products that incorporate our solutions. Our end-customers’ products are often very complex and subject to
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design complexities that may result in design flaws, as well as potential defects, errors and bugs. We incur significant design and development costs in connection with designing our solutions
for end-customers’ products. If our end-customers discover design flaws, defects, errors or bugs in their products, or if they experience changing market requirements, failed evaluations or field trials, or issues with other vendors, they may
delay, change or cancel a project. If we have already incurred significant development costs, we may not be able to recoup those costs, which in turn would adversely affect our business and financial results.
Intellectual property litigation, which is common in our industry, could be costly, harm our reputation, limit our ability to sell our products and
divert the attention of management and technical personnel.
Our industry is characterized by frequent litigation regarding patent
and other intellectual property rights. For example, in the past, we received a letter inviting us to license technology from a third party, which may be a prelude to claims of infringement and a potential lawsuit. We have certain indemnification
obligations to end-customers under our contract development projects with respect to any infringement of third-party patents and intellectual property rights by our products. If a lawsuit were to be filed against us in connection with claims of
infringement, our business would be harmed.
Questions of infringement in the HD video applications market involve highly technical and
subjective analyses. Litigation may be necessary in the future to enforce any patents we may receive and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity, and we may not prevail in any future litigation. Litigation, whether or not determined in our favor or settled, could be costly, could harm our reputation, could cause our end-customers to use our
competitors’ products and could divert the efforts and attention of management and technical personnel from normal business operations. In addition, adverse determinations in litigation could result in the loss of our proprietary rights,
subject us to significant liabilities, require us to seek licenses from third parties or prevent us from licensing our technology or selling our products, any of which could seriously harm our business.
Failure to protect our intellectual property could substantially harm our business.
Our success and ability to compete depend in part upon our ability to protect our intellectual property. We currently rely on a combination of
intellectual property rights, including mask work protection, copyrights, trademarks, trade secrets and know-how, in the United States and other jurisdictions. As of June 30, 2017, we do not have any issued patents. We have filed patent applications
to help us protect our intellectual property, but there is no assurance that these applications will be successful. The steps we take to protect our intellectual property rights may not be adequate, particularly in foreign jurisdictions such as
China. In addition, any patents we hold in the future may not adequately protect our intellectual property rights or our products against competitors, and third parties may challenge the scope, validity or enforceability of our issued patents. In
addition, other parties may independently develop similar or competing technologies designed around any patents or patent applications that we may hold. Some of our products and technologies are not covered by any patent or patent application, as we
do not believe patent protection of these products and technologies is critical to our business strategy at this time. A failure to timely seek patent protection on products or technologies generally precludes us from seeking future patent
protection on these products or technologies.
In addition to patent applications, we also rely on contractual protections with our
end-customers, suppliers, distributors, employees and consultants, and we implement security measures designed to protect our trade secrets and know-how. However, we cannot assure you that these contractual protections and security measures will not
be breached, that we will have adequate remedies for any such breach or that our end-customers, suppliers, distributors, employees or consultants will not assert rights to intellectual property or damages arising out of such contracts.
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We may initiate claims against third parties to protect our intellectual property rights if we
are unable to resolve matters satisfactorily through negotiation. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management. It could also result in the impairment or
loss of portions of our intellectual property, as an adverse decision could limit our ability to assert our intellectual property rights, limit the value of our technology or otherwise negatively impact our business, financial condition and results
of operations. Additionally, any enforcement of our patents or other intellectual property may provoke third parties to assert counterclaims against us. Our failure to secure, protect and enforce our intellectual property rights could materially
harm our business.
A breach of our information and physical security systems may damage our reputation, subject us to lawsuits and adversely affect
our business.
Our security systems are designed to protect our end-customers’, suppliers’ and employees’
confidential information, as well as maintain the physical security of our facilities. We also rely on a number of third-party “cloud-based” service providers of corporate infrastructure services relating to, among other things, human
resources, electronic communication services and some finance functions, and we are, of necessity, dependent on the security systems of these providers. Any security breaches or other unauthorized access by third parties to the systems of our
cloud-based service providers or the existence of computer viruses in their data or software could expose us to a risk of information loss and misappropriation of confidential information. Accidental or willful security breaches or other
unauthorized access by third parties to our information systems or facilities, or the existence of computer viruses in our data or software, could expose us to a risk of information loss and misappropriation of proprietary and confidential
information belonging to us, our end-customers or our suppliers. Any theft or misuse of this information could result in, among other things, unfavorable publicity, damage to our reputation, difficulty in marketing our products, allegations by our
end-customers that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for liabilities and damages related to the theft or misuse of this information, any of which could have a
material adverse effect on our business, financial condition, our reputation, and our relationships with our end-customers and partners. Since the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often
not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
We
may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.
We have funded our
operations since inception through equity financings and through sales of our products. In the future, we may require additional capital to fund our ongoing operations, respond to business opportunities, challenges, acquisitions or unforeseen
circumstances and may decide to engage in equity or debt financings or enter into credit facilities, but we may not be able to timely secure additional debt or equity financing on favorable terms or at all.
Any debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other
financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.
If we raise additional funds through issuances of equity, convertible debt securities or other securities convertible into equity, our
existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are
unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
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If we fail to hire additional finance personnel and strengthen our financial reporting systems and
infrastructure, we may not be able to timely and accurately report our financial results or comply with the requirements of being a public company, including compliance with the U.S. Sarbanes-Oxley Act, and the U.S. Securities and Exchange
Commission, or SEC, and Japanese reporting requirements.
We intend to hire additional accounting and finance staff with technical
accounting, SEC and Japanese reporting, and U.S. Sarbanes-Oxley Act compliance expertise. Any inability to recruit and retain such staff would have an adverse impact on our ability to accurately and timely prepare our financial statements. We may be
unable to locate and hire qualified professionals with requisite technical, language and public company experience when and as needed. In addition, new employees will require time and training to learn our business and operating processes and
procedures. If our finance and accounting organization is unable for any reason to respond adequately to the increased demands that will result from being a public company, the quality and timeliness of our financial reporting may suffer, which
could result in the identification of material weaknesses in our internal controls. Any consequences resulting from inaccuracies or delays in our reported financial statements could cause the trading price of our common stock to decline and could
harm our business, operating results and financial condition.
If we fail to strengthen our financial reporting systems, infrastructure
and internal control over financial reporting to meet the demands that will be placed upon us as a public company, including the requirements of the U.S. Sarbanes-Oxley Act, we may be unable to report our financial results timely and accurately and
prevent fraud. We expect to incur significant expense and devote substantial management effort toward ensuring compliance with Section 404.
We
will incur significantly increased costs and devote substantial management time as a result of operating as a public company that is subject to both U.S. and Japanese regulations.
As a public U.S. company listed in Japan, we will incur significant legal, accounting and other expenses that we did not incur as a private
company and even beyond that of a domestic company listed in the United States. For example, we will be subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, or the Exchange Act, and will be required to comply with the
applicable requirements of the U.S. Sarbanes-Oxley Act and the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, as well as rules and regulations subsequently implemented by the SEC, including the establishment
and maintenance of effective disclosure and internal controls and the establishment corporate governance practices. Additionally, we will be required to comply with applicable securities and disclosure laws in Japan in accordance with the Financial
Instruments and Exchange Act of Japan and related regulations, including a requirement to file periodic reports in Japanese, and the rules of the Tokyo Stock Exchange. We expect that compliance with these requirements will increase our legal and
financial compliance costs and will make some activities more time consuming and costly. We recorded net income of $2.4 million and $1.7 million for the six months ended June 30, 2017 and 2016, respectively. We recorded net income of $3.5
million and $4.1 million for the years ended December 31, 2016 and 2015, respectively, despite a 34% increase in revenue. In part, this decrease was due to increased costs as we have begun to prepare to become a publicly traded company.
We expect that our management and other personnel will need to divert attention from operational and other business matters to devote
substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the U.S. Sarbanes-Oxley
Act, which will increase when we are no longer an emerging growth company, as defined by the JOBS Act. We also will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
We will need to hire adequate investor-relations staff in Japan, and additional advisors, consultants and staff, to help us comply with the requirements of listing, and maintaining that listing, in Japan that we would not incur if we were listing
our common stock on a domestic exchange. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
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If we are unable to implement and maintain effective internal control over financial reporting in the
future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of the JDSs may be negatively affected.
As a public company, we will be required to maintain internal controls over financial reporting and to report any material weaknesses in such
internal controls. Section 404 of the U.S. Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on our internal control over financial
reporting, which must be attested to by our independent registered public accounting firm to the extent we are no longer an “emerging growth company,” as defined by the JOBS Act. If we have one or more material weaknesses in our internal
control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing our internal control over financial reporting required to
comply with this obligation, which process will be time consuming, costly and complicated. If we identify additional material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of
Section 404 in a timely manner, if we are unable to determine that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of
our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of the JDSs could be negatively affected, and we could become subject to investigations by the
TSE, the SEC, Japanese securities authorities, or other regulatory authorities, which could require additional financial and management resources.
Regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in
damage to our reputation with end-customers.
Pursuant to the Dodd-Frank Act, the SEC has adopted requirements for companies that
use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These requirements will require companies to diligence, disclose and report whether or not such minerals
originate from the Democratic Republic of Congo and adjoining countries. The implementation of these requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of our products, and affect our costs
and relationships with end-customers, distributors and suppliers as we must obtain additional information from them to ensure our compliance with the disclosure requirement. In addition, we will incur additional costs to comply with the disclosure
requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals
used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying end-customers who require that all of the components of our products are certified
as conflict mineral free and these end-customers may discontinue, or materially reduce, purchases of our products, which could result in a material adverse effect on our results of operations and our financial condition may be adversely affected.
We are an emerging growth company. We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make
our common stock less attractive to investors.
We are an emerging growth company. Under the JOBS Act, emerging growth companies
can delay adopting new or revised accounting standards until such time as those standards apply to private companies. For as long as we continue to be an emerging growth company, we also intend to take advantage of certain other exemptions from
various reporting requirements that are applicable to other public companies including the exemption from the auditor attestation requirements of Section 404 of the U.S. Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive
compensation, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our JDSs
less attractive because we will rely on
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these exemptions. If some investors find our JDSs less attractive as a result, there may be a less active trading market for our JDS and the trading price of your JDSs may be more volatile.
The forecasts of market growth and other forward-looking information included in this prospectus may prove to be inaccurate, and even if the markets in
which we compete achieve the forecasted growth, our business may not grow at similar rates, or at all.
Growth forecasts are
subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate. Forecasts relating to potential market size in our industry may prove to be inaccurate. Even if the forecasted growth occurs, our
business may not grow at a similar rate, or at all. Furthermore, our estimate of the market opportunity is subject to significant uncertainty and is based on assumptions and estimates, including our internal analyses, industry experience and
third-party data. Accordingly, our estimated market opportunity may prove to be materially inaccurate. In addition, our growth and ability to serve a significant portion of this estimated market is subject to many factors, including our success in
implementing our business strategy and expansion of automotive rear-view cameras in jurisdictions that do not presently require such devices. We cannot assure you that we will be able to serve a significant portion of this market and the growth
forecasts included in this prospectus should not be taken as indicative of our future growth.
In order to comply with environmental laws and
regulations, we may need to modify our activities or incur substantial costs, and if we fail to comply with environmental regulations we could be subject to substantial fines or be required to have our suppliers alter their processes.
The HD video application semiconductor industry is subject to a variety of international, federal, state and local governmental regulations
directed at preventing or mitigating environmental harm, as well as to the storage, discharge, handling, generation, disposal and labeling of toxic or other hazardous substances. Failure to comply with environmental regulations could subject us to
civil or criminal sanctions and property damage or personal injury claims. Compliance with current or future environmental laws and regulations could restrict our ability to expand our business or require us to modify processes or incur other
substantial expenses which could harm our business. In response to environmental concerns, some end-customers and government agencies impose requirements for the elimination of hazardous substances, such as lead (which is widely used in soldering
connections in the process of semiconductor packaging and assembly), from electronic equipment. For example, the European Union adopted its Restriction on Hazardous Substance Directive which prohibits, with specified exceptions, the sale in the EU
market of new electrical and electronic equipment containing more than agreed levels of lead or other hazardous materials and China has enacted similar regulations. Environmental laws and regulations such as these could become more stringent over
time, causing a need to redesign technologies, imposing greater compliance costs and increasing risks and penalties associated with violations, which could seriously harm our business.
The issuance of new accounting standards or future interpretations of existing accounting standards could adversely affect our operating results.
We prepare our financial statements in accordance with U.S. Generally Accepted Accounting Principles, or GAAP. A change in those
principles could have a significant effect on our reported results and might affect our reporting of transactions completed before a change is announced. GAAP is issued and subject to interpretation by the U.S. Financial Accounting Standards Board,
the SEC and various other bodies formed to promulgate and interpret accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of
transactions completed before the announcement of a change. The issuance of new accounting standards or future interpretations of existing accounting standards, or changes in our business practices or estimates, could result in future changes in our
revenue recognition or other accounting policies that could have a material adverse effect on our results of operations.
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Management may apply our cash and cash equivalents to uses that do not increase our market value or improve
our operating results.
We intend to use our cash and cash equivalents for general corporate purposes, including working capital
and capital expenditures. We may also use a portion of our cash and cash equivalents to acquire or invest in complementary technologies, businesses or other assets. We have not reserved or allocated our cash and cash equivalents for any specific
purpose, and we cannot state with certainty how management will use our cash and cash equivalents. Accordingly, management has considerable discretion in applying our cash and cash equivalents and may use our cash and cash equivalents for purposes
that do not result in any increase in our results of operations or market value. Until the cash and cash equivalents are used, they may be placed in investments that do not produce income or lose value.
Risks Related to Our Initial Public Offering and Ownership of the JDSs and our Underlying Common Stock
There has been no prior offering of Japanese Depositary Shares, a relatively new form of security, to represent the capital stock of a single
non-Japanese issuer.
There has been no offering to date of JDSs a form of representative instrument recently authorized by
Japanese law for capital stock in a single non-Japanese issuer. While we anticipate that JDSs will have certain advantages over listing our common stock directly on the Mothers market of the TSE, there could be unforeseen difficulties or
complexities associated with our use of an unused form of representative security. The complexity of JDSs, or other difficulties or risks associated with JDSs, as described in these “Risk Factors” could increase volatility, decrease
liquidity or otherwise negatively affect the trading price of your JDSs. For a further description of the JDSs, please read the “Description of Japanese Depositary Shares” found in this prospectus.
There has been no prior public market for the JDSs or our underlying common stock, the market price of your JDSs may be volatile or may decline
regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.
There has been no public market for the JDSs or our underlying common stock prior to this offering. The initial public offering price for the
JDSs will be determined through negotiations between the underwriters and us and may not be indicative of prices that will prevail in the market following this offering. If you purchase the JDSs in this offering, you may not be able to resell those
shares at or above the initial public offering price. An active or liquid market in the JDSs may not develop upon closing of this offering or be sustainable. While we intend to list the JDSs on the Mothers market of the Tokyo Stock Exchange, we may
be unable to maintain our listing and we do not expect a market to develop in our common stock, nor do we currently plan to facilitate one. The market price of your JDSs may fluctuate significantly in response to numerous factors, many of which are
beyond our control, including:
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our operating performance and the performance of other similar companies;
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changes in the estimates of our results of operations that we provide to the public, our failure to meet these projected results or changes in recommendations by securities analysts that elect to follow our company;
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announcements of technological innovations, new products or enhancements to products, acquisitions, strategic alliances or significant agreements by us or by our competitors;
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announcements of new business partners, on the termination of existing business partner arrangements or changes to our relationships with such business partners;
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recruitment or departure of key personnel;
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announcements of litigation or claims against us;
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changes in legal requirements relating to our business;
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the economy as a whole, market conditions in our industry, and the industries of our customers and end-customers;
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the effectiveness and willingness of investors to adopt the JDS instrument;
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trading activity by our principal stockholders;
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the size of our market float; and
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In addition, 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 technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or
disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could
subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
Due to
daily price range limitations under Japanese stock exchange rules, you may not be able to sell your JDSs at a particular price on any particular trading day, or at all.
The JDSs will be listed on the Mothers market of the Tokyo Stock Exchange and traded as though the JDSs are shares of Japanese companies. Stock
prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price formation. To prevent excessive
volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached
on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell their JDSs at a price above or below the relevant daily limit may not be able to sell their JDSs at such price on a
particular trading day, or at all.
If securities analysts do not publish research or reports about our business or if they downgrade the JDSs, the
trading price of your JDSs could decline.
The trading market for the JDSs will rely in part on the research and reports that
industry or financial analysts publish about us or our business. We do not control these analysts. If few analysts commence coverage of our company, the price and trading volume of the JDSs could suffer. If one or more of the analysts who cover us
downgrade the JDSs, or publish unfavorable research about our business, the trading price of your JDSs would likely decline rapidly. If one or more of these analysts cease coverage of our company or fail to publish regularly, we could lose
visibility in the market, which in turn could cause the trading price of your JDSs to decline.
Because the trading market for the JDSs will be
the Mothers market of the Tokyo Stock Exchange, the corporate governance rules of the major U.S. stock exchanges will not apply to us. As a result, our governance practices may differ from those of a company listed on such U.S. exchanges.
Upon the closing of this offering, our governance practices may not comply with certain New York Stock Exchange and NASDAQ
corporate governance standards, including:
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the requirement that a majority of our board of directors consists of independent directors;
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the requirement that we have an audit committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
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the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
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Following this offering, there can be no assurance that we will voluntarily comply with any of
the foregoing requirements. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements.
JDS holders will not have stockholders’ rights.
We will not treat JDS holders as our stockholders, other than as required by law, and accordingly, you, as a JDS holder, will not have a
stockholder’s rights, including the right to bring stockholders’ derivative lawsuit against our directors and officers. You will have the rights set forth in the trust agreement conferred to the JDS holders as beneficiaries of the trust.
You may exercise your voting rights with respect to the common stock underlying your JDSs only in accordance with the provisions of the trust agreement. The Trustees will notify you of the upcoming vote and arrange to deliver our voting materials to
you. Upon receipt of voting instructions from you in the manner set forth in the trust agreement, the Trustees for the JDSs will endeavor to vote the underlying common stock in accordance with these instructions. If your instruction form does not
specify any instructions, you will be deemed to have instructed the Trustees to vote in favor of our proposal. The Trustees may not vote in accordance with your instruction or submit your proxy to us unless the Trustees receives from you the
relevant documents necessary to vote the common stock underlying your JDSs at least five business days prior to the date of the stockholders meeting. Should the Trustees not receive information from you for any reason, you may not be able to receive
the necessary documents to exercise your voting rights. As a result, you may not be able to exercise your right to vote and you may lack recourse if your shares of common stock are not voted as you requested. For further details, please see the
section in this prospectus entitled “Description of Japanese Depositary Shares.”
The concentration of our capital stock ownership with
insiders upon the completion of this offering will likely limit your ability to influence corporate matters.
We anticipate
that our executive officers, directors, current principal stockholders and their affiliates will beneficially own an aggregate of approximately 59.5% of our common stock outstanding after this offering, assuming they do not purchase shares in this
offering. As a result, these stockholders, acting together, will have control over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might
be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of discouraging or preventing a change of control of our company that other
stockholders may view as beneficial.
You will experience immediate and substantial dilution in the net tangible book value of the underlying
shares represented by the JDSs that you purchase in this offering.
The initial public offering price of the JDSs will be
substantially higher than the pro forma net tangible book value per JDS as of June 30, 2017. Therefore, based on an assumed offering price of $6.00 per JDS, if you purchase the JDSs in this offering, you will suffer immediate and substantial
dilution of approximately $4.66 per JDS. If the underwriters exercise the over-allotment option, or if outstanding options and warrants to purchase our common stock are exercised, you may experience additional dilution.
Future sales of shares by existing stockholders could cause the price of your JDSs to decline.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock or JDSs in the public market after
the contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of the JDSs and underlying common stock could decline below the initial public offering price and our ability to raise capital
through the sale of equity securities could be impaired. Based on shares outstanding as of June 30, 2017, upon completion of this offering, we will have outstanding 16,280,238 shares of common stock, excluding restricted shares outstanding
that remain unvested and assuming
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no exercise of the underwriters’ option to purchase additional shares. Of these outstanding shares, all of the 1,520,000 shares sold in this offering are expected to be freely tradable. All
of our executive officers and directors and certain holders of our capital stock are subject to lock-up agreements with the underwriters that restrict their ability to sell shares in the public market for 90 days from the date of this prospectus.
The underwriter may, however, in its sole discretion, permit shares to be sold prior to the expiration of the lock-up agreements.
After
the lock-up agreements pertaining to this offering expire, approximately 12,077,739 additional shares of common stock, excluding restricted shares outstanding that remain unvested, assuming no option exercises after June 30, 2017, will be eligible
for sale in the public market, 9,733,609 of which are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, or the Securities Act, and various vesting
agreements. In addition, the 1,662,501 shares subject to outstanding stock awards and 1,608,649 shares reserved for future issuance under our 2012 Stock Incentive Plan as of June 30, 2017 or, after this offering, under our 2017 Stock
Incentive Plan, will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act. If these additional shares are sold,
or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
Certain
holders of shares of our common stock have registration rights. See “Description of Capital Stock—Registration Rights.” Registration of these shares would result in the shares becoming freely tradable without restriction under the
Securities Act, except for shares held by our affiliates as defined in Rule 144 under the Securities Act. Sales of securities by any of these stockholders could adversely affect the trading price of our common stock.
There is no guarantee that we will maintain our listing on the Tokyo Stock Exchange, or qualify for listing on a securities exchange in the United
States or any other exchange.
We cannot assure you that we will retain a listing on the Tokyo Stock Exchange. If we fail to retain
such a listing, certain investors may decide to sell their securities, which could have an adverse impact on the share price. In addition, our common stock will not be listed for trading on any U.S. national securities exchanges at the time of the
initial public offering. There is no assurance that we can qualify in the future for listing any of our securities on the New York Stock Exchange or the NASDAQ Stock Market, and we have no intention to do so.
We do not presently intend to facilitate secondary trading of our JDSs or common stock in the United States and we are not taking any of the steps
necessary to register our JDSs or common stock with the securities division of any state within the United States or seek an exemption for such secondary trading.
We have not applied to register our JDSs or common stock under the laws of any state or other jurisdiction of the United States other than
under the U.S. Securities Act of 1933, nor do we intend to make such an application. Until our JDSs and/or common stock are listed for trading on a U.S. national securities exchange, trading in, or the offer and sale of, our JDSs or common stock
will be subject to the securities laws of the various states and jurisdictions of the United States in addition to U.S. federal securities law. These state securities laws cover both the primary offering of our JDSs in this offering and all
secondary trading that could enter a U.S. purchaser’s home state. As a result, investors may not resell their JDSs or common stock in the United States without satisfying the applicable state securities law or qualifying for an exemption
therefrom, including the exemptions provided under the U.S. National Securities Markets Improvement Act of 1996. These restrictions and potential costs could be significant burdens to our stockholders seeking to effect resales of our JDSs or common
stock within the United States.
32
If we decide to directly list our common stock in the future, the trading price of your JDSs could decline.
We may decide in the future to directly list our common stock for quotation on an exchange, including in a different country, such
as the United States. If we do so, the trading price of your JDSs may decline because a market would develop in our common stock, the security underlying the JDSs, and that market may become more liquid due to a number of factors. If, following this
dual-listing investors prefer trading in our common stock, on a different exchange or in a different currency, liquidity in the JDSs may sharply decline and as a result the trading price could decline, and your investment may lose some or all of its
value.
We do not intend to pay dividends for the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation
and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. In addition, our ability to pay cash dividends on our capital stock could be restricted by the terms any future debt financing
arrangement. Any return to stockholders will therefore be limited to increases in the price of our common stock, if any.
You may not receive
distributions on our common stock or any value for them if it is illegal or impractical to make them available to you.
The
Trustees of the JDSs have agreed to pay you the cash dividends or other distributions they or the custodian for the JDSs receives on our common stock after deducting its fees and expenses. You will receive these distributions in proportion to the
number of shares of our common stock that your JDSs represent. However, the Trustees are not responsible for making such payments or distributions if it is unlawful or impractical to make a distribution available to any holders of JDSs. For example,
it would be unlawful to make a distribution to a holder of JDSs if it consists of securities that require registration under the U.S. Securities Act but that are not properly registered or distributed pursuant to an applicable exemption from
registration. The Trustees are not responsible for making a distribution available to any holders of JDSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the Trustees. We
have no obligation to take any other action to permit the distribution of the JDSs, common stock, rights or anything else to holders of the JDSs. This means that you may not receive the distributions we make on our common stock or any value for them
if it is illegal or impractical for us to make them available to you. These restrictions may materially reduce the value of your JDSs.
Provisions
in our restated certificate of incorporation and bylaws or Delaware law might discourage, delay or prevent a change of control of our company or changes in our management.
Delaware corporate law and our restated certificate of incorporation and bylaws to be effective immediately prior to the closing of this
offering contain provisions that could discourage, delay or prevent a change in control of our company or changes in our board of directors that the stockholders of our company may deem advantageous. Among other things, these provisions:
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•
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require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and bylaws;
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•
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authorize the issuance of “blank check” preferred stock that our board could issue to increase the number of outstanding shares and to discourage a takeover attempt;
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•
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eliminate the ability of our stockholders to call special meetings of stockholders;
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•
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prohibit stockholder action by written consent, which means that all stockholder actions will be required to be taken at a meeting of our stockholders;
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•
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provide that our board of directors is expressly authorized to make, alter or repeal our bylaws; and
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•
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establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.
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33
These provisions may 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. In addition, we are governed by the provisions of Section 203
of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the
stockholder became an “interested” stockholder. See “Description of Capital Stock—Anti-Takeover Provisions—Delaware Law” for more information. Any delay or prevention of a change of control transaction or changes in our
management could cause the market price of the JDSs to decline.
Our restated certificate of incorporation will provide that the Court of Chancery
of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers or employees.
Our restated certificate of incorporation to be effective immediately prior to the closing of this offering
will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising
pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a
stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees. This limitation may discourage these types of lawsuits against us and our directors, officers
and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated
with resolving such action in other jurisdictions.
34
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this prospectus,
including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,”
“estimate,” “continue,” “anticipate,” “design,” “plan,” “project,” “intend,” “expect” or the negative version of these words and similar expressions are intended to
identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations,
strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” In
light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur, and actual results could differ materially and adversely from those anticipated or implied in the
forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
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our future financial performance, including our revenue, cost of sales and operating expenses;
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•
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our market opportunity and our ability to effectively manage or sustain our growth;
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•
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our ability to attract and retain end-customers in our current or future target markets;
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•
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our ability to continue to develop new technologies and obtain and maintain intellectual property rights protecting such technologies;
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new product releases and timing;
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anticipated trends, key factors and challenges in our business and the competition that we face;
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•
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our liquidity and working capital requirements;
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•
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our expectations regarding future expenses and investments; and
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•
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our expectations regarding the use of proceeds from this offering.
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Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Any forward-looking statement made by us in this prospectus speaks only as of the date
on which it is made. We disclaim any duty to update any of these forward-looking statements after the date of this prospectus, except as required by law.
35
INDUSTRY DATA
This prospectus contains statistical data and estimates, including those relating to market size and growth rates of markets in which we
participate, that we obtained from Markets and Markets. These sources typically indicate that they have obtained their information from sources they believe reliable, but do not guarantee the accuracy or completeness of their information. Although
we have assessed the information in the publications and found it to be reasonable and believe the publications are reliable, we have not independently verified the data.
36
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of approximately $5.8 million, based on an assumed initial public
offering price of $6.00 per JDS, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriter’s option
to purchase additional shares from us is exercised in full, we estimate that we will receive additional net proceeds of $1.3 million, after deducting underwriting discounts and commissions payable by us. A $1.00 increase (decrease) in the
assumed initial public offering price of $6.00 per JDS, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us by approximately $1.4 million, after deducting
underwriting discounts and commissions and estimated offering expenses payable by us, assuming that the number of JDSs offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of
JDSs we are offering. An increase (decrease) of 250,000 JDSs offered by us would increase (decrease) the net proceeds to us by $1.4 million, assuming a price of $6.00 per JDS, the midpoint of the price range set forth on the cover page of
this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of JDSs or underlying common stock sold in the offering by the selling
stockholders, although we will pay the expenses, other than underwriting discounts and commissions, associated with the sale of such shares.
We currently intend to use the net proceeds received by us from this offering to fund further expansion of our sales and marketing efforts,
continued investments in research and development, capital expenditures, general corporate purposes and for working capital. In addition, we may use a portion of the proceeds received by us from this offering for acquisitions of complementary
businesses, technologies or other assets. We have no agreements or understandings with respect to any acquisitions at this time and we have not allocated specific amounts of net proceeds for any of these purposes.
We cannot specify with certainty the particular amounts or uses for the net proceeds to be received by us from this offering. Accordingly, our
management team will have broad discretion in using the net proceeds to be received by us from this offering.
Pending the use of proceeds
from this offering as described above, we plan to invest the net proceeds in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S.
government.
37
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. Following this offering, we do not currently expect to pay any cash
dividends. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among
other factors, our results of operations, financial condition, capital requirements and contractual restrictions. If we pay any dividends, we will pay JDS holders to the same extent as holders of our common stock, subject to the terms of the trust
agreement, including the fees and expenses payable thereunder. See “Description of Japanese Depositary Shares.” Cash dividends on our common stock, if any, will be paid in U.S. dollars, however pursuant to the trust agreement, the trustees
have agreed to try and convert any cash distributed by us into Japanese yen for JDS holders.
38
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2017:
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on a pro forma basis to give effect to the automatic conversion of all outstanding shares of our convertible preferred stock as of June 30, 2017 into an aggregate of 10,742,500 shares of our common stock immediately
prior to the completion of this offering; and
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•
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on a pro forma as adjusted basis to give further effect to the receipt of the estimated net proceeds from the sale of 1,520,000 shares of common stock in the form of 1,520,000 JDSs in this offering at a price of $6.00
per JDS, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated expenses payable by us.
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You should read this table in conjunction with “Selected Consolidated Financial Data” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
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As of June 30, 2017
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Actual
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Pro
Forma
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Pro Forma
As Adjusted
(1)
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(in thousands, except share and per
share data)
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Cash and cash equivalents
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$
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11,932
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$
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11,932
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$
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20,332
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Stockholders’ equity:
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Convertible preferred stock, no par value: 11,660,000 shares authorized, 10,742,500 shares issued
and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted
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$
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8,794
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—
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—
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Preferred stock, par value $0.0001 per share: no shares authorized, issued or outstanding, actual
and pro forma; 5,000,000 shares authorized, no shares issued or outstanding, pro forma as adjusted
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—
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—
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—
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Common stock, no par value, per share: 20,500,000 shares authorized, 4,017,738 shares issued and
outstanding, actual; 32,166,000 shares authorized, 14,760,238 shares issued and outstanding, pro forma; no shares authorized, no shares issued and outstanding, pro forma as adjusted
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—
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—
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—
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Common stock, par value $0.0001 per share: no shares authorized, issued or outstanding, actual and
pro forma; 75,000,000 shares authorized, 16,280,238 shares issued and outstanding, pro forma as adjusted
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—
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—
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2
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Additional paid-in capital
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1,174
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9,968
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15,738
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Retained earnings
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6,043
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6,043
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6,043
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Total stockholders’ equity
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16,011
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16,011
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21,783
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Total capitalization
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$
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16,011
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$
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16,011
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$
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21,783
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(1)
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A $1.00 increase (decrease) in the assumed initial public offering price of $6.00 per JDS, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash
equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $1.4 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 underwriting discounts and commissions and estimated offering expense payable by us. Each increase (decrease) of 250,000 JDSs offered by us would increase (decrease) cash and cash equivalents, additional paid-in capital, total
stockholders’ equity and total capitalization by approximately $1.4 million assuming an initial public offering price of $6.00 per JDS, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting
underwriting discounts and commissions and estimated offering expenses 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 terms of this
offering determined at pricing.
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39
The table above is based on 14,760,238 shares of our common stock outstanding as of June 30,
2017, on an as converted basis, and excludes 413,667 shares of issued but unvested restricted stock as of June 30, 2017, which are not considered issued for accounting purposes, and the following:
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1,248,834 shares of common stock issuable upon the exercise of outstanding stock options as of June 30, 2017 under our 2012 Stock Incentive Plan with weighted-average exercise price of $1.79 per share;
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•
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1,608,649 shares of common stock reserved for future issuance under our 2012 Stock Incentive Plan; and
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•
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2,500,000 shares of common stock, subject to increase on an annual basis, reserved for future issuance under our 2017 Stock Incentive Plan, which will become effective in connection with this offering.
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40
DILUTION
If you purchase JDSs in this offering, your ownership interest will be diluted to the extent of the difference between the initial public
offering price per share of the underlying common stock and the pro forma as adjusted net tangible book value per share of our underlying common stock immediately after this offering.
Our net tangible book value of our common stock as of June 30, 2017 was approximately $7.2 million, or approximately $1.80 per share of common
stock, or $1.80 per JDS, based on 4,017,738 shares of common stock outstanding as of June 30, 2017. Net tangible book value per share is determined by dividing the number of shares of common stock outstanding as of June 30, 2017 by our total
tangible assets (total assets less intangible assets) less total liabilities and convertible preferred stock.
On a pro forma basis, after
giving effect to the automatic conversion of 10,742,500 shares of convertible preferred stock into common stock which will occur immediately prior to the completion of this offering, our pro forma net tangible book value as of June 30, 2017 would
have been $16.0 million, or $1.08 per share of common stock, or $1.08 per JDS.
On a pro forma as adjusted basis, after giving additional
effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $6.00 per JDS, the midpoint of the price range set forth on the front cover of this prospectus and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of June 30, 2017 would have been $21.8 million, or $1.34 per share of common stock, or $1.34 per JDS. This represents an immediate
increase in pro forma net tangible book value of $0.26 per share of common stock to existing stockholders and an immediate dilution of $4.66 per share of common stock, or $4.66 per JDS, to new investors purchasing JDSs in this offering, as
illustrated by the following table:
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$ Per Share of
Common Stock
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$ Per JDS
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Assumed initial public offering price per JDS
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$
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6.00
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$
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6.00
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Pro forma net tangible book value per share of common stock and JDS as of June 30,
2017
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1.08
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1.08
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Increase in pro forma net tangible book value per share of common stock and JDS attributable to
new investors
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0.26
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0.26
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Pro forma as adjusted net tangible book value per share of common stock and JDS after this
offering
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1.34
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1.34
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Dilution per share of common stock and JDS to investors in this offering
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$
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4.66
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$
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4.66
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A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease)
our pro forma as adjusted net tangible book value by approximately $1.4 million, or approximately $0.09 per share of common stock, or $0.09 per JDS, and the pro forma dilution per share of common stock to investors in this offering by approximately
$0.91 per share of common stock, or $0.91 per JDS, 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 underwriting discounts and commissions and estimated
offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 250,000 JDSs offered by us would increase (decrease) pro forma as adjusted net tangible book value by approximately
$1.4 million, or $0.06 per share of common stock, or $0.06 per JDS, and the pro forma dilution per share of common stock to investors in this offering by approximately $(0.06) per share of common stock, or $(0.06) per JDS. The pro forma as adjusted
information discussed above is illustrative only and will be adjusted based on the actual initial public offering price, the number of shares we sell in this offering and other terms of this offering.
If the underwriter’s option to purchase additional shares from us is exercised in full, the pro forma as adjusted net tangible book value
per share after this offering would be $1.40 per share of common stock, or
41
$1.40 per JDS, the increase in pro forma as adjusted net tangible book value per share to existing stockholders would be $0.32 per share of common stock, or $0.32 per JDS, and the dilution to new
investors purchasing shares in this offering would be $4.60 per share of common stock, or $4.60 per JDS.
The following table
presents, on a pro forma as adjusted basis as of June 30, 2017, the differences between the existing stockholders and the purchasers of shares in this offering with respect to the number of shares purchased from us, the total consideration paid,
which includes net proceeds received from the issuance of common stock (in thousands, except per share amounts and percentages):
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Shares of Common Stock Purchased
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Total Consideration (1)
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Average Price
per Share
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Average Price
per JDS (2)
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Number
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Percent
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Amount
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Percent
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Existing stockholders
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14,760,238
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90.7
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%
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$
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9,068
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49.9
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%
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$
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0.61
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$
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0.61
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Investors in this offering
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1,520,000
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9.3
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9,120
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50.1
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6.00
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6.00
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Totals
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16,280,238
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100
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%
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$
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18,188
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100
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%
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(1)
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Each $1.00 increase (decrease) in the assumed initial public offering price of $6.00 per JDS, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total
consideration paid to us by new investors and total consideration paid to us by all stockholders by $1.4 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 underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 250,000 JDSs offered by us would increase (decrease) the total consideration paid to us by new investors and total
consideration paid to us by all stockholders by $1.4 million assuming an initial public offering price of $6.00 per JDS, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts
and commissions and estimated offering expenses payable by us.
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(2)
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Each JDS represents one share of common stock.
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If the underwriter exercises its option to
purchase additional shares from us in full, our existing stockholders would own 91% and our new investors would own 9% of the total number of shares of our common stock outstanding immediately after this offering.
The table above is based on 14,760,238 shares of our common stock outstanding as of June 30, 2017, on an as converted basis, and excludes
413,667 shares of issued but unvested restricted stock as of June 30, 2017, which are not considered issued for accounting purposes, and the following:
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•
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1,248,834 shares of common stock issuable upon the exercise of outstanding stock options as of June 30, 2017 under our 2012 Stock Incentive Plan with weighted-average exercise price of $1.79 per share;
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•
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1,608,649 shares of common stock reserved for future issuance under our 2012 Stock Incentive Plan; and
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•
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2,500,000 shares of common stock, subject to increase on an annual basis, reserved for future issuance under our 2017 Stock Incentive Plan, which will become effective in connection with this offering. On the date of
this prospectus, any shares available for issuance under our 2012 Stock Incentive Plan will be added to the shares reserved under our 2017 Stock Incentive Plan, and we will cease granting awards under our 2012 Stock Incentive Plan.
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42
SELECTED CONSOLIDATED FINANCIAL DATA
We derived the selected consolidated statement of operations and comprehensive income data for the years ended December 31, 2016 and 2015
and the selected consolidated balance sheet data as of December 31, 2016 and 2015 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the selected consolidated statements of operations data for
the six months ended June 30, 2016 and 2017 and the selected consolidated balance sheet data as of June 30, 2017 from our unaudited interim condensed consolidated financial statements and related notes included elsewhere in this prospectus. Our
unaudited interim condensed consolidated financial statements were prepared on the same basis as our audited consolidated financial statements and include, in our opinion, all adjustments, consisting of normal recurring adjustments that we consider
necessary for a fair presentation of the financial information set forth in those consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in future years. You should read the
following selected consolidated historical financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, related notes and
other financial information included elsewhere in this prospectus. The selected consolidated financial data in this section is not intended to replace the consolidated financial statements and is qualified in its entirety by the consolidated
financial statements and related notes included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
20,245
|
|
|
$
|
27,156
|
|
|
$
|
13,640
|
|
|
$
|
15,269
|
|
|
Cost of revenue (1)
|
|
|
8,803
|
|
|
|
12,735
|
|
|
|
6,448
|
|
|
|
6,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
11,442
|
|
|
|
14,421
|
|
|
|
7,192
|
|
|
|
8,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,964
|
|
|
|
4,380
|
|
|
|
2,196
|
|
|
|
2,662
|
|
|
Selling, general and administrative
|
|
|
2,592
|
|
|
|
4,678
|
|
|
|
2,462
|
|
|
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,556
|
|
|
|
9,058
|
|
|
|
4,658
|
|
|
|
5,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,886
|
|
|
|
5,363
|
|
|
|
2,534
|
|
|
|
3,702
|
|
|
Other income (expense)
|
|
|
3
|
|
|
|
—
|
|
|
|
11
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,889
|
|
|
|
5,363
|
|
|
|
2,545
|
|
|
|
3,692
|
|
|
Income taxes
|
|
|
(168
|
)
|
|
|
1,882
|
|
|
|
833
|
|
|
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
3,481
|
|
|
$
|
1,712
|
|
|
|
2,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
0.24
|
|
|
$
|
0.12
|
|
|
$
|
0.17
|
|
|
Diluted
|
|
|
0.28
|
|
|
|
0.23
|
|
|
|
0.11
|
|
|
|
0.16
|
|
|
Unaudited pro forma basic
|
|
|
|
|
|
|
0.24
|
|
|
|
|
|
|
|
0.17
|
|
|
Unaudited pro forma diluted
|
|
|
|
|
|
|
0.23
|
|
|
|
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
Weighted average shares used in net income per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,007
|
|
|
|
3,494
|
|
|
|
3,426
|
|
|
|
3,849
|
|
|
Diluted
|
|
|
3,774
|
|
|
|
4,358
|
|
|
|
4,298
|
|
|
|
4,648
|
|
|
Unaudited pro forma basic
|
|
|
|
|
|
|
14,236
|
|
|
|
|
|
|
|
14,592
|
|
|
Unaudited pro forma diluted
|
|
|
|
|
|
|
15,101
|
|
|
|
|
|
|
|
15,391
|
|
|
(1)
|
Includes stock-based compensation expense as follows (in thousands):
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
Cost of revenue
|
|
$
|
7
|
|
|
$
|
15
|
|
|
$
|
7
|
|
|
$
|
13
|
|
|
Research and development
|
|
|
73
|
|
|
|
102
|
|
|
|
48
|
|
|
|
77
|
|
|
Selling, general and administrative
|
|
|
84
|
|
|
|
322
|
|
|
|
132
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
164
|
|
|
$
|
439
|
|
|
$
|
187
|
|
|
$
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,463
|
|
|
$
|
10,006
|
|
|
$
|
8,886
|
|
|
$
|
11,932
|
|
|
Property and equipment, net
|
|
|
170
|
|
|
|
401
|
|
|
|
298
|
|
|
|
375
|
|
|
Total assets
|
|
|
12,483
|
|
|
|
15,552
|
|
|
|
14,138
|
|
|
|
17,879
|
|
|
Current liabilities
|
|
|
3,181
|
|
|
|
2,226
|
|
|
|
2,877
|
|
|
|
1,742
|
|
|
Convertible preferred stock
|
|
|
8,794
|
|
|
|
8,794
|
|
|
|
8,794
|
|
|
|
8,794
|
|
|
Total stockholder’s equity
|
|
|
9,240
|
|
|
|
13,236
|
|
|
|
11,175
|
|
|
|
16,011
|
|
44
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with our consolidated financial statements and the notes to those statements
that appear in this prospectus. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections. These forward-looking statements involve risks and uncertainties. Our actual results could
differ materially from those indicated in these forward-looking statements as a result of certain factors, as more fully described in “Risk Factors” in this prospectus.
Overview
We are a fabless semiconductor
company that designs, markets and sells mixed-signal integrated circuits for multiple video applications in the security surveillance and automotive markets. Our integrated circuits are enabling the transition from standard definition, or SD, video
to high definition, or HD, video in the security surveillance and automotive industries. We target specific video applications that receive and process high definition analog video signals, including surveillance cameras, surveillance digital video
recorders, or DVRs, as well as cameras in automobiles. We design application specific products that utilize our HD analog transmission technology and perform advanced digital video processing to facilitate the display, transmission and storage of
video content. We believe designing our integrated circuits for specific applications allows us to better address varying end-customer requirements, fully leverage our technological capabilities and achieve greater share within our target markets.
Our solutions take HD video signals from a camera and convert them into analog signals for reliable long distance transmission, then
convert the HD analog signal into the appropriate format for video processing and display. Our HD analog technology operates at the same 1080p HD resolution as digital HD, but processes video in an HD analog format and transmits the video in this
same analog format, thereby eliminating the need for any compression or decompression. Our integrated circuits are based on our proprietary architecture and mixed signal technologies that we believe provide high video quality, enable high levels of
integration and are cost effective. Our integrated circuits are used by leading security surveillance manufacturers, such as Hikvision in China, IDIS in South Korea and AVTech in Taiwan. These three manufacturers are each a leading security
surveillance manufacturer in its respective country and together accounted for 62% of our revenue in the six months ended June 30, 2017.
We derive our revenue from sales of our mixed-signal integrated circuits into the security surveillance and automotive camera markets. We
began shipping our products in 2013 and to date, we have sold over 50 million integrated circuits. Our revenue has increased from $13.6 million for the six months ended June 30, 2016 to $15.3 million, or 12%, for the six months
ended June 30, 2017. We recorded net income of $2.4 million and $1.7 million for the six months ended June 30, 2017 and 2016, respectively. Our revenue has increased from $20.2 million in fiscal year 2015 to $27.2 million, or
34%, in fiscal year 2016. We recorded net income of $3.5 million and $4.1 million for the years ended December 31, 2016 and 2015, respectively. The security surveillance market accounted for substantially all of our revenue in the six
months ended June 30, 2017 and 2016, and the years ended December 31, 2016 and 2015. We have secured design wins with major automotive equipment manufacturers to sell our solutions to them for automotive backup cameras. We recognized
$1.2 million and $0.6 million of revenue on sales into the automotive market in the six months ended June 30, 2017 and the year ended December 31, 2016, respectively.
We sell our products to distributors that fulfill third-party orders for our products. We also sell directly to original design manufacturers,
or ODMs. In the six months ended June 30, 2017 and year ended December 31, 2016, we derived substantially all of our revenue from products sold to distributors as compared to products sold to ODMs directly.
We undertake significant product development efforts well in advance of a product’s release, and in advance of receiving purchase orders.
Our product development efforts, which are focused on developing new designs
45
with broad demand and potential for future derivative products, typically take from six to 24 months until production begins, depending on the product’s complexity. If we secure a design
win, we believe the system designer is likely to continue to use the same or enhanced versions of our product across a number of their models, tending to extend the life cycles of our products. Conversely, if a competitor secures the design win, it
may be difficult for us to sell into the end-customer’s application for an extended period. Our sales cycles typically ranges from three to six months for the security surveillance market and one to three years for the automotive industry. Due
to the length of our product development and sales cycle, the majority of our revenue for any period is likely to be weighted toward products introduced for sale in the prior one or two years. As a result, our present revenue is not necessarily
representative of future sales because our future sales are likely to be comprised of a different mix of products, some of which are now in the development stage.
We employ a fabless manufacturing strategy and use market-leading suppliers for all phases of the manufacturing process, including wafer
fabrication, assembly, testing and packaging. This strategy significantly reduces the capital investment that would otherwise be required to operate manufacturing facilities of our own.
We have made significant investments in research and development in order to develop our products to attract and retain end-customers. For the
six months ended June 30, 2017 and 2016, our research and development expense was $2.7 million and $2.2 million, respectively. For the years ended December 31, 2016 and 2015, our research and development expense was $4.4 million and
$5.0 million, respectively. We expect that our research and development expenses will increase significantly in the future as we pursue additional opportunities. As of June 30, 2017, we had 58 employees, 21 of whom are in research and
development. We also had 4 full-time contractors based in China and South Korea. Our headquarters are located in San Jose, California, with additional operations in Japan, Taiwan, China and South Korea.
As of June 30, 2017, we have capitalized $1.8 million in deferred offering costs. The deferred costs will be reclassified to
stockholders’ equity and offset against IPO proceeds upon completion of the offering. In the event the offering is abandoned or terminated, deferred offering costs will be expensed immediately.
Key Factors Affecting Our Results of Operations
The following are key factors that impact our results of operations:
Ability to attract and retain customers that make large orders
.
In the six months ended June 30, 2017, four of our
end-customers accounted for 75% of our revenue, one of which, Hikvision, the largest security surveillance manufacturer in China, accounted for 61%. In the six months ended June 30, 2016 and in the years ended December 31, 2016 and 2015,
Hikvision accounted for 65%, 62% and 78% of our revenue, respectively. While we expect the composition of our end-customers to change over time, our business and operating results will depend on our ability to continually target new and retain
existing end-customers that make large orders.
Design wins with new and existing customers
.
We believe our products
provide high-quality HD video with an attractive combination of characteristics, at a lower overall cost than competing solutions. In order to get our solutions designed into our end-customer’s products, we work with our end-customers and
potential end-customers to understand their product roadmaps and strategies. We consider design wins to be critical to our future success. We define a design win as the successful completion of the evaluation stage, where an end-customer has tested
our product, verified that our product meets its requirements and qualified our integrated circuits for their products. We have secured design wins with major automotive manufacturers to sell our solutions to them for automotive backup cameras. The
revenue that we generate, if any, from each design win can vary significantly. Our long-term sales expectations are based on forecasts from end-customers, internal estimates of end-customer demand factoring in expected time to market for
end-customer products incorporating our solutions and associated revenue potential and internal estimates of overall demand based on historical trends.
46
Pricing, product cost and gross margins of our products
.
Our gross margin
has been and will continue to be affected by a variety of factors, including the timing of changes in pricing, shipment volumes, new product introductions, changes in product mixes, changes in our purchase price of fabricated wafers and assembly and
test service costs, manufacturing yields and inventory write downs, if any. In general, newly introduced products and products with higher performance and more features tend to be priced higher than older, more mature products. Average selling
prices in the semiconductor industry typically decline as products mature. Consistent with this historical trend, we expect that the average selling prices of our products will decline as they mature. In the normal course of business, we will seek
to offset the effect of declining average selling prices on existing products by reducing manufacturing costs and introducing new and higher value-added products. If we are unable to maintain overall average selling prices or offset any declines in
average selling prices with realized savings on product costs, our gross margin will decline.
Product adoption and safety
regulations in the automotive market.
We have secured design wins with major automotive equipment manufacturers to sell our solutions to them for automotive backup cameras, however we have not yet made any significant sales into this market.
Certain jurisdictions, including the United States, have passed laws and regulations requiring that all new cars sold after a certain date must contain back-up cameras. If these jurisdictions do not maintain and implement these rules, or if back-up
cameras are not put into automobiles sold in other locations as well, or do so more slowly than we expect, our financial results could be adversely affected.
Investment in growth.
We have invested, and intend to continue to invest, in expanding our operations, increasing our headcount,
developing our products and differentiated technologies to support our growth and expanding our infrastructure. We expect our total operating expenses to increase significantly in the foreseeable future to meet our growth objectives. We plan to
continue to invest in our sales and support operations throughout the world, with a particular focus in the near term of adding additional sales and field applications personnel in the Asia-Pacific region to further broaden our support and coverage
of our existing end-customer base, in addition to developing new end-customer relationships and generating design wins. We also intend to continue to invest additional resources in research and development to support the development of our products
and differentiated technologies. Any investments we make in our sales and marketing organization or research and development will occur in advance of experiencing any benefits from such investments, and the return on these investments may be lower
than we expect. In addition, as we invest in expanding our operations into new areas internationally, our business and results will become further subject to the risks and challenges of operations in those locations, including potentially higher
operating expenses and the impact of legal and regulatory developments.
Components of Consolidated Statements of Operations
Revenue
We derive
substantially all of our revenue through the sale of our products to distributors who, in turn, sell to our end-customers, which consists of ODMs, contract manufacturers and design houses. We recognize revenue from product sales when persuasive
evidence of an arrangement exists and all other revenue recognition criteria are met, which generally occurs when we ship our product to the distributors.
Cost of revenue
Cost of revenue primarily consists of costs paid to our third-party manufacturers for wafer fabrication, assembly and testing of our products.
To a lesser extent, cost of revenue also includes write-downs of inventory for excess and obsolete inventory, depreciation of test equipment, and expenses relating to manufacturing support activities, including personnel-related costs, logistics and
quality assurance and shipping.
47
Research and Development Expenses
Research and development expenses consist primarily of compensation and associated costs of employees engaged in research and development,
contractor costs, tape-out costs, development testing and evaluation costs, and depreciation expense. Before releasing new products, we incur charges for mask sets, prototype wafers and mask set revisions, which we refer to as tape-out costs.
Tape-out costs cause our research and development expenses to fluctuate because they are not incurred uniformly every quarter. We expect our research and development costs to increase in absolute dollars in the future as we increase our investment
in developing new products and headcount to support our development efforts.
Selling, General and Administrative Expenses
Selling expenses consist primarily of personnel-related costs for our sales, business development, marketing, and applications
engineering activities, promotional and other marketing expenses, and travel expenses. We expect selling expenses to increase in absolute dollars for the foreseeable future as we continue to expand our sales teams and increase our marketing
activities.
General and administrative expenses consist primarily of personnel-related costs, consulting expenses and professional fees.
Professional fees principally consist of legal, audit, tax and accounting services. We expect general and administrative expenses to increase in absolute dollars for the foreseeable future as we hire additional personnel, make improvements to our
infrastructure and incur significant additional costs for the compliance requirements of operating as a public company, including higher legal, insurance and accounting expenses, particularly with respect to operating as a U.S. company that is
publicly traded in Japan.
Personnel-related costs, including salaries, benefits, bonuses and stock-based compensation, are the most
significant component of each of selling expenses and general and administrative expenses.
Income Tax Provision
The provision for income taxes consists of our estimated federal, state and foreign income taxes based on our pre-tax income. Our provision
differs from the federal statutory rate primarily due to the research tax credit and non-deductible stock-based compensation.
Results of Operations
The following table sets forth our consolidated results of operations for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
(in thousands)
|
|
|
Revenue
|
|
$
|
20,245
|
|
|
$
|
27,156
|
|
|
$
|
13,640
|
|
|
$
|
15,269
|
|
|
Cost of revenue (1)
|
|
|
8,803
|
|
|
|
12,735
|
|
|
|
6,448
|
|
|
|
6,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
11,442
|
|
|
|
14,421
|
|
|
|
7,192
|
|
|
|
8,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,964
|
|
|
|
4,380
|
|
|
|
2,196
|
|
|
|
2,662
|
|
|
Selling, general and administrative
|
|
|
2,592
|
|
|
|
4,678
|
|
|
|
2,462
|
|
|
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,556
|
|
|
|
9,058
|
|
|
|
4,658
|
|
|
|
5,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,886
|
|
|
|
5,363
|
|
|
|
2,534
|
|
|
|
3,702
|
|
|
Other income (expense)
|
|
|
3
|
|
|
|
—
|
|
|
|
11
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,889
|
|
|
|
5,363
|
|
|
|
2,545
|
|
|
|
3,692
|
|
|
Income taxes
|
|
|
(168
|
)
|
|
|
1,882
|
|
|
|
833
|
|
|
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
3,481
|
|
|
$
|
1,712
|
|
|
$
|
2,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
(1)
|
Includes stock-based compensation expense as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
Cost of revenue
|
|
$
|
7
|
|
|
$
|
15
|
|
|
$
|
7
|
|
|
$
|
13
|
|
|
Research and development
|
|
|
73
|
|
|
|
102
|
|
|
|
48
|
|
|
|
77
|
|
|
Selling, general and administrative
|
|
|
84
|
|
|
|
322
|
|
|
|
132
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
164
|
|
|
$
|
439
|
|
|
$
|
187
|
|
|
$
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the consolidated statements of operations data for each of the periods
presented as a percentage of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Cost of revenue
|
|
|
43
|
|
|
|
47
|
|
|
|
47
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
57
|
|
|
|
53
|
|
|
|
53
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
25
|
|
|
|
16
|
|
|
|
16
|
|
|
|
17
|
|
|
Selling, general and administrative
|
|
|
13
|
|
|
|
17
|
|
|
|
18
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
38
|
|
|
|
33
|
|
|
|
34
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
19
|
|
|
|
20
|
|
|
|
19
|
|
|
|
24
|
|
|
Other income (expense)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
19
|
|
|
|
20
|
|
|
|
19
|
|
|
|
24
|
|
|
Income taxes
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
6
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
20
|
%
|
|
|
13
|
%
|
|
|
13
|
%
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of the Six Months Ended June 30, 2017 and June 30, 2016
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Revenue
|
|
$
|
13,640
|
|
|
$
|
15,269
|
|
|
$
|
1,629
|
|
|
|
12
|
%
|
Revenue increased by $1.6 million, or 12%, for the six months ended June 30, 2017 as compared to the
six months ended June 30, 2016. The increase was primarily due to a 19% increase in volume of shipments as a result of increased demand for our HD-TVI receiver products in the automotive market offset by a 6% decrease in overall average selling
price due to change in product mix. Revenue for automotive sales was $1.2 million and $28,000 for the six months ended June 30, 2017 and 2016, respectively.
49
Revenue by Geographic Region
The table below sets forth the major components of the change in revenue by geographic region for the six months ended June 30, 2017 and
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2016
|
|
|
2017
|
|
|
China
|
|
|
90
|
%
|
|
|
84
|
%
|
|
South Korea
|
|
|
5
|
|
|
|
10
|
|
|
Japan
|
|
|
0
|
|
|
|
4
|
|
|
Taiwan
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
We derived substantially all of our revenue from sales to customers in Asia, and China in particular, which
accounted for 84% and 90% of our revenue for the six months ended June 30, 2017 and 2016, respectively. Because our customers market and sell their products worldwide, our revenue by geographic location is not necessarily indicative of where our
customers’ product sales and end-customer design win activity occur, but rather is an indication of where their operations reside.
Cost of Revenue and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Cost of revenue
|
|
$
|
6,448
|
|
|
$
|
6,321
|
|
|
$
|
(127
|
)
|
|
|
(2
|
)%
|
|
Gross margin
|
|
|
53
|
%
|
|
|
59
|
%
|
|
|
|
|
|
|
|
|
Cost of revenue decreased by $0.1 million, or 2%, while gross margin increased to 59% from 53% for the six
months ended June 30, 2017 as compared to the six months ended June 30, 2016, respectively. The decrease in cost of revenue was primarily driven by decreased inventory write-down costs of $0.2 million due to product transitions, offset by increased
unit sales. Inventory write-downs were $0.2 million and $0.4 million for the six months ended June 30, 2017 and 2016, respectively. Gross margin increased due to changes in product mix, whereby there was a positive impact on gross margin due to the
sales volume increase of lower cost, higher margin products. We expect gross margins to fluctuate in future periods due to changes in product mix, average unit selling prices, manufacturing costs, manufacturing yields, levels of inventory valuation,
if any, and levels of product demand.
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Research and development
|
|
$
|
2,196
|
|
|
$
|
2,662
|
|
|
$
|
466
|
|
|
|
21
|
%
|
Research and development expenses increased $0.5 million, or 21%, for the six months ended June 30, 2017 as
compared to the six months ended June 30, 2016. This increase was primarily due to the $0.5 million impact of additional tape-outs during the six months ended June 30, 2017.
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Selling, general and administrative
|
|
$
|
2,462
|
|
|
$
|
2,584
|
|
|
$
|
122
|
|
|
|
5
|
%
|
50
Selling, general and administrative expenses increased $0.1 million, or 5%, for the six months
ended June 30, 2017 as compared to the six months ended June 30, 2016. This increase was primarily due to a $0.1 million increase in rent expense driven by a relocation of our headquarters.
Other income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Other income (expense)
|
|
$
|
11
|
|
|
$
|
(10
|
)
|
|
$
|
(21
|
)
|
|
|
(191
|
)%
|
Other income (expense) was $(10,000) and $11,000 for the six months ended June 30, 2017 and 2016,
respectively. This decrease was primarily due to the foreign exchange loss associated with the activities of the foreign offices established during 2016, offset by interest income during the period.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Change
|
|
|
|
|
2016
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Income taxes
|
|
$
|
833
|
|
|
$
|
1,278
|
|
|
$
|
445
|
|
|
|
53
|
%
|
The provision for income taxes for the six months ended June 30, 2017 and 2016 was $1.3 million and
$0.8 million, respectively. The effective tax rate for the six months ended June 30, 2017 and 2016 was 34.60% and 32.25%, respectively. There were no valuation allowance releases for the six months ended June 30, 2017.
Net Income
As a
result of the foregoing, our net income increased by $0.7 million, or 41%, to $2.4 million for the six months ended June 30, 2017 from $1.7 million for the six months ended June 30, 2016.
Comparison of the Years Ended December 31, 2016 and December 31, 2015
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
|
2015
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Revenue
|
|
$
|
20,245
|
|
|
$
|
27,156
|
|
|
$
|
6,911
|
|
|
|
34
|
%
|
Revenue increased by $6.9 million, or 34%, for 2016 as compared to 2015. The increase was primarily due to a
43% increase in volume of shipments in fiscal year 2016 as a result of increased demand for our HD-TVI receiver products in the video security surveillance market, offset by a 6% decrease in overall average selling price due to change in product
mix. For the year ended December 31, 2016, we recorded revenue of $0.6 million for mixed-signal solutions sales into the automotive market whereas substantially all of our revenue for the year ended December 31, 2015 was derived from sales into the
video security surveillance market.
51
Revenue by Geographic Region
The table below sets forth the major components of the change in revenue by geographic region for the years ended December 31, 2016 and
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
China
|
|
|
87
|
%
|
|
|
88
|
%
|
|
South Korea
|
|
|
7
|
|
|
|
6
|
|
|
Taiwan
|
|
|
6
|
|
|
|
4
|
|
|
Japan
|
|
|
—
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
We derived substantially all of our revenue from sales to customers in Asia, and China in particular, which
accounted for 88% and 87% of our revenue for the year ended December 31, 2016 and 2015, respectively. Because our customers market and sell their products worldwide, our revenue by geographic location is not necessarily indicative of where our
customers’ product sales and end-customer design win activity occur, but rather is an indication of where their operations reside.
Cost of Revenue and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
|
2015
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Cost of revenue
|
|
$
|
8,803
|
|
|
$
|
12,735
|
|
|
$
|
3,932
|
|
|
|
45
|
%
|
|
Gross margin
|
|
|
57
|
%
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
Cost of revenue increased by $3.9 million, or 45%, while gross margin decreased to 53% in fiscal year 2016
from 57% in fiscal year 2015. The increase in cost of revenue was primarily driven by a 43% increase in unit sales, and changes in product mix, which resulted in a negative impact on gross margin due to the sales volume increase of higher cost,
lower margin products. The cost of revenue increase and gross margin decrease was also due to increased inventory write downs of $0.7 million and, to a lesser extent, increased warranty expense related to the higher sales volumes. We expect gross
margins to fluctuate in future periods due to changes in product mix, average unit selling prices, manufacturing costs, manufacturing yields, levels of inventory valuation, if any, and levels of product demand.
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
|
2015
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Research and development
|
|
$
|
4,964
|
|
|
$
|
4,380
|
|
|
$
|
(584
|
)
|
|
|
(12
|
)%
|
Research and development expenses for the year ended December 31, 2016 decreased $0.6 million, or 12%, as
compared to the year ended December 31, 2015. This decrease was primarily due to the $1.4 million impact of fewer tape-outs during the year ended December 31, 2016, partially offset by $1.0 million of increased personnel costs associated with a
40% increase in research and development headcount related to expanded research and development activities.
52
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
|
2015
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Selling, general and administrative
|
|
$
|
2,592
|
|
|
$
|
4,678
|
|
|
$
|
2,086
|
|
|
|
80
|
%
|
Selling, general and administrative expenses increased by $2.1 million, or 80%, for the year ended
December 31, 2016 as compared to the year ended December 31, 2015. This increase was primarily due to a $1.7 million increase in personnel-related expense driven by a 61% increase in headcount associated with growing sales and
marketing efforts and expanding accounting and finance. Additionally, accounting and audit fees increased $0.4 million as we continued to prepare to become a public company, and, to a lesser extent, rent and facility expenses increased as a result
of establishment of foreign offices.
Other income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
|
2015
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Other income (expense)
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
|
(100
|
)%
|
Other income decreased by $3,000, or 100%, for the year ended December 31, 2016 as compared to the year
ended December 31, 2015. This decrease was primarily due to the foreign exchange loss associated with the activities of the foreign offices established during 2016, offset by interest income during the period.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
|
2015
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollars in thousands)
|
|
|
Income taxes
|
|
$
|
(168
|
)
|
|
$
|
1,882
|
|
|
$
|
2,050
|
|
|
|
(1,220
|
)%
|
The provision for income taxes for the years ended December 31, 2016 and 2015 was $1.9 million and $(0.2)
million, respectively. The effective tax rate for the years ended December 31, 2016 and 2015 was 35.09% and (4.32)%, respectively. The increase in effective tax rate is due to the release of the valuation allowance during the year ended
December 31, 2015. There were no such releases in fiscal year 2016.
Net Income
As a result of the foregoing, our net income decreased by $0.6 million, or 14%, to $3.5 million for the year ended December 31, 2016 from
$4.1 million for the year ended December 31, 2015.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily with revenue from sales of our mixed-signal integrated circuits and with gross
proceeds from the sale of an aggregate of $8.8 million of convertible preferred stock. Our primary use of cash is to fund our operations as we continue to grow our business. Cash used to fund operating expenses is impacted by the timing of when we
pay expenses, as reflected in the changes in our outstanding accounts payable and accrued expenses.
Our cash and cash equivalents as of
June 30, 2017 were $11.9 million. Substantially all of our cash and cash equivalents are held in the United States. We believe our existing cash and cash equivalents, and cash we expect
53
to generate from operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our
growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced products and our costs to
implement new manufacturing technologies or potentially acquire and integrate other companies or assets. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. Any
debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to
pursue business opportunities, including potential acquisitions. Additionally, if we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could
suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate
financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
A summary of operating, investing and financing activities are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
(in thousands)
|
|
|
Cash flows provided by operating activities
|
|
$
|
5,287
|
|
|
$
|
1,608
|
|
|
$
|
133
|
|
|
$
|
2,627
|
|
|
Cash flows used in investing activities
|
|
|
(88
|
)
|
|
|
(346
|
)
|
|
|
(188
|
)
|
|
|
(117
|
)
|
|
Cash flows provided by (used in) financing activities
|
|
|
184
|
|
|
|
(719
|
)
|
|
|
(522
|
)
|
|
|
(584
|
)
|
Operating Activities
Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash inflows from operating
activities to be affected by fluctuations in sales. Our primary uses of cash from operating activities have been for personnel costs and investments in research and development and sales and marketing.
During the six months ended June 30, 2017, net cash provided by operating activities was $2.6 million, primarily due to net income of $2.4
million, a net increase in non-cash charges of $0.4 million primarily driven by stock-based compensation, depreciation and amortization and deferred income taxes, offset by a net decrease in the net change in operating assets and liabilities of $0.2
million. The change in our net operating assets and liabilities was primarily due to a $0.5 million decrease in inventory as a result of increased sales over production, offset by a $0.7 million decrease in customer deposits due to timing of
customer pre-payments.
During the six months ended June 30, 2016, net cash provided by operating activities was $0.1 million, primarily
due to net income of $1.7 million, a net increase in non-cash charges of $0.1 million primarily driven by stock-based compensation, depreciation and amortization and offset by deferred income taxes, offset by a net decrease in the net change in
operating assets and liabilities of $1.7 million. The change in our net operating
assets and liabilities was primarily due to a $1.0 million decrease in
accounts payable due to the timing of vendor payments, a $0.9 million increase in inventory to support anticipated demand, a $0.6 million decrease in customer deposits due to timing of customer pre-payments, a $0.4 million increase in prepaids and
other current assets, offset by a $1.2 million increase in accrued expenses for personnel-related costs.
During the year ended
December 31, 2016, net cash provided by operating activities was $1.6 million, primarily due to net income of $3.5 million, a net increase in non-cash charges of $0.4 million, primarily driven by stock-based compensation, depreciations and
amortization and deferred income taxes, offset by a net decrease in the net change in operating assets and liabilities of $2.3 million. The change in our net operating assets and
54
liabilities was primarily due to a $1.2 million increase in inventory to support anticipated demand, a $0.8 million decrease in accounts payable driven by the timing of payments made to our
vendors, a $0.6 million decrease in our customer deposits attributable to timing of customer pre-payments, and a $0.1 million increase in accounts receivable, partially offset by a $0.2 million increase in accrued expenses and a $0.2 million
decrease in prepaids and other current assets.
During the year ended December 31, 2015, net cash provided by operating activities
was $5.3 million, primarily due to net income of $4.1 million, a net increase in our operating assets and liabilities of $1.8 million, partially offset by a net decrease in non-cash charges of $0.6 million, primarily driven by deferred income taxes,
depreciation and amortization and stock-based compensation. The change in our net operating assets and liabilities was primarily due to a $1.3 million increase in customer deposits primarily attributable to timing of customer pre-payments and $1.1
million increase in accounts payable as a result of ramping up our sales and marketing efforts in fiscal year 2015, partially offset by a $0.3 million increase in inventory and a $0.3 million increase in prepaid and other current assets.
Investing Activities
Our investing activities consist primarily of purchases of property and equipment. We expect to continue to make capital expenditures to
support the continued growth of our business. During the six months ended June 30, 2017 and 2016, and for the years ended December 31, 2016 and 2015, cash used in investing activities was $0.1 million, $0.2 million, $0.3 million and $0.1
million, respectively, due to purchases of property and equipment.
Financing Activities
Cash flows used in financing activities consists primarily of payments for activities related to the process of becoming a public company.
These costs are deferred until the time of the offering unless the offering is abandoned, in which case these costs would be expensed immediately. During the six months ended June 30, 2017, payments for deferred offering costs were $0.6 million
offset by $21,000 of net proceeds from the exercise of stock options. During the six months ended June 30, 2016, payments for deferred offering costs were $0.6 million offset by $0.1 million of net proceeds from the exercise of stock options.
During the year ended December 31, 2016, payments for deferred offering costs were $0.8 million, offset by $0.1 million of net proceeds from the exercise of stock options. During the year ended December 31, 2015, we had no significant financing
activities.
Contractual Obligations
We are required to make future payments under certain operating leases. Our outstanding contractual obligations as of December 31, 2016
are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
Total
|
|
|
Less than 1 year
|
|
|
1 to 3 years
|
|
|
3-5 years
|
|
|
More than 5 years
|
|
|
|
|
(in thousands)
|
|
|
Operating Leases
|
|
$
|
1,158
|
|
|
$
|
416
|
|
|
$
|
683
|
|
|
$
|
59
|
|
|
$
|
—
|
|
|
Purchase Commitments
|
|
|
150
|
|
|
|
100
|
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,308
|
|
|
$
|
516
|
|
|
$
|
733
|
|
|
$
|
59
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017, the Company’s future minimum lease payments under operating leases totaled
$1.0 million. Future minimum payments under purchase commitments are $110,000 and $63,000 for the years ending December 31, 2017 and 2018, respectively, as of June 30, 2017.
Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
55
Off Balance Sheet Arrangements
During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities
referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies, Significant Estimates and Judgments
The discussion and analysis of our results of operations and financial condition set forth in this prospectus is based on our consolidated
financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make critical accounting estimates that directly impact our consolidated
financial statements and related disclosures.
The preparation of our consolidated financial statements requires us to make certain
judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. Areas that require significant judgments,
estimates and assumptions include inventory valuation, valuation allowance for recorded deferred tax assets, and stock based compensation. We base our estimates on historical experience, market comparables and on various other assumptions that we
believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
See “—Recently Issued Accounting Pronouncements” for further information related to recently issued accounting standards and
their future impact to us.
The following paragraphs discuss the items that we believe are the critical accounting policies most
affected by significant management estimates and judgments.
Revenue Recognition
We recognize revenue from product sales when persuasive evidence of an arrangement exists, the selling price is fixed or determinable, delivery
has occurred, and collectability is reasonably assured. Our customers do not have rights of return except pursuant to our standard warranty terms. Provisions for warranty returns are provided for at the time product sales are recognized based on
historical experience or specific identification of an event necessitating a reserve. Generally, we meet these conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time.
For the six months ended June 30, 2017 and 2016, and the years ended December 31, 2016 and 2015, substantially all of our customers paid
in advance of shipment, but we may not be able to continue this practice in the future, particularly as we sell into the automotive market. Additionally, for the six months ended June 30, 2017 and 2016, and the years ended
December 31, 2016 and 2015, we do not offer stock rotation, price protection or return rights.
Inventory
We record inventory at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value.
Upon the adoption of ASU 2015-11 in the first quarter of fiscal 2017, inventories are stated at the lower of cost or net realizable value. The carrying value of inventory is adjusted for excess and obsolete inventory based on inventory age, shipment
history and the forecast of demand over a specific future period. At the point of loss recognition, a new lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or
increase in that new cost basis. The semiconductor markets that we serve are volatile and actual results may vary from forecast or other assumptions, potentially affecting our assessment of excess and obsolete inventory which could have a material
effect on our results of operations.
56
Income Taxes
We account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the consolidated financial statements, but have not been reflected in our taxable income. Valuation allowances are established to reduce deferred tax assets as necessary based
on available objective evidence. We believe it is more likely than not that we will realize benefits of deductible differences and have, therefore, not recorded a full valuation allowance. We recognize in our consolidated financial statements the
impact of a tax position that based on its technical merits is more likely than not to be sustained upon examination. The valuation allowance as of June 30, 2017 and 2016 was approximately $306,000 and $272,000, respectively. The valuation allowance
as of December 31, 2016 and 2015 was approximately $282,000 and $222,000, respectively.
Stock-based Compensation
We measure and recognize compensation expense for all stock-based awards granted to our employees and other service providers, including stock
options and restricted stock awards, based on the estimated fair value of the award on the grant date. We estimate the grant date fair value of our stock option awards, and the resulting stock-based compensation expense, using the Black-Scholes
option-pricing model. The fair value of restricted stock awards is determined based on the fair value of our common stock estimated as part of the business enterprise valuation process. We recognize compensation costs on a straight-line basis over
the requisite service period of the award, which is generally the vesting term of five years.
The Black-Scholes option-pricing model
requires the use of highly subjective assumptions which determine the fair value of stock-based awards.
The assumptions used in our
option-pricing model represent management’s best estimates. These estimates are highly complex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment, so that they are inherently
subjective. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.
These assumptions are estimated as follows:
|
|
•
|
|
Fair Value of Common Stock. Because our stock is not publicly traded, we must estimate its fair value, as discussed in “Common Stock Valuations” below.
|
|
|
•
|
|
Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term of the options
for each option group.
|
|
|
•
|
|
Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions were determined based on the vesting terms, exercise terms and contractual
lives of the options.
|
|
|
•
|
|
Volatility. We determine the price volatility factor based on the historical volatilities of our peer group as we did not have a sufficient trading history for our common stock. Industry peers consist of several public
companies in the technology industry that provide similar services with comparable characteristics including enterprise value, risk profiles and position within the industry. 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, or unless circumstances change such that the identified companies are no longer similar to
us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.
|
|
|
•
|
|
Dividend Yield. The expected dividend assumption is based on our current expectations about our anticipated dividend policy. We currently do not expect to issue any dividends.
|
57
We will continue to use judgment in evaluating the assumptions related to our stock-based
compensation on a prospective basis. As we continue to accumulate additional data, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.
For the six months ended June 30, 2017 and 2016, stock-based compensation expense was $0.3 million and $0.2 million respectively.
For the years ended December 31, 2016 and 2015, stock-based compensation expense was $0.4 million and $0.2 million respectively. As of June 30, 2017, we had approximately $1.6 million of total unrecognized compensation expense which we
expect to recognize over a weighted-average period of approximately four years. The intrinsic value of all outstanding options as of June 30, 2017 was $7.4 million based on the estimated fair value of our common stock of $6.00 per share,
or $6.00 per JDS, which is the midpoint of the price range set forth on the cover of this prospectus.
Common Stock Valuations.
Our board of directors intends 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 estimated fair value of our common stock was
determined contemporaneously at each valuation date 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. Our
board of directors, with the assistance of management, developed these valuations using significant judgment and taking into account numerous factors, including developments at our company, market conditions and contemporaneous independent
third-party valuations.
Depending on whether stock options were granted near periods in which we also had a preferred stock issuance, the
valuations of our common stock were back-solved for the common stock equity value using the Option Pricing Method, or OPM, the multi-period discounting method and the probability-weighted expected return method, or PWERM, or a combination thereof.
The OPM treats the rights of the holders of preferred and common stock as equivalent to call options on any value of the enterprise above
certain break points of value based upon the liquidation preferences of the holders of preferred stock, as well as their rights to participation and conversion. Thus, the estimated value of the common stock can be determined by estimating the value
of its portion of each of these call option rights.
The multi-period discounting approach values the business based on the future
benefits that will accrue to it, with the value of future benefits discounted back to a present value at an appropriate discount rate. The discounted cash flow analysis forecasts future revenue and free cash flow, or net operating profit after tax
from continuing operations, associated with that revenue.
The PWERM is a scenario-based analysis that estimates the value per share based
on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each stock class.
Following the closing of this offering, the fair value of our common stock will be determined based on the closing price of the JDSs on the
Mothers market of the Tokyo Stock Exchange.
JOBS Act
We qualify as an “emerging growth company” pursuant to the JOBS Act. The JOBS Act contains provisions that, among other things,
reduce certain reporting requirements for qualifying companies. As defined in the JOBS Act, a company whose initial public offering of common equity securities occurred after December 8, 2011 and whose annual gross revenue is less than $1.0
billion will, in general, qualify as an “emerging growth company” until the earliest of:
|
|
•
|
|
the last day of the fiscal year following the fifth anniversary of its initial public offering of common equity securities;
|
58
|
|
•
|
|
the last day of the fiscal year in which it has annual gross revenue of $1.07 billion or more;
|
|
|
•
|
|
the date on which it has, during the previous three-year period, issued more than $1.07 billion in non-convertible debt; or
|
|
|
•
|
|
the date on which it is deemed to be a “large accelerated filer,” which will occur at such time as the company (a) has an aggregate worldwide market value of common equity securities held by
non-affiliates of $700 million or more as of the last business day of its most recently completed second fiscal quarter, (b) has been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months, and
(c) has filed at least one annual report pursuant to the Securities Act.
|
Under this definition, we will be an
“emerging growth company” upon completion of this offering and could remain an “emerging growth company” until as late as December 31, 2022. Pursuant to Section 107(b) of the JOBS Act, as an “emerging growth
company,” we are permitted to take advantage of an extended transition period for complying with new or revised accounting standards. However, we are choosing 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. Our decision to opt out of the extended transition period for complying with new or revised
accounting standards is irrevocable. In addition, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an
emerging growth company, we intend to rely on certain of these exemptions, including without limitation, not providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 and
not complying with any requirement that may be adopted regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and
analysis). These exemptions will apply for so long as we continue to qualify as an emerging growth company.
Related Party Transactions
For a description of our related party transactions, see “Certain Relationships and Related Party Transactions.”
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from fluctuations in foreign currency exchange rates and interest rates, which may adversely affect our results
of operations and financial condition. We seek to minimize these risks through regular operating activities. We do not purchase, hold or sell derivative financial instruments for trading or speculative purposes.
Foreign exchange rates
We transact business globally and are subject to risks associated with fluctuating foreign exchange rates. Substantially all of our revenue was
derived from sales outside of the U.S. in the six months ended June 30, 2017 and year ended December 31, 2016. This revenue is generated almost entirely in U.S. dollars with sales through distributors worldwide. Our operating expenses are
denominated in the currencies of the countries in which our subsidiaries are located, and may be subject to fluctuations due to changes in foreign currency exchange rates. To date, we have not entered into any hedging contracts, but may elect to do
so in the future. A hypothetical increase or decrease of 10% in foreign exchange rates for the six months ended June 30, 2017 and the year ended December 31, 2016 would not have resulted in a significant increase or decrease in revenue or net
income during that period.
The U.S. dollar is the functional currency for all of our foreign operations. Monetary assets and liabilities
denominated in foreign currencies are remeasured into the functional currency of the subsidiary at the balance
59
sheet date. The gains and losses from remeasurement of foreign currency denominated balances into the functional currency of the subsidiary are included in Other income (expense) on our
Consolidated Statement of Operations. The remeasurement of foreign currency into functional currency has not been significant to date.
Interest rates
Our exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalents. We seek to minimize the risk to
our cash and cash equivalents by investing cash in excess of our operating needs in short-term, high-quality instruments issued by highly creditworthy financial institutions. With the amount of cash and cash equivalents that we maintained at June
30, 2017, a hypothetical increase or decrease of one percentage point, or 100 basis points, in interest rates, would not have had a material effect on our financial statements.
60
BUSINESS
Overview
We are a fabless semiconductor
company that designs, markets and sells mixed-signal integrated circuits for multiple video applications in the security surveillance and automotive markets. Our integrated circuits are enabling the transition from standard definition, or SD, video
to high definition, or HD, video in the security surveillance and automotive industries. We target specific video applications that receive and process high definition analog video signals, including surveillance cameras, surveillance digital video
recorders, or DVRs, as well as cameras in automobiles. We design application specific products that utilize our HD analog transmission technology and perform advanced digital video processing to facilitate the display, transmission and storage of
video content. We believe designing our integrated circuits for specific applications allows us to better address varying end-customer requirements, fully leverage our technological capabilities and achieve greater share within our target markets.
Our solutions take HD video signals from a camera and convert them into analog signals for reliable long distance transmission, then
convert the HD analog signal into the appropriate format for video processing and display. Our HD analog technology operates at the same 1080p HD resolution as digital HD, but processes video in an HD analog format and transmits the video in this
same analog format, thereby eliminating the need for any compression or decompression. Our integrated circuits are based on our proprietary architecture and mixed signal technologies that we believe provide high video quality, enable high levels of
integration and are cost effective.
Our integrated circuits are used by leading security surveillance manufacturers, such as Hikvision in
China, IDIS in South Korea and AVTech in Taiwan. These three manufacturers are each a leading security surveillance manufacturer in their respective country. We began shipping our integrated circuits in 2013 and to date, we have sold over 50 million
integrated circuits. Our revenue has increased from $13.6 million in the six months ended June 30, 2016 to $15.3 million in the six months ended June 30, 2017, and our net income increased from $1.7 million in the six months ended
June 30, 2016 to $2.4 million in the six months ended June 30, 2017. Our revenue has increased from $20.2 million in fiscal year 2015 to $27.2 million in fiscal year 2016 and our net income has decreased from $4.1 million in fiscal
year 2015 to $3.5 million in fiscal year 2016. The decrease in our net income in fiscal year 2016 is primarily attributable to increased tax payments due to a higher effective tax rate in fiscal year 2016, as a result of the release of our valuation
allowance in fiscal year 2015. We commenced shipment of our products into the automotive market in fiscal year 2016, and recognized $1.2 million and $0.6 million of revenue on sales into the automotive market in the six months ended June
30, 2017 and for the year ended December 31, 2016, respectively.
Industry Background
Growth in the Video Surveillance and Automotive Camera Markets
There has been rapid growth for video applications in the security surveillance and automotive markets. We believe this growth is largely
attributable to significant improvements in the user experience, including improvements in video quality, functionality, form factor and the cost of these systems.
We believe the video surveillance market will grow in the next several years. According to Markets and Markets, the worldwide revenue for
video surveillance equipment is projected to increase from approximately $30 billion in 2016 to more than $76 billion in 2022, a compound annual growth rate of approximately 15.4%. We believe that in addition to a worldwide increased focus on
security, a significant factor for this growth is the improved performance of security systems, which is primarily driven by the transition from standard definition video systems to HD systems. As the surveillance market expands, newly installed
systems are more likely to implement an HD system and existing standard definition systems are increasingly being replaced with HD systems.
There are an increasing number of video applications inside automobiles, including backup cameras, surround view cameras, car black boxes and
e-mirrors. There are several factors driving this trend in the
61
automotive industry, including consumer demand as well as automotive safety regulations. For example, the United States Congress passed the Cameron Gulbransen Kids Transportation Safety Act in
2008, which required the United States Department of Transportation to implement rules requiring all automobiles sold in the United States to have backup cameras. As a result, all automobiles sold in the United States and built after May 1,
2018 must have backup cameras.
Security Surveillance: Transition from Standard Definition to High Definition
Security surveillance systems have historically captured, transmitted and stored video in standard definition. A surveillance system captures
video with a camera and transmits the video to a recording system, such as a surveillance DVR, which can then display the video on a screen or store the video in order to make it available for playback at a later time. The use of high definition
video significantly increases the amount of detail that can be seen during playback and can help improve the overall performance and effectiveness of a security surveillance system. As a result, there is an increasing demand for high definition
surveillance systems.
The original HD surveillance technology introduced into the market was based on an Internet Protocol, or IP, camera
and an Ethernet cable connection. For several years, this was the only solution available for providing HD video in surveillance systems. Although the video quality produced from an IP-based system can be a significant upgrade to legacy standard
definition systems, the IP-based approach has several disadvantages. The installation of an IP-based system is extremely complex, and may require professional installation with complicated IP settings, which makes implementing these systems costly.
Because an IP-based solution cannot generally utilize existing SD infrastructure, upgrading from an existing SD system to an HD IP-based solution can be particularly costly. In addition, because the video is captured by an IP camera, the video must
be compressed before being transmitted from the camera to a display screen or DVR where it is subsequently decompressed and displayed. This results in latency, or a delay from the time the video is captured until it is shown on the display, as well
as degraded video and fidelity loss due to the compression. For real-time surveillance, this latency can be a significant problem. The requirement for compression also can result in compatibility problems between the camera and the rest of the
system. Finally, because IP-based solutions transmit information digitally, significant interference or disruption in the signal can result in a complete cutoff of the picture. This presents a problem in systems where a user would rather have a
potentially lower-quality image instead of a complete cutoff in the event of a signal disruption, such as in a surveillance system. Although an IP-based HD surveillance system can significantly improve video quality, it can be complicated to
install, is significantly more costly than standard definition systems, and can suffer from reliability, latency and compatibility issues.
In order to address some of the challenges of an IP/Ethernet surveillance system, an HD-serial digital interface, or HD-SDI, approach was
introduced. This system eliminates the need for IP cameras, which means there is no need to configure IP settings when installing the cameras, generally resulting in decreased installation and configuration costs. In addition, existing coaxial
cabling can potentially be used with this system, which can lower the total installation cost when upgrading an existing SD system. This system also eliminates the need for compression since the video is no longer being captured by an IP camera,
which means visual latency is eliminated. However, similar to an IP-based system, the video signal is transmitted digitally, which can result in complete picture cutoff in the event of interference or disruption in the signal. As a result, the
system requires higher quality insulated cable in order to achieve longer transmission distances without raising the risk of picture cutoff, which can result in significant costs. While the HD-SDI system presents advantages over the IP-based
approach, it can still result in significant costs to implement the system and can suffer from reliability problems resulting in a complete picture cutoff if the transmission suffers from interference or disruption.
Although IP-based and HD-SDI systems may be costly to implement and can suffer as a result of several challenges, the potentially significant
improvement in HD video quality over standard definition surveillance systems is driving increased demand for HD systems. As the overall demand for surveillance systems increases, we believe there is a large opportunity for an HD surveillance system
that can address the continued shortcomings of the digital IP-based and HD-SDI systems.
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Automotive Video Applications: Transition from Standard Definition to High Definition
Substantially all current in-car cameras use an analog solution to display standard definition video. The advantages of this
analog approach include low cost and reliability because there is not a sudden cut-off of video. In general, an analog signal that is interfered with or degraded will result in a lower-quality image, but not fail entirely, or suffer from a sudden
cut-off of the video signal, as a digital solution would. However, the quality of the video in this standard definition approach is poor and does not compare favorably with high definition video quality. As a result of consumer demand for higher
resolution video, a transition from standard definition to high definition has begun in the automotive market.
The initial high
definition solutions for in-car video applications have suffered from high costs and latency. Additionally, due to space constraints in vehicles, cables are frequently required to make sharp bends or twists that greatly increase the chances of
signal interference and loss of signal, particularly in digital solutions. In order to perform in this environment, digital solutions require higher-cost cables with heavy protective insulation, significantly increasing the cost of an HD solution
for automotive video applications. There are two primary digital HD solutions currently in the marketplace: an IP camera/Ethernet cable-based solution and a serializer/deserializer, or SERDES, HD solution. The current IP camera/Ethernet cable-based
HD solutions suffer from some of the same challenges these solutions face in surveillance systems, including high costs and performance issues. IP-based solutions also require more expensive heavily-shielded CAT5 cabling throughout the car. Both of
these factors increase the video application system costs. In addition, the need for compression to transmit video from the IP camera and subsequent decompression to display the video end result in latency and lower reliability. For a back-up
camera, latency can be a significant problem as the driver may hit an object before it is displayed on the screen. The SERDES HD solution also suffers from high cable costs, as expensive shielded, low-voltage differential signaling, or LVDS, cable
must be installed throughout the car, while also having reliability concerns and high connector costs. Even with these challenges, however, the higher quality video afforded by HD solutions has driven demand for HD in-car video applications. We
believe a significant opportunity exists in this market for an HD solution that can address the challenges of latency and reliability, while providing a cost-effective solution.
Our Strengths
We offer high performance
integrated circuits that enable our end-customers to deploy high definition video systems for specific applications within our target markets, which are currently the security surveillance market and automotive industry. Our proprietary high
definition transport video interface, or HD-TVI technology, serves as the common foundation across most of our application specific products. Our HD-TVI integrated circuits have the following key strengths:
High Performance.
Our HD-TVI technology is designed to deliver high performance by providing high video quality, no visual latency, and
enabling long distance transmission of HD video without significant degradation and with high reliability. We enable our end-customers to achieve high quality video at HD resolutions with analog and digital algorithms that can eliminate analog video
artifacts and maintain HD video resolution. We are able to process video in an HD analog format and transmit the video in this same analog format, thereby eliminating the need for any compression or decompression. Our HD analog technology operates
at the same 1080p HD resolution as digital HD, but instead of the information being stored and transmitted as series of 0s and 1s it transmits information in a continuous wave. In addition to eliminating visual latency by avoiding the need for
compression, transmitting in analog instead of digital also improves reliability, because significant interference or other disruption in the transmission signal will only result in correspondingly affected image quality and not a complete image
cutoff as would occur in a digital transmission. The result is that our HD-TVI integrated circuits can process high-quality HD video that can be transmitted without visual latency and can be sent reliably over long cable distances. For our target
markets, this high performance is extremely critical and we believe addresses the shortcomings of alternative HD solutions. For example, our HD-TVI technology eliminates the latency that can be extremely problematic for real-time surveillance as
well as for automobile back-up cameras.
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Cost Effectiveness
. The implementation of video applications using our HD-TVI technology
for surveillance systems and automobiles is cost effective. Because our technology can utilize existing SD cables and does not require complicated configuration, it avoids the installation, retrofitting and set-up costs of IP-based solutions, as
well as the expensive retrofitting and cabling that can be required for HD-SDI solutions. Our HD-TVI technology enables us to transmit video in an analog format, which means that surveillance systems and in-car video systems can also use less
expensive cabling, including existing cabling from legacy SD surveillance systems, to transmit in difficult and hostile environments without suffering from reliability issues such as complete video cutoff. This lowers the overall systems cost for
our end-customers.
High Levels of Integration.
We provide our analog conversion and digital processing technologies in a single
integrated circuit. For example, we integrate our HD-TVI transmitter with a high performance HD image signal processor for increased functionality. In addition to reducing system-level costs, this enables us to provide a smaller footprint than most
competing technologies, which leaves more space available on HD camera products, or allows these HD cameras to shrink in size. We also integrate our HD-TVI receiver with sophisticated analog video and audio decoders to allow our HD-TVI products to
support both high definition video, including other HD analog variants, as well as legacy standard definition video for both the security surveillance and automotive backup camera market. As a result, an end-customer could elect to upgrade its video
capture device with our integrated circuit without upgrading any cabling, displays, or DVRs as the system will remain compatible. This allows the system manager to upgrade cabling and displays or DVRs later, thereby making the decision to upgrade
and implement an HD system less costly initially. This compatibility provides our end-customers, and in particular our security surveillance end-customers, with more flexibility in designing their system, and allows them to stage their system
upgrades over time.
Design Efficiency.
Our digital and analog design architecture allows us to operate at small process geometries
for both our analog and digital technologies to achieve small die sizes resulting in advantages in cost, performance and power consumption. We believe this enables us to provide a comprehensive solution at a cost effective price point, without
sacrificing our business objectives.
Additionally, our experienced leadership team brings over 34 years of management experience at
semiconductor companies targeting the security surveillance and automotive markets. Our CEO and CTO have worked together for over 19 years at three companies including Techpoint. We believe that our leadership team’s experience with one another
and in the industry helps to bring stability to our company and set the tone for our company culture of practical innovation and growth.
Our Growth
Strategy
Our objective is to be the leading provider of high-performance, cost-effective integrated circuits for multiple video
applications. To achieve this objective, we expect to continue to pursue the following strategies:
Target Multiple High Growth Video
Applications.
We intend to continue to address a number of video applications in the security surveillance and automotive markets that provide us with multiple high growth opportunities. Our products are incorporated, or designed, into numerous
applications that are experiencing significant growth, including HD analog cameras, HD surveillance DVRs, in-car HD backup cameras and HD surround view cameras. As the transition from standard definition to HD video continues, we expect the
opportunities that we have within our current target markets to continue to grow.
Develop Additional Application Specific Products.
We believe that our application specific product strategy allows us to better address varying customer requirements, fully leverage our technology capabilities and achieve a greater share within our target markets. We plan to maintain and expand
upon this product strategy in the future. For example, in 2017, we plan to introduce an HD-TVI receiver with an integrated HD LCD controller to further facilitate the migration of automotive displays to HD resolutions. We believe that we can
leverage our extensive expertise in video de-interlacing, scaling, and image enhancement algorithms as well as our expertise in developing HD analog products to develop an optimized and integrated product for these applications.
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Develop New Technologies.
We plan to continue to develop additional technologies to
address evolving customer requirements. For example, we are developing technologies that help process images with high levels of contrast, that correct distortion in an image and that enable higher megapixel resolution support, which are important
technologies for next generation Ultra HD resolution camera and video products. We are also working on utilizing even lower process geometries for our analog and digital mixed signal technologies to further improve our performance, power consumption
and manufacturing costs in our next generation products.
Expand Customer Relationships.
Our integrated circuits are used by
leading security surveillance manufacturers, such as Hikvision in China, IDIS in South Korea and AVTech in Taiwan. We also have design wins with major automotive equipment manufacturers. We sell our integrated circuits through sales and customer
support personnel and sales and marketing offices in the United States, Japan, South Korea, Taiwan and China. We intend to continue to expand our sales, marketing and technical support capabilities to pursue additional design wins with our existing
end-customers and to develop relationships with new end-customers in our target markets.
Strengthen Our Market Presence Through
Selected Acquisitions
. We intend to actively consider acquisitions of companies or technologies that can add to or complement our solutions. We believe well-conceived and implemented acquisitions can enable us to increase our market penetration
and broaden our technology and product offerings.
Application Specific Products
We design, market and sell integrated circuits that enable the transmission of high definition video content over long cable distances to
facilitate the display, storage or processing of video content. Our application specific products currently include our security surveillance and automotive product lines. We intend to continue to develop new generations of products for each of
these application specific product lines.
Security Surveillance
.
We have three subgroups of products for security
surveillance consisting of HD-TVI transmitters, HD-TVI receivers and HD-SDI receivers.
HD-TVI Transmitters
. Our HD-TVI
transmitters are used within the camera, and take the HD digital signal from an HD camera processor and convert it to HD-TVI analog signals. We integrate the HD camera processor and HD-TVI transmitter into the same integrated circuit to save cost
and save space in a camera. However, we also market standalone HD-TVI transmitters to increase our flexibility to work with other camera processors in the market. This allows a customer either to purchase our combined HD-TVI transmitter with both a
processor and transmitter or our standalone transmitter to be paired with a third-party processor.
HD-TVI Receivers
. Our HD-TVI
receivers are used in DVRs, and convert the HD-TVI analog signal into digital signals to be processed by a DVR system, which can then transmit the image to a display. To improve the cost and performance of our HD-TVI receivers, we integrate multiple
HD-TVI receivers along with standard definition analog video decoders as well as analog audio decoders into the same integrated circuit. This allows HD DVR makers to support HD video and standard definition video for backward compatibility at the
same time.
HD-SDI Receivers
. Our HD-SDI receivers perform similar functions for HD video as our HD-TVI receivers, except these
HD-SDI receivers use serial digital transmission technology used in video broadcasting instead of our HD-TVI technology. Having both HD-TVI and HD-SDI receiver products in our product portfolio allows us to address both the analog and digital HD
security surveillance market segments at the same time.
Automotive.
We optimize our automotive HD-TVI transmitters and
receivers to work with current automotive camera processors and navigation systems in the automotive market. For example, our automotive HD-TVI transmitters are designed to work specifically with current automotive camera processors and image
sensors. Similar to our security surveillance products, our automotive HD-TVI receiver also integrates standard
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definition analog video decoders so that automotive vendors have the flexibility of supporting both HD and standard definition video. In 2017, we plan to introduce an LCD controller that will be
integrated with our HD-TVI receiver. This new LCD controller, which will provide advanced image processing, can address the emerging e-mirror market by moving the unique HD LCD panels inside the e-mirror and allowing HD content via HD-TVI
connectivity.
The following table summarizes the features applications of our two application specific integrated circuit product lines,
security surveillance and automotive:
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Product Line
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Key Features
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Representative Applications
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Security Surveillance
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HD-TVI Transmitters
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Converts HD camera signals to HD-TVI analog signals
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Security Surveillance Cameras
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Integrated HD Camera processor supporting Wide Dynamic Range, Low Light Noise Reduction, and advanced video processing
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HD-TVI Receivers
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Converts HD-TVI analog signal into digital signal.
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DVR application
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Integrates four HD-TVI receivers
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HD-SDI Receivers
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Integrated Standard Definition analog
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DVR application
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video decoder and audio codec
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Integrate four HD-SDI receivers
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Enables backward compatibility with standard definition equipment.
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Integrate four HD-SDI transmitters
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Automotive
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HD-TVI Transmitter
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Interfaces with most automotive camera
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Automotive HD Backup Camera
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processors on the market
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Automotive HD Surround View Camera
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HD-TVI Receivers
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Integrated Standard Definition analog video decoder
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Automotive HD Display Automotive
E-Mirrors
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Integrated advanced LCD controller
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Technology
We have several core competencies that enable us to design analog, mixed signal and digital technologies that can be implemented across our
application specific product lines. We have internally developed the combination of technologies, expertise and capabilities necessary for the conversion and processing of HD video signals. We do not depend on third parties for any material
technology, expertise or design capability.
We have developed a proprietary high definition analog video transmission technology called
high definition transport video interface, or HD-TVI. Our HD analog technology operates at the same 1080p HD resolution as digital HD technologies, but transmits the information in a continuous format, or wave, instead of a binary 0 or 1 format.
When transmitted information in an analog system encounters interference or other degradation, the video quality is impacted, this is in contrast to a digital transmission where once a threshold level of interference or other degradation is
encountered the image is cutoff completely. Our HD-TVI technology uses analog transmission techniques that are an extension of legacy analog video broadcasting technology used in traditional analog televisions but which can deliver high definition
video transmission over long cable distances.
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Our HD-TVI transmitter interfaces with a high definition camera processor or image sensor and converts the digital HD content to an HD analog signal. After transmission, our HD-TVI receiver
converts this analog signal back into a digital signal for processing by a standard display processor.
As a result of our advanced analog
design capability, we have developed multiple technologies that enable analog video signals to be processed digitally. One of the key analog technologies we have developed internally is our high performance and cost effective analog front-end that
conditions and converts analog video signals into a digital format for display. The multiple core functions performed within our integrated circuits featuring an analog front-end are anti-aliasing filtering, automatic gain control signal clamping
and analog to digital conversion. Other key analog technologies we have developed internally are analog equalizers, phase lock loops, high frequency and delta sigma analog to digital converters, video and audio digital to analog converters and low
voltage differential signaling.
We have also developed a number of digital technologies specific to the security surveillance and
automotive markets. For example, we have developed image signal processing technologies such as wide dynamic range, noise reduction, as well as de-interlacing, scaling, and other video enhancement algorithms, which are important technologies for HD
cameras and HD video display technologies for security surveillance and automotive HD video applications. We also possess digital HD transmissions technologies such as serializer and de-serializer interface technologies, which we can offer as an
alternative to our HD analog transmission technologies.
Customers
We principally sell our products to distributors who, in turn, sell to original design manufacturers, or ODMs, contract manufacturers and
design houses. In addition, we sell our products, though to a lesser extent, directly to ODMs. ODMs typically design and manufacture electronic products to sell to original equipment manufacturers, or OEMs. Our agreements to sell our products
through distribution channels generally provide for a non-exclusive right to sell, and to promote and develop a market for our products in a specified geographic area. These agreements generally may be terminated by either party on 60 days’
notice and do not require price protection. In the six months ended June 30, 2017 and 2016, and years ended December 31, 2016 and 2015, one of our distributors, Phitec, accounted for 70%, 87%, 85%, and 82% of our revenue, respectively. One
of our other distributors, Lacewood, accounted for 12%, of our revenue in the six months ended June 30, 2017. No other customers accounted for 10% or greater of our revenue in the six months ended June 30, 2017 and 2016, and years
ended December 31, 2016 or 2015. One of our end-customers, Hikvision, the largest security surveillance manufacturer in China, accounted for 61%, 65%, 62% and 78% of our revenue in the six months ended June 30, 2017 and 2016, and years
ended December 31, 2016 and 2015, respectively. Another end-customer, XiongMai, accounted for 6% and 11% of our revenue in the six months ended June 30, 2017 and year ended December 31, 2016, respectively. Our sales to Hikvision and
XiongMai primarily occur through Phitec, as distributor, who purchases our products as a result of demand from Hikvision and XiongMai for our specific products.
In both the security surveillance and automotive markets, we have significant engagement with our end-customers prior to completion of a sale.
In the security surveillance market, our end-customer is the OEM or system designer who manufacturers or designs the end product, such as a camera or DVR, that will be purchased for placement into a security surveillance system. In the automobile
market, our end-customer is the automobile manufacturer, but we also typically engage with system designers and manufacturers who sell systems, such as navigation or backup video camera systems, to automobile manufacturers. Our sales representatives
and engineers engage directly with these end-customers, even if we do not sell directly to them, because these end-customers exert significant influence over the design of the products or systems that are ultimately placed into their products. Our
integrated circuits are used by leading security surveillance manufacturers, such as Hikvision in China, IDIS in South Korea and AVTech in Taiwan. These three manufacturers are each a leading security surveillance manufacturer in their respective
country. We also currently have design wins for future generations of automobiles with major automotive equipment manufacturers. A design win does not necessarily result in future revenue, but we believe it is a strong indicator that our integrated
circuits will be incorporated into a future model for that particular automotive equipment manufacturer.
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Sales and Marketing
We sell our products worldwide through multiple channels, primarily through our network of domestic and international independent distributors
and sales representatives and through our applications engineering staff, to a lesser extent. Each of these sales channels is supported by our customer service and marketing organizations. We have sales and customer support personnel in the United
States, China, Japan, South Korea and Taiwan. We intend to expand our sales and support capabilities and our network of independent sales representatives in key regions worldwide.
Our sales cycles typically range from three to six months for the security surveillance market and one to three years for the automotive
industry. We work directly with system designers to create demand for our products by providing them with application-specific product information for their system design, engineering and procurement groups. We actively engage these groups during
their design processes to introduce them to our integrated circuits. We endeavor to design our products to meet anticipated, increasingly complex and specific design requirements, but which will also support widespread demand for the products and
future enhancements to them. If successful, this process culminates in a system designer deciding to use our products in their system, which we refer to as a design win. Once our product is accepted and designed into an application, we believe the
system designer is likely to continue to use the same or enhanced versions of our product across a number of their models, which tends to extend the life cycles of our product. This is particularly true in the automotive industry, which typically
experiences multi-year product lifecycles, sometimes up to four years or longer. In addition, a design win into a particular model of car for a specific manufacturer may translate into design wins for different models from the same auto
manufacturer. If we fail to achieve an initial design win, we may lose the opportunity for sales to an end-customer for a number of its products and for a lengthy period of time.
Backlog
Our sales are made primarily
pursuant to standard individual purchase orders. Our backlog consists of orders that we have received from customers that have not yet shipped. Historically, management has not used backlog as an indicator of future business. As our order lead times
may vary and as industry practice allows customers to reschedule or cancel orders on relatively short notice, we believe that backlog is not necessarily a good indicator of future sales. In addition, our quarterly revenue depends on orders booked
and shipped in that quarter. As a result, we have not experienced material backlog at the end of a quarter, and any backlog at that time would be more indicative of the timing of the order, rather than anything that may predict future performance.
Research and Development
Our
research and development efforts are focused on the development of new technologies as well as application specific products. As of June 30, 2017, we had 21 people engaged in research and development. Our engineering team has expertise in
advanced analog design, mixed signal digital processing, video decoding and software engineering. Our research and development expense was $2.7 million and $2.2 million in the six months ended June 30, 2017 and 2016, respectively, and $4.4 million
and $5.0 million in the years ended December 31, 2016 and 2015, respectively.
Intellectual Property
We seek to protect our proprietary technology, documentation and other written materials primarily under trade secret and copyright laws. We
also typically require employees and consultants with access to our proprietary information to execute confidentiality agreements. The steps taken by us to protect our proprietary information may not be adequate to prevent misappropriation of our
technology.
Although we rely primarily on trade secret laws and contractual restrictions to protect the technology in the integrated
circuits we currently design and market, our success and ability to compete in the future may also
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depend to a significant degree upon obtaining and enforcing patent protection for our HD analog and other mixed signal technologies. As of June 30, 2017, we have one patent application pending in
the United States. This patent application covers aspects of the technology in the integrated circuits we currently design and market. Our future patents, if any are issued, may provide only limited protection for our technology and may not be
sufficient to provide competitive advantages to us. For example, competitors could be successful in challenging any issued patents or, alternatively, could develop similar or more advantageous technologies on their own or design around our patents.
The laws of various countries in which we market our integrated circuits may offer little or no protection for our proprietary
technologies. Reverse engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for doing so. Any inability to protect our proprietary
rights could harm our ability to compete, generate revenue and grow our business.
We may be required to resort to litigation to enforce
our intellectual property rights. We may also be subject to legal proceedings and claims relating to our intellectual property in the ordinary course of our business. Intellectual property litigation is expensive and time-consuming and could divert
management’s attention away from running our business. This litigation could also require us to pay substantial damages to the party claiming infringement, stop selling products or using technology that contains the allegedly infringing
intellectual property, develop non-infringing technology or enter into royalty or license arrangements.
Manufacturing
We do not own or operate a semiconductor fabrication, packaging or testing facility. We depend on third-party vendors to manufacture, package
and test our products. By outsourcing manufacturing, we are able to avoid the cost associated with owning and operating our own manufacturing facility. This allows us to focus our efforts on the design and marketing of our products.
Integrated Circuit Fabrication.
We currently outsource the manufacturing of our integrated circuits to Taiwan Semiconductor
Manufacturing Company, or TSMC, and Fujitsu Semiconductor in Japan. We work closely with TSMC and Fujitsu to forecast on a monthly basis our manufacturing capacity requirements. Our integrated circuits are currently fabricated in several advanced
manufacturing processes. Because smaller geometry process technologies lead to enhanced performance, smaller silicon chip size and lower power requirements, we continually evaluate the benefits and feasibility of migrating to smaller geometry
process technologies in order to reduce cost and improve performance. We believe that our fabless manufacturing approach provides us with the benefits of superior manufacturing capability as well as flexibility to move the manufacturing, assembly
and testing of our products to those vendors that offer the best capability, with adequate capacity at an attractive price. Nevertheless, because we do not have a formal, long-term pricing agreement with TSMC or Fujitsu, our wafer costs and services
are subject to sudden price fluctuations based on the cyclical demand for semiconductors. Our engineers work closely with TSMC and Fujitsu to increase yields, lower manufacturing costs and improve quality. We intend to qualify and retain additional
foundries to manufacture our semiconductors in the future.
Assembly and Test.
Our products are shipped from TSMC or Fujitsu to
third-party sort, assembly and test facilities where they are assembled into finished integrated circuits and tested. We outsource all packaging and testing of our products to assembly and test subcontractors, principally Advanced Semiconductor
Engineering, Inc., or ASE, in Taiwan. Our products are designed to use low cost, standard packages and to be tested with widely available test equipment.
Quality Assurance.
We are committed to maintaining the highest level of quality in our products. We have designed and implemented a
quality management system that provides the framework for continual improvement of products, processes and customer service. We also rely on in-depth simulation studies, testing and practical
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application testing to validate and verify our integrated circuits. To ensure consistent product quality, reliability and yield, together with our manufacturing logistics partners we closely
monitor the production cycle by reviewing manufacturing process data from each wafer foundry and assembly subcontractor. We are certified for ISO 9001 and ISO 14001.
Competition
The market in which we
operate is extremely competitive, and is characterized by rapid technological change, continuously evolving end-customer requirements and declining average selling prices. We may not be able to compete successfully against current or potential
competitors. We compete with numerous domestic and international semiconductor manufacturers and designers. In our automotive target market, we principally compete with Maxim Integrated Products Inc. and Texas Instruments Incorporated. In selling
our integrated circuits into the surveillance market, we principally compete against Nextchip Co. in South Korea, Pixelplus Co. in South Korea, Dahua Technology in China, and Fullhan Microelectronic Co. in China. Some of our current and potential
competitors have longer operating histories, significantly greater resources and name recognition and a larger base of customers than we do. They may also have a larger presence and more significant relationships within certain geographical areas,
such as in Asia where many of our end-customers operate. This may allow them to respond more quickly than us to new or emerging technologies or changes in customer requirements. Some of our competitors currently offer product features or
technologies that we do not currently offer but intend to sell in the future, such as Ultra HD advanced camera image signal processors. We must, therefore, compete against competitors that have more experience in developing and selling products and
technologies that we do not currently offer but intend to offer in the future. Some of our competitors also use smaller geometry process technologies in their products, which can result in better manufacturing yields and decreased costs. In
addition, these competitors may have greater credibility with our existing and potential end-customers. Increased competition could harm our business, by, for example, increasing pressure on our profit margins or causing us to lose end-customers. In
addition, delivery of products with defects or reliability, quality or compatibility problems may damage our reputation and competitive position. Our ability to compete successfully depends in part on our ability to deliver products without
reliability, quality or compatibility problems.
Our ability to compete successfully depends on a number of factors, including:
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performance and robustness;
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price and cost effectiveness;
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rapid time-to-market; and
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customer service and support.
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We believe we currently compete favorably with respect to these
factors in the aggregate. However, we cannot assure you that our products will continue to compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or
new companies entering our market.
Employees
As of June 30, 2017, we employed 58 full-time employees and consultants, including 21 in research and development, 18 in sales, marketing and
support, six in operations and 13 in general and administration. We have never had a work stoppage, and none of our employees is represented by a labor organization or under any collective bargaining arrangement. We consider our employee relations
to be good.
Customer and Geographic Concentrations
For the six months ended June 30, 2017 and 2016, and the years ended December 31, 2016 and 2015, we recognized negligible revenue
attributable to sources in the United States; the percentages of our revenue
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attributable to sources in China were 84%, 90%, 88%, and 87%, respectively; the percentages of our revenue attributable to sources in South Korea were 10%, 5%, 6% and 7%, respectively; and the
percentages of our revenue attributable to sources in all other countries were 6%, 5%, 6% and 6%, respectively.
We principally sell our
products to distributors who, in turn, sell to ODMs, contract manufacturers and design houses. One of our distributors, Phitec, accounted for 70%, 87%, 85%, and 82% of our revenue in the six months ended June 30, 2017 and 2016, and years ended
December 31, 2016 and 2015, respectively. One of our other distributors, Lacewood, accounted for 12%, of our revenue in the six months ended June 30, 2017. No other customers accounted for 10% or greater of our revenue in the six months ended June
30, 2017 and 2016, and years ended December 31, 2016 or 2015. One of our end-customers, Hikvision, the largest security surveillance manufacturer in China, accounted for 61%, 65%, 62%, and 78% of our revenue in the six months ended June 30,
2017 and 2016, and years ended December 31, 2016 and 2015, respectively. Another end-customer, XiongMai, accounted for 6% and 11% of our revenue in the six months ended June 30, 2017 and year ended December 31, 2016, respectively. Our sales to
Hikvision and XiongMai primarily occur through Phitec, as distributor, who purchases our products as a result of demand from Hikvision and XiongMai for our specific products.
As of June 30, 2017, December 31, 2016, and 2015, we had net long-lived assets in the United States of $129,000, $83,000, and $87,000,
respectively, and net long-lived assets outside the United States of $246,000, $318,000, and $83,000, respectively.
Facilities
Our corporate headquarters and primary research and development and operations facilities occupy approximately 8,512 square feet in San Jose,
California, under a lease that expires in February 2020. We also lease properties in China, Japan, South Korea and Taiwan. We do not own any manufacturing facilities, and we contract and license to third parties the production and distribution of
our semiconductors. We believe our space is adequate for our current needs and that suitable additional or substitute space will be available to accommodate foreseeable expansion of our operations.
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MANAGEMENT
Executive Officers and Directors
Our
executive officers and directors, and their ages and positions as of June 30, 2017 are as set forth below:
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Name
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Age
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Position
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Executive Officers
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Fumihiro Kozato
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President, Chief Executive Officer and Director
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Dr. Feng Kuo, Ph.D.
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Chief Technology Officer
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Yukiko Tegarden
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Chief Financial Officer
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Non-Employee Directors
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Fun-Kai Liu (1)(2)(3)
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63
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Director
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Koji Mori (1)(2)
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60
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Director
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Robert Cochran (1)(2)(3)
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60
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Director
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Dr. Yaichi Aoshima, Ph.D. (3)
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52
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Director
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(1)
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Member of the Audit Committee
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(2)
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Member of the Compensation Committee
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(3)
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Member of the Nominating and Corporate Governance Committee
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Background of Executive Officers and Directors
Fumihiro Kozato
Mr. Kozato
has been our CEO and President and served as a director since cofounding the company in 2012. Mr. Kozato is the former founder and CEO of Techwell, Inc., a publicly traded semiconductor company focusing on mixed-signal integrated circuits for
video surveillance and automotive entertainment applications that was sold to Intersil Corporation in 2010. Between 2010 and 2012, Mr. Kozato pursued other interests. From 1994 to 1996, Mr. Kozato was the President of Sigmax, a start-up
company based in Silicon Valley developing CD-ROM controller chips that was sold to Adaptec in 1996. From 1987 to 1994, Mr. Kozato was the Business Control Manager of the electronics division at Ricoh USA, part of a large Japanese electronics
conglomerate, where he was responsible for Ricoh’s U.S. semiconductor business. Mr. Kozato started his career at Tomen, a large Japanese trading company. Mr. Kozato holds a B.S. in Mathematics from U.C. Santa Barbara. We believe that
Mr. Kozato is qualified to serve as a member of our board of directors because of the perspective and experience he brings as our CEO, his industry experience and his deep knowledge of our products, target markets and operations.
Dr. Feng Kuo, Ph.D.
Dr. Kuo
has been our CTO since cofounding the company in 2012. Before that, Dr. Kuo served as the Vice President of Engineering at Intersil following its acquisition of Techwell in 2010 and where he had served as CTO from 1998 to 2010. From 1994 to
1996, Dr. Kuo was the VP of Engineering of Sigmax prior to its acquisition by Adaptec. From 1991 to 1994, Dr. Kuo was a Product Manager at Seiko, where he designed a variety of analog and mixed-signal semiconductors. Dr. Kuo started
his career at Hypres, a superconductor IC Company. Dr. Kuo holds a B.S. in Electrical Engineering from Taiwan National University and an M.S. and a Ph.D. from Stony Brook University.
Yukiko Tegarden
Ms. Tegarden has
been our CFO since March 2016. Ms. Tegarden was previously the Senior Revenue Manager at Seagate Technology, a publicly traded technology company, where she was the head of the revenue accounting function and worked from November 2013 through
March 2016. From April 2007 through October
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2013, Ms. Tegarden was a senior manager at Deloitte & Touche LLP, where she had worked since 2001 in various capacities with clients on initial public offerings, public company
reporting and reporting to Japanese parent companies. From 2005 through 2007, Ms. Tegarden worked for Deloitte in Tokyo, Japan. Ms. Tegarden is a native Japanese speaker and holds a B.A. in English and International Studies from Dokkyo
University in Japan and an A.A. in each of Accounting and Business Administration from De Anza College in California. Additionally, Ms. Tegarden is a Certified Public Accountant in the state of California.
Fun-Kai Liu
Mr. Liu has served on
our Board since April 2012. Since 2005 Mr. Liu has been an angel investor focusing on Silicon Valley startups. Mr. Liu served at Tvia, Inc., a publicly traded developer of semiconductor and software products targeted for the advanced
television and emerging display markets, as Chief Executive Officer from its founding 1995 through 2001 and as Chairman of the board through 2005. From its founding in 1989 through 1994, Mr. Liu served as the Chairman and Chief Executive
Officer of OPTi Inc., a publicly traded manufacturer of core logic chip sets for the personal computer market. He received a B.S. in Electrical Engineering from National Cheng-Kung University in Taiwan, an M.S. in Computer Science from Santa Clara
University and an M.S. in Electrical Engineering from Ohio State University. We believe that Mr. Liu is qualified to serve as a member of our board of directors due to the perspective and experience he has acquired from industry experience and
his service as a CEO and director of public companies.
Koji Mori
Mr. Mori has served on our Board since November 2012. Mr. Mori has been the Vice President of DENSO International America, Inc., a
global automotive components manufacturer, since January 2007. Mr. Mori holds a B.A. in Electrical Engineering from Kanazawa University in Japan. We believe that Mr. Mori is qualified to serve as a member of our board of directors due to
the perspective and experience he has acquired from extensive experience in the automotive industry.
Robert Cochran
Mr. Cochran has served on our Board since January 2016. Mr. Cochran is currently the Executive Vice President, Legal and Corporate
Collaboration of A10 Networks, Inc., an application networking company, where he has worked since January 2012 and served as a member of its board of directors since April 2012. From January 1993 to January 2012, Mr. Cochran was an attorney in
private practice in Woodside, California. From 2004 to 2010, Mr. Cochran served as a director of Techwell, Inc. Mr. Cochran also serves as a director of one privately held company. Mr. Cochran holds a J.D. from Harvard Law School and
an A.B. from Harvard University. We believe that Mr. Cochran is qualified to serve as a member of our board of directors due to the perspective and experience he has acquired from counseling growth companies and his service as a director of
public and private companies.
Dr. Yaichi Aoshima, Ph.D.
Dr. Aoshima has served on our Board since July 2016. Since April 1999, Dr. Aoshima has been an Associate Professor and Professor at the
Institute of Innovation Research at Hitotsubashi University in Japan, focusing on new product development, organization theory, and technology management. Dr. Aoshima holds a Ph.D. in Management from Massachusetts Institute of Technology, an M.A. in
Commerce and Management from Hitotsubashi University, and an undergraduate degree in Commerce and Management from Hitotsubashi University. Since June 2014, Dr. Aoshima has also served as a director of NS Solutions, a subsidiary of Nippon Steel and
Sumitomo Metal in Japan. We believe that Dr. Aoshima is qualified to serve as a member of our board of directors due to the perspective and experience he has acquired from extensive experience in product development and technology management, and
his experience serving on the board of a Japanese company.
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Voting Arrangements
Pursuant to a second amended and restated investors’ rights agreement, as amended, that we entered into with certain holders of our
preferred stock and our CEO:
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DENSO International America, Inc. has the right to nominate one director to our board of directors, currently designated as Koji Mori, provided that if DENSO International America, Inc. declines or fails to nominate a
director, the holders of a majority of the outstanding shares of Series A preferred stock have the right to nominate such director;
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•
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the holders of a majority of the outstanding shares of Series B preferred stock have the right to nominate one director to our board of directors, currently designated as Fun-Kai Liu; and
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the holders of a majority of the outstanding shares of common stock have the right to nominate two directors to our board of directors, one of whom must be the then-current CEO, currently designated as Fumihiro Kozato,
with Robert Cochran currently serving as the other common director.
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The provisions of the investors’ rights agreement
relating to the designation and election of directors will terminate prior to the completion of this offering.
Board of Directors
The restated certificate of incorporation that will become effective prior to the completion of this offering provides that the authorized
number of directors on our board shall be set forth in our amended and restated bylaws. Our amended and restated bylaws that will become effective prior to the completion of this offering provide that our board shall consist of such number of
directors as the board of directors may from time to time determine. Our board of directors will initially consist of five directors following the completion of this offering. The authorized number of directors may be changed by resolution of our
board of directors. Prior to the completion of this offering, our board of directors will be divided into three classes, each serving staggered, three-year terms:
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Our Class I director will be Fumihiro Kozato and his terms will expire at the first annual meeting of stockholders following the date of this prospectus;
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Our Class II directors will be Robert Cochran and Fun-Kai Liu and their terms will expire at the second annual meeting of stockholders following the date of this prospectus; and
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Our Class III directors will be Dr. Yaichi Aoshima and Koji Mori and their terms will expire at the third annual meeting of stockholders following the date of this prospectus.
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As a result, only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for the
remainder of their respective terms. Vacancies on our board of directors can be filled by resolution of our board of directors.
Corporate Governance
We believe our corporate governance initiatives comply with the Sarbanes-Oxley Act and the rules and regulations of the SEC adopted
thereunder. In addition, we believe our corporate governance initiatives comply with the rules of the Mothers market of the Tokyo Stock Exchange and Japanese securities laws. After this offering, our board of directors will continue to evaluate our
corporate governance principles and policies.
Our board of directors has adopted a code of business conduct that applies to each of our
directors, officers and employees. The code addresses various topics, including:
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corporate opportunities;
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•
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competition and fair dealing;
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•
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equal employment and working conditions;
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•
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giving and accepting gifts;
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•
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compensation or reimbursement to customers;
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protection and proper use of company assets; and
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payments to government personnel and political contributions.
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Our board of directors has
adopted a code of ethics for senior financial officers applicable to our Chief Executive Officer, Chief Financial Officer and other key management employees addressing ethical issues. Upon completion of this offering, the code of business conduct
and the code of ethics will each be posted on our website. The code of business conduct and the code of ethics can only be amended by the approval of a majority of our board of directors. Any waiver to the code of business conduct for an executive
officer or director or any waiver of the code of ethics will only be granted by our board of directors or our nominating and corporate governance committee and must be timely disclosed as required by applicable law. We have also implemented
whistleblower procedures that establish formal protocols for receiving and handling complaints from employees. Any concerns regarding accounting or auditing matters reported under these procedures will be communicated promptly to our audit
committee.
Director Independence
In
April of 2016, our board of directors undertook a review of the independence of our directors then-serving and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in
carrying out his responsibilities. A similar determination was made at the time Dr. Aoshima was appointed to our board of directors in July 2016. As a result of these reviews, our board of directors determined that Messrs. Cochran, Liu and Mori are
“independent directors” under applicable SEC rules.
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. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure. In addition, after completion of this offering,
our audit committee will have the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by
which risk assessment and management is undertaken. Our audit committee will also monitor compliance with legal and regulatory requirements, in addition to oversight of the performance of our internal audit function. Our nominating and corporate
governance committee will monitor the effectiveness of our code of business conduct and our code of ethics, including whether they are successful in preventing illegal or improper liability-creating conduct. Our compensation committee will assess
and monitor whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.
Board Committees
We have established an audit committee, a compensation committee and a nominating and corporate governance committee. Each member of each of
these committees meets the criteria for independence under, and the functioning of these committees complies with the applicable requirements, of the Sarbanes-Oxley Act, the
75
rules of the Mothers market of the TSE and SEC rules and regulations. Each committee has the composition and responsibilities described below:
Audit committee
Messrs.
Cochran, Liu and Mori serve on our audit committee. Mr. Cochran is chairperson of this committee. Our audit committee assists our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing,
financial reporting, internal control and legal compliance functions, and is directly responsible for the approval of the services performed by our independent accountants and reviewing of their reports regarding our accounting practices and systems
of internal accounting controls. Our audit committee also oversees the audit efforts of our independent accountants and takes actions as it deems necessary to satisfy itself that the accountants are independent of management. Our audit committee is
also responsible for monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters. Our board of directors has determined that
Mr. Cochran is an audit committee financial expert, as defined by the rules promulgated by the SEC, and has the requisite financial sophistication as defined under the applicable rules and regulations of the Mothers market of the TSE.
Compensation committee
Messrs. Cochran, Liu and Mori serve on our compensation committee. Mr. Liu is chairperson of this committee. Our compensation committee assists
our board of directors in meeting its responsibilities with regard to oversight and determination of executive compensation and assesses whether our compensation structure establishes appropriate incentives for officers and employees. Our
compensation committee reviews and makes recommendations to our board of directors with respect to our major compensation plans, policies and programs. In addition, our compensation committee reviews and makes recommendations for approval by the
independent members of our board of directors regarding the compensation for our executive officers, establishes and modifies the terms and conditions of employment of our executive officers and administers our stock incentive plans. Our board of
directors has affirmatively determined that each of Messrs. Cochran, Liu and Mori meets the definition of “independent director” for purposes of the rules and regulations of the Mothers market of the TSE and “outside director”
for purposes of Section 162(m) of the Internal Revenue Code, or the Code.
Nominating and corporate governance committee
Messrs. Cochran and Liu and Dr. Aoshima serve on our nominating and corporate governance committee. Mr. Liu is chairperson of this committee.
Our nominating and corporate governance committee is responsible for making recommendations to our board of directors regarding candidates for directorships and the size and composition of the board of directors. In addition, our nominating and
corporate governance committee is responsible for overseeing our corporate governance guidelines, and reporting and making recommendations to the board of directors concerning corporate governance matters.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is or has in the past served as one of our officers or employees. None of our executive
officers currently serves, or in the past year has served, as a member of a 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.
Director Compensation
None of our
non-employee directors received cash fees in our last fiscal year.
Employee directors do not receive any compensation for service as a
member of our board of directors. While we reimburse our non-employee directors for their reasonable out-of-pocket costs and travel expenses in
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connection with their attendance at board and committee meetings, we do not have a standard compensation policy for our non-employee directors. Historically, we have granted each of our
non-employee directors a 10-year option to purchase 22,500 to 30,000 shares of our common stock that vests in equal monthly installments over three years. The grants were each made at the common stock fair market value on the date of grant.
Non-employee directors will receive nondiscretionary, automatic grants of nonstatutory stock units under our 2017 Stock Incentive Plan. A
non-employee director will be automatically granted on an annual basis stock units with respect to 7,500 shares. A non-employee director who is initially elected or appointed to our board of directors other than on the date of an annual meeting of
stockholders will receive a pro-rated grant of stock units to reflect such non-employee director’s partial year of service. The stock units will vest on the first anniversary of the date of grant or, if earlier, the date of our next annual
meeting of stockholders following the date of grant. The stock units will become vested if a change in control of the Company occurs during the non-employee director’s service. See “Employee Benefit Plans — 2017 Stock Incentive
Plan.”
We intend to review and consider future proposals regarding additional non-employee director compensation upon completion of
our initial public offering.
On February 16, 2016, in connection with his appointment to our board of directors, Robert Cochran received
a 10-year option to purchase 30,000 shares of our common stock that vests in equal monthly installments over three years, beginning on February 27, 2016, which was subsequently amended as discussed in “Adjustment to Vesting of Outstanding
Options”. The option may be early-exercised, and has an exercise price of $0.97 per share, which represents the common stock fair market value on the date of grant.
On August 18, 2016, in connection with his appointment to our board of directors, Dr. Yaichi Aoshima, Ph.D. received a 10-year option to
purchase 22,500 shares of our common stock that vests in equal monthly installments over three years, beginning on September 1, 2016. The option may be early-exercised, and has an exercise price of $2.51 per share, which represents the common stock
fair market value on the date of grant.
On August 18, 2016, in connection with time served as director, Fun-Kai Liu received a
10-year
option to purchase 8,646 shares of our common stock that was fully vested on the date of grant. Fun-Kai Liu further received a
10-year
option to purchase 7,500 shares
of our common stock that vests in equal monthly installments over one year, beginning on July 1, 2016. The options may be early-exercised, and have an exercise price of $2.51 per share, which represents the common stock fair market value on the date
of grant.
On August 18, 2016, in connection with time served as director, Koji Mori received a
10-year
option to purchase 4,688 shares of our common stock that was fully vested on the date of grant. Koji Mori further received a
10-year
option to purchase 7,500
shares of our common stock that vests in equal monthly installments over one year, beginning on July 1, 2016. The options may be early-exercised, and have an exercise price of $2.51 per share, which represents the common stock fair market value on
the date of grant.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following
table presents information concerning the total compensation of our named executive officers for services rendered to us in all capacities during the years ended December 31, 2016 and December 31, 2015:
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Name and Principal Position (1)
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Fiscal
Year
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Salary ($)
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Bonus ($)
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Stock Option
Awards ($) (2)
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Total ($)
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Fumihiro Kozato
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2016
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125,000
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98,400
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0
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223,400
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President and Chief Executive Officer
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2015
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125,000
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6,250
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0
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131,250
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Dr. Feng Kuo
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2016
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125,000
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98,400
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0
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223,400
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Chief Technical Officer
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2015
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125,000
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6,250
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0
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131,250
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Yukiko Tegarden
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2016
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108,500
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23,100
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124,989
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(3)
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256,589
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Chief Financial Officer
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2015
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—
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—
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—
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—
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(1)
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Yukiko Tegarden began serving as our CFO in March 2016 and Mr. Kozato and Dr. Kuo were our only executives in fiscal year 2015.
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(2)
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The amounts in this column represent the aggregate fair value of the option awards computed as of the grant dates in accordance with FASB ASC Topic 718, rather than amounts paid to or realized by the individual. See the
notes to our consolidated financial statements for a discussion of assumptions made in determining the grant date fair value and compensation expense of our stock options.
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(3)
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On April 18, 2016, in connection with the commencement of her employment as our CFO, Yukiko Tegarden received a 10-year option to purchase 90,000 shares of our common stock that vests over a total of five
years, with one-fifth of the total shares vesting on March 1, 2017 and the remaining shares vesting in equal monthly installments thereafter for the remaining four years. The option may be early-exercised, and has an exercise price of $0.97 per
share, which represents the common stock fair market value on the date of grant.
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Outstanding Equity Awards at Fiscal Year-end
The following table presents information regarding outstanding equity awards held by our named executive officers as of December 31, 2016:
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Option Awards
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Name
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Grant Date
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Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
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Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
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Option
Exercise
Price (1)
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Option
Expiration
Date
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Fumihiro Kozato
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—
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—
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—
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—
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—
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Dr. Feng Kuo
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—
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—
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—
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—
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—
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Yukiko Tegarden
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4/18/2016
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54,000
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—
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$
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0.97
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4/18/2026
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(1)
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Represents the fair market value of a share of our common stock, as determined by our board of directors, on the option’s grant date
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Employee Benefit Plans
2017 Stock Incentive Plan
Our 2017 Stock Incentive Plan, or the 2017 Plan, was adopted by our board of directors on August 10, 2017, and our
stockholders approved the 2017 Plan on September , 2017. The 2017 Plan will become effective immediately prior to the closing of this offering. Once the 2017 Plan is effective, no further
grants will be made under our 2012 Stock Incentive Plan.
The 2017 Plan provides for the granting of incentive stock options, or
ISOs, within the meaning of Section 422 of the Code to employees and the granting of nonstatutory stock options, or NSOs, to employees, non-employee directors, advisors and consultants. The 2017 Plan also provides for the grants of restricted
stock, stock appreciation rights, or SARs, stock unit and cash-based awards to employees, non-employee directors, advisors and consultants.
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Either shares or Japanese Depositary Receipts (or JDRs) may be granted under the 2017 Plan and,
unless the context otherwise requires, all references in this prospectus to shares subject to awards under the 2017 Plan will include JDRs.
Administration
. The compensation committee of our board of directors, or our board of directors acting as a committee, will administer
the 2017 Plan, referred to herein as the 2017 Plan administrator, including the determination of the recipient of an award, the number of shares or amount of cash subject to each award, whether an option is to be classified as an ISO or NSO and the
terms and conditions of each award, including the exercise and purchase prices and the vesting or duration of the award.
At the
discretion of our board of directors, our compensation committee may consist of two or more non-employee directors. To the extent required by our board of directors, the composition of our compensation committee may satisfy the requirements for
plans intended to qualify for exemption under Rule 16b-3 of the Exchange Act and Section 162(m) of the Code. Our board of directors may appoint one or more separate committees of our board of directors, each consisting of one or more
members of our board of directors, to administer our 2017 Plan with respect to employees who are not subject to Section 16 of the Exchange Act. Subject to applicable law, our board of directors may also authorize one or more officers to
designate employees, other than employees who are subject to Section 16 of the Exchange Act, to receive awards under our 2017 Plan and/or determine the number of such awards to be received by such employees subject to limits specified by our
board of directors.
Authorized Shares
. Under our 2017 Plan, the aggregate number of shares of our common stock authorized for
issuance may not exceed (1) 2,500,000 plus (2) the sum of the number of shares subject to outstanding awards under the 2012 Stock Incentive Plan as of the 2017 Plan’s effective date that are subsequently forfeited or terminated for
any reason before being exercised or settled, plus the number of shares subject to vesting restrictions under the 2012 Stock Incentive Plan on the 2017 Plan’s effective date that are subsequently forfeited, plus the number of shares reserved
but not issued or subject to outstanding grants under the 2012 Stock Incentive Plan as of the 2017 Plan’s effective date. In addition, the number of shares that have been authorized for issuance under the 2017 Plan will be automatically
increased on the first day of each fiscal year beginning on January 1, 2018 and ending on (and including) January 1, 2027, in an amount equal to the lesser of (1) 4% of the outstanding shares of our common stock on the last day of the
immediately preceding fiscal year, or (2) another amount determined by our board of directors. Shares subject to awards granted under the 2017 Plan that are forfeited or terminated before being exercised or settled, or are not delivered to the
participant because such award is settled in cash, will again become available for issuance under the 2017 Plan. Shares withheld to satisfy the grant, exercise price or tax withholding obligation related to an award will again become available for
issuance under the 2017 Plan. However, shares that have actually been issued shall not again become available unless forfeited. No more than 10,000,000 shares may be delivered upon the exercise of ISOs granted under the 2017 Plan plus, to the extent
allowable under applicable tax law, any shares that again become available for issuance under the 2017 Plan.
During any time when
the tax deduction limitations of Section 162(m) of the Code apply to awards under the 2017 Plan, and options or SARs are intended to qualify as “performance-based compensation” under Section 162(m), no person may receive options
or SARs in any calendar year for an aggregate of more than 1,000,000 shares, and no more than two times this amount in the first year of employment. The grant date fair value of all awards (as determined in accordance with Financial
Accounting Standards Board Accounting Standards Codification Topic 718) granted to any non-employee director under the 2017 Plan during any
12-month
period will not exceed $500,000, provided that any
automatic NSO grants and any awards to a non-employee director in lieu of a cash retainer are excluded from such limit.
Types of Awards
Stock Options
. A stock option is the right to purchase a certain number of shares of stock, at a certain exercise price, in the future.
Under our 2017 Plan, ISOs and NSOs must be granted with an exercise price of at
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least 100% of the common stock fair market value on the date of grant. ISOs granted to any holder of more than
10% of our voting shares must have an exercise price of at least 110% of
the common stock fair market value on the date of grant. No ISO can be granted to an employee if, as a result of the grant, the employee would have the right in any calendar year to exercise for the first time one or more ISOs for shares having an
aggregate fair market value in excess of $100,000. The stock option agreement specifies the date when all or any installment of the option is to become exercisable. Each stock option agreement sets forth the term of the options, provided that the
term of an ISO is prohibited from exceeding 10 years (five years in the case of an ISO granted to any holder of more than 10% of our voting shares), and the extent to which the optionholder will have the right to exercise the option following
termination of the optionholder’s service with us. Payment of the exercise price may be made in cash or, if provided for in the stock option agreement evidencing the award, (1) by surrendering, or attesting to the ownership of, shares
which have already been owned by the optionholder, (2) by delivery of an irrevocable direction to a securities broker to sell shares and to deliver all or part of the sale proceeds to us in payment of the aggregate exercise price, (3) by
delivery of an irrevocable direction to a securities broker or lender to pledge shares and to deliver all or part of the loan proceeds to us in payment of the aggregate exercise price, (4) by a “net exercise” arrangement pursuant to
which the number of shares issuable upon exercise of the option will be reduced by the largest whole number of shares with an aggregate fair market value equal to the aggregate exercise price of the option, (5) by delivering a full-recourse
promissory note or (6) by any other form that is consistent with applicable laws, regulations and rules.
Restricted
Stock
. Restricted stock is a share award that may be subject to vesting conditioned upon continued service, the achievement of performance objectives or the satisfaction of any other condition as specified in a restricted stock agreement.
Participants who are granted restricted stock awards generally have all of the rights of a stockholder with respect to such stock, other than the right to transfer such stock prior to vesting. Subject to the terms of the 2017 Plan, the 2017 Plan
administrator will determine the terms and conditions of any restricted stock award, including any vesting arrangement, which will be set forth in a restricted stock agreement to be entered into between us and each recipient. Restricted stock may be
awarded for such consideration as the 2017 Plan administrator may determine, including without limitation cash, cash equivalents, full-recourse promissory notes, future services or services rendered prior to the award, without cash payment by the
recipient.
Stock Units
. Stock units give recipients the right to acquire a specified number of shares of stock (or cash
amount) at a future date upon the satisfaction of certain conditions, including any vesting arrangement, established by the 2017 Plan administrator and as set forth in a stock unit agreement. Unlike restricted stock, the stock underlying stock units
will not be issued until the stock units have vested and are settled, and recipients of stock units generally will have no voting or dividend rights prior to the time the vesting conditions are satisfied and the award is settled. At the 2017 Plan
administrator’s discretion, stock units may provide for the right to dividend equivalents. The 2017 Plan administrator may elect to settle vested stock units in cash or in common stock or in a combination of cash and common stock. Subject to
the terms of the 2017 Plan, the 2017 Plan administrator will determine the terms and conditions of any stock unit award, which will be set forth in a stock unit agreement to be entered into between us and each recipient.
Stock Appreciation Rights
. SARs typically will provide for payments to the recipient based upon increases in the price of our common
stock over the exercise price of the SAR. The exercise price of a SAR will be determined by the 2017 Plan administrator, which shall not be less than the common stock fair market value on the date of grant. The 2017 Plan administrator may elect to
pay SARs in cash or in common stock or in a combination of cash and common stock.
Cash-based Awards
. A cash-based award is
denominated in cash. The 2017 Plan administrator may grant
cash-based
awards in such number and upon such terms as it shall determine. Payment, if any, will be made in
accordance with the terms of the
award, and may be made in cash or in shares of common stock, as determined by the 2017 Plan administrator.
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Performance-based Awards
. Awards under our 2017 Plan may be made subject to the attainment
of performance criteria. Awards of restricted stock, stock units or cash-based awards that are intended to qualify as “performance-based compensation” under Section 162(m) of the Code will be subject to the attainment of one or more
pre-established performance goals, including [cash flow, earnings per share, earnings before interest, taxes and amortization, return on equity, total stockholder return, share price performance, return on capital, return on assets or net assets,
revenue, income or net income, operating income or net operating income, operating profit or net operating profit, operating margin or profit margin, return on operating revenue, return on invested capital, market segment shares, costs, expenses,
initiation or completion of research activities, initiation or completion of development programs, other milestones with respect to research activities or development programs, regulatory body approval, implementation or completion of critical
projects, commercial milestones or other milestones with respect to the growth of the Company’s business or the development or commercialization of any product or service]. The maximum aggregate number of shares that may be subject to
restricted stock or stock unit awards intended to qualify as performance-based compensation under Section 162(m) of the Code granted to any individual in any calendar year is 1,000,000 shares, and no more than two times this amount in the
first year of employment. The maximum aggregate amount of cash that may be payable under cash-based awards intended to qualify as performance-based compensation under Section 162(m) of the Code granted to any individual in any calendar year is
$2,000,000. These limitations are designed to allow us to grant compensation that will not be subject to the $1,000,000 annual limitation on the income tax deductibility of compensation paid to a covered executive officer imposed by
Section 162(m) of the Code.
Other Plan Features
Under the 2017 Plan:
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Unless the agreement evidencing an award expressly provides otherwise, no award granted under the 2017 Plan may be transferred in any manner (prior to the vesting and lapse of any and all restrictions applicable to
shares issued under such award), other than by will or the laws of descent and distribution, provided, however, that an ISO may be transferred or assigned only to the extent consistent with Section 422 of the Code.
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Non-employee directors will receive nondiscretionary, automatic grants of stock units under our 2017 Stock Incentive Plan. A non-employee director will be automatically granted on an annual basis stock units with
respect to 7,500 shares. A non-employee director who is initially elected or appointed to our board of directors other than on the date of an annual meeting of stockholders will receive a pro-rated grant of stock units to reflect such non-employee
director’s partial year of service. The stock units will vest on the first anniversary of the date of grant or, if earlier, the date of our next annual meeting of stockholders following the date of grant. The stock units will become vested if a
change in control of the Company occurs during the non-employee director’s service .
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In the event of a recapitalization, stock split or similar capital transaction, the 2017 Plan administrator will make appropriate and equitable adjustments to the number of shares reserved for issuance under the 2017
Plan, the limitations regarding the total number of shares underlying awards given to an individual participant in any calendar year, the number of shares that can be issued as ISOs, the number of shares subject to outstanding awards and the
exercise price under each outstanding option or SAR.
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If we are involved in a merger or other reorganization, outstanding awards will be subject to the agreement of merger or reorganization. Such agreement may provide for (1) the continuation of the outstanding awards
by us, if we a surviving corporation, (2) the assumption or substitution of the outstanding awards by the surviving corporation or its parent or subsidiary, (3) immediate vesting, exercisability and settlement of the outstanding awards
followed by their cancellation, or (4) settlement of the intrinsic value of the outstanding awards (whether or not vested or exercisable) in cash, cash equivalents, or equity (including cash or equity subject to deferred vesting and delivery
consistent with the vesting restrictions applicable to such award or the underlying shares) followed by cancellation of such awards. We have no obligation to treat all awards, all awards held by a participant or all awards of the same type similarly
in connection with a merger or other reorganization.
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The 2017 Plan administrator may modify, extend or renew outstanding awards or may accept the cancellation of outstanding awards (to the extent not previously exercised), whether or not granted under the 2017 Plan, in
return for the grant of new awards for the same or a different number of shares and at the same or a different exercise price, or in return for the grant of a different award for the same or a different number of shares, all without stockholder
approval. However, no modification of an award shall, without the consent of the individual participant, materially impair his or her rights or obligations under such award.
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Any awards granted under the 2017 Plan will be subject to our clawback or recoupment arrangements or policies that we have in place from time to time, and the 2017 Plan administrator may, to the extent permitted by
applicable law and stock exchange rules or by any of our policies, cancel or require reimbursement of any awards granted, shares issued or cash received upon the vesting, exercise or settlement of any awards granted under the 2017 Plan or the sale
of shares underlying such awards.
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Our board of directors may amend or terminate the plan at any time, subject to
stockholder approval where required by applicable law. Any amendment or termination may not materially impair the rights of holders of outstanding awards without their consent. No ISO may be granted after the tenth anniversary of the earlier of
(1) the date the 2017 Plan was adopted by our board of directors, and (2) the date the plan was approved by our stockholders.
2012 Stock
Incentive Plan
General.
Our 2012 Stock Incentive Plan, or 2012 Plan, was adopted by our board of directors and approved by
our stockholders on April 12, 2012.
As of June 30, 2017, 1,608,649 shares of common stock remained available for future
issuance under the 2012 Plan and options to purchase a total of 1,248,834 shares of our common stock and 413,667 shares of restricted common stock were outstanding under the 2012 Plan. The weighted average exercise price of the options
outstanding under the 2012 Plan was $1.79 per share.
Following the completion of this offering, no additional awards and no shares of our
common stock will remain available for future issuance under the 2012 Plan. Shares originally reserved for issuance under the 2012 Plan, but which are not subject to outstanding options or restricted stock awards on the effective date of the 2017
Plan, and shares subject to outstanding options or restricted stock awards under the 2012 Plan on the effective date of the 2017 Plan that are subsequently forfeited or terminated for any reason before being exercised or becoming vested will again
become available for awards under our 2017 Plan.
The 2012 Plan provides for the grant of ISOs to employees and the grant of NSOs to
employees, non-employee directors, advisors and consultants. The 2012 Plan also provides for the grants of restricted stock awards to employees, non-employee directors, advisors and consultants.
Administration
. The 2012 Plan has been administered by our board of directors or a committee appointed by our board of directors, and
may be amended, suspended or terminated by our board of directors, without stockholder approval, unless stockholder approval is required by applicable law, regulations or stock exchange listing standards.
Authorized Shares
. We previously reserved 5,400,000 shares of our common stock for issuance under the 2012 Plan. In the event of a
stock split, reverse stock split, stock dividend, combination or reclassification of the shares or similar transaction affecting the shares, any change in the number of shares effected without receipt of consideration by us or any other transaction
with respect to our common stock as the 2012 Plan administrator may determine (including a merger, consolidation, reorganization or liquidation), the 2012 Plan administrator will proportionately adjust the number of shares covered by outstanding
awards, the number of shares available for issuance as future awards under the 2012 Plan, the exercise or purchase price of outstanding awards and any other terms that the 2012 Plan administrator determines require adjustment.
82
Stock Options
. The 2012 Plan administrator determines the exercise price for each stock
option, provided that the exercise price of an option must equal at least 100% of the common stock fair market value on the date of grant and the term of an option may not exceed 10 years, provided further, that no ISO may be granted to any
stockholder holding more than 10% of the voting shares of the company unless the option exercise price is at least 110% of the common stock fair market value subject to the option on the date of grant, and the term of the ISO does not exceed five
years from the date of grant. No option may be transferred by the optionholder other than by will or the laws of descent or distribution. Each option may be exercised during the optionholder’s lifetime solely by the optionholder. Options
granted under the 2012 Plan generally vest at the rate of 25% after one year from the vesting commencement date and in equal monthly installments thereafter for an additional three years. However, options may be exercised prior to their vesting
dates, in which case they will be subject to a right of repurchase held by us at the original purchase price. After the termination of an optionholder’s service as an employee, non-employee director, or consultant for any reason other than
death or disability, such optionholder may exercise his or her vested options for the length of time specified in the option agreement, which period may not be less than 30 days. In the case of the optionholder’s termination of service as
a result of the optionholder’s death or disability, the option will remain exercisable for 12 months following such termination. Notwithstanding the foregoing, no option may be exercised after the expiration of its term.
Restricted Stock
. Restricted stock is a share award that may be conditioned upon continued service, the achievement of performance
objectives or the satisfaction of any other condition as specified in a restricted stock agreement. Restricted stock awards may not be granted with a purchase price less than 85% of the common stock fair market value on the grant date, or, in the
case of a holder of 10% or greater of the voting shares of our company, the price may not be less than 100% of the common stock fair market value on the grant date. Participants who were granted restricted stock awards generally have all of the
rights of a stockholder with respect to such shares, other than the right to transfer such shares. Restricted stock is subject to a repurchase right held by us in the event the recipient ceases to provide services to us.
Corporate Transactions
. The 2012 Plan provides that, unless assumed by the acquiring or surviving company in connection with the
consummation of a merger, consolidation, sale of all or substantially all of our assets or sale of 50% or more of our voting stock to a third party, outstanding awards granted under the 2012 Plan will become fully vested and will terminate. Except
as otherwise provided in an award agreement, outstanding awards that are assumed or substituted with equivalent equity awards by the acquiring or surviving company in connection with a corporate transaction described in the foregoing sentence will
become fully vested upon the grantee’s termination of employment without cause or for good reason, in each case, within 12 months following the consummation of such corporate transaction. In addition, except as otherwise provided in an award
agreement, upon a termination of the grantee’s employment without cause or for good reason, in each case, within 12 months following a change in control of the Company (which would be triggered by the sale of 50% or more of our voting shares or
a change in the composition of our board of directors over 36 months that was not supported by a majority of our incumbent directors), other than a change in control which is also a corporate transaction, the outstanding awards will become fully
vested.
Adjustment to Vesting of Outstanding Options
Effective July 1, 2016, our board of directors amended the vesting schedule of all outstanding stock options granted under the 2012 Stock
Incentive Plan that are held by employees, consultants, and directors, such that all future vesting dates were accelerated to the first day of the month and year that such scheduled vesting date would have otherwise occurred. This amendment was
proposed and approved in order to obtain certain administrative efficiencies and operational benefits as it relates to the public reporting requirements in Japan related to the vesting of options. The financial impact of this amendment is not
material.
Limitation on Liability and Indemnification Matters
We have entered into Indemnification Agreements with our directors and officers that contain provisions that limit their personal liability of
for monetary damages. Consequently, our directors and officers will not be
83
personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties. With certain exceptions, these agreements provide for indemnification for related expenses
including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of our directors in any action or proceeding. We believe that these indemnification agreements are necessary to attract and retain qualified
persons as directors. We also maintain directors’ and officers’ liability insurance.
Our amended and restated bylaws will
provide that we shall advance expenses incurred by a director 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
limitation of liability represented by the indemnification agreements and the indemnification provisions in our amended and restated bylaws 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 cash and equity compensation arrangements of our directors and named executive officers discussed above under
“Management—Director Compensation” and “Executive Compensation,” the following is a description of transactions since January 1, 2014, to which we have been a party in which the amount involved exceeded or will exceed
$120,000 and in which any of our directors, executive officers, beneficial holders of more than 5% of our capital stock, or entities affiliated with or immediate family members of any of the foregoing, had or will have a direct or indirect material
interest.
Notes
Pursuant to a Note
Purchase Agreement dated as of January 20, 2014, Fumihiro Kozato, Feng Kuo and Fun-Kai Liu provided us with promissory notes in the principal amount of $500,000 each, for an aggregate of $1,500,000. The notes representing these loans accrued
interest at a rate of 6% per annum. In October 2014 the principal on the loan from Mr. Liu converted into 250,000 shares of our Series B Preferred Stock as described in the immediately following paragraph, and the accrued interest was
repaid. In September 2014, the principal plus accrued interest on the loans from Mr. Kozato and Dr. Kuo were repaid for an aggregate of $1,036,328.76.
Sale of Series B Preferred Stock
Pursuant to a Preferred Stock Purchase Agreement, between April and October 2014 we issued Fun-Kai Liu, one of our directors, 550,000 shares of
our Series B Preferred Stock, for an aggregate purchase price of $1,100,000, which amount includes cancellation of an outstanding note in the principal amount of $500,000, which was converted into Series B Preferred Stock at no discount.
Investors’ Rights Agreement
In
April 2014, we entered into a second amended and restated investors’ rights agreement with certain holders of our outstanding preferred stock, including Fumihiro Kozato, Dr. Feng Kuo, Fun-Kai Liu, Koji Mori, Akiko Kozato (the daughter of
our CEO, Fumihiro Kozato) and DENSO International America, Inc., which was subsequently amended in August 2017. This agreement provides that certain holders of common stock issuable upon conversion of our preferred stock have the right to demand
that we file a registration statement or request that their shares of common stock be covered by a registration statement that we are otherwise filing. With respect to this offering, the registration rights have been validly waived. In addition to
the registration rights, the investors’ rights agreement provides for certain information rights, a market stand-off following an initial public offering, board observer rights and rights of first offer if we propose to offer or sell any new
equity securities. Additionally, this agreement contains provisions regarding voting and size of our board of directors, board composition and removal rights. The provisions of the investors’ rights agreement, other than those relating to
registration rights, will terminate upon completion of this offering. See “Description of capital stock—Investors’ rights agreement” for additional information.
Indemnification Agreements
We have
entered into indemnification agreements with our directors and officers. The indemnification agreements and our restated certificate of incorporation and amended and restated bylaws will require us to indemnify these individuals to the fullest
extent permitted by Delaware law. See “Management—Limitation on Liability and Indemnification Matters.”
Stock Options Granted to
Executive Officers and Directors
We have granted stock options to our executive officers and directors, as more fully described in
“Executive Compensation—Additional Equity Awards” and “Management—Director Compensation,” respectively.
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Related Party Transaction Policy
We have adopted a written policy 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 event it is inappropriate for our audit committee to review such transaction due to a conflict of interest. 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 our 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 above were entered into prior to the adoption of such policy.
Although we did not have a written policy for the review and approval of transactions with related persons prior to January 27, 2016, our
board of directors has historically reviewed and approved any transaction where a director or officer had a financial interest, including all of the transactions described above. Prior to approving such a transaction, the material facts as to a
director’s or officer’s relationship or interest as to the agreement or transaction were disclosed to our board of directors. Our board of directors would take this information into account when evaluating the transaction and in
determining whether such a transaction was fair to us and in the best interests of all of our stockholders. In addition, for each related party transaction described above, the disinterested directors in the context of each such transaction approved
the applicable agreement and transaction.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the number of shares of common stock beneficially owned on June 30, 2017, and immediately
following consummation of this offering, by:
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Each person who is known by us to beneficially own 5% or more of our common stock;
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Each of our named executive officers and directors; and
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All of our executive officers and directors as a group.
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We have determined beneficial
ownership in accordance with SEC rules. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to
all shares of common stock that they beneficially own, subject to applicable community property laws.
Applicable percentage ownership
is based on 15,173,905 shares of common stock at June 30, 2017. For purposes of the table below, we have assumed that 16,693,905 shares of common stock will be outstanding upon completion of this offering. In computing the number of shares of
common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock underlying options held by that person that are currently exercisable or will become exercisable within
60 days of June 30, 2017. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, includes shares owned by a spouse, minor children and relatives
sharing the same home, as well as entities owned or controlled by the named person. Unless otherwise noted, shares are owned of record and beneficially by the named person. Beneficial ownership representing less than one percent is denoted with an
“*.” As of immediately following the completion of this offering, all shares of common stock held by the persons below will be held directly and not in JDS form.
Except as otherwise set forth below, the address of each of the persons listed below is 2550 N. First Street, #550, San Jose, CA 95131 USA.
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Before the Offering
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After the Offering
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Name
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Number of
Shares
Beneficially
Owned
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%
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Number of
Shares
Beneficially
Owned
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%
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Named Executive Officers and Directors:
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Fumihiro Kozato (1)
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1,826,088
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12.0
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%
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1,826,088
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10.9
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%
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Dr. Feng Kuo, Ph.D. (2)
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3,335,866
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22.0
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%
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3,335,866
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20.0
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%
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Yukiko Tegarden (3)
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120,000
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*
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120,000
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*
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Fun-Kai Liu (4)
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1,215,479
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8.0
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%
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1,215,479
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7.3
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%
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Koji Mori (5)
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137,188
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*
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137,188
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*
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Robert Cochran (6)
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30,000
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*
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30,000
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*
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Dr. Yaichi Aoshima, Ph.D. (7)
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22,500
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*
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22,500
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*
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Executive Officers and Directors as a group (7 persons)
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6,687,121
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43.5
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%
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6,687,121
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39.6
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%
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5% Stockholders:
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DENSO International America, Inc. (8)
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1,542,188
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10.2
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%
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1,542,188
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9.2
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%
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Akiko Kozato
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1,788,888
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11.8
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%
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1,788,888
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10.7
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%
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(1)
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Represents shares of common stock held jointly by Mr. Kozato and Masako Kozato.
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(2)
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Consists of 1,365,866 shares of common stock held by Dr. Kuo, of which 32,500 are subject to our right to repurchase as of June 30, 2017; 1,000,000 shares of common stock held by Emily Ku, of which 13,500 are subject to
our right to repurchase as of June 30, 2017, and 970,000 shares of common stock held by Amanda Ku.
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(3)
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Consists of 36,000 shares of common stock held by Yukiko Tegarden acquired upon the early exercise of options to purchase common stock, of which 13,500 are subject to our right to repurchase as of June 30, 2017, and
84,000 shares underlying an option that may be early exercised.
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(4)
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Consists of 980,000 shares of common stock and 16,146 shares underlying an option that may be early exercised, held by Fun-Kai Liu; 119,333 shares of common stock held by Albert Liu and 100,000 shares of common stock
held by Christopher Liu.
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(5)
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Consists of 30,000 shares of common stock and 12,188 shares underlying an option that may be early exercised, held by Mr. Mori, and 95,000 of common stock shares held by Kuniko Mori.
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(6)
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Represents shares of common stock underlying an option that may be early exercised.
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(7)
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Represents shares of common stock underlying an option that may be early exercised.
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(8)
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Consists of 30,000 shares and 12,188 shares underlying an option that may be early exercised, held by Mr. Mori, and 1,500,000 shares held by his employer, DENSO International America, Inc. The mailing address of
DENSO International America, Inc. is 24777 Denso Dr, Southfield, MI 48033.
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DESCRIPTION OF CAPITAL STOCK
General
The following is a summary of
the rights of our common stock and certain provisions of our restated certificate of incorporation and amended and restated bylaws, as they will be in effect prior to and at the completion of this offering. For more detailed information, please see
our restated certificate of incorporation and amended and restated 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
shares, of which:
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75,000,000 shares will be designated as common stock, par value $0.0001 per share; and
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•
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5,000,000 shares will be designated as preferred stock, par value $0.0001 per share.
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Assuming
the conversion of all outstanding shares of our convertible preferred stock into shares of our common stock, which will occur in connection with this offering, as of June 30, 2017, we had outstanding 14,760,238 shares of common stock held of
record by 88 stockholders. For more information on our capitalization, see “Capitalization.”
Common Stock
Pursuant to our restated certificate of incorporation that will be in effect prior to and at the completion of this offering, the holders of
common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. This restated certificate of incorporation does not provide for cumulative voting in the election of directors. Subject to the rights, if any, of the
holders of any outstanding series of preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the board of directors out of legally available funds. However, the current policy of the
board of directors is to retain earnings, if any, for operations and growth. Upon our liquidation, dissolution or winding-up, subject to the rights, if any, of the holders of our preferred stock, the holders of common stock are entitled to share
ratably in all assets that are legally available for distribution. The holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of the board of directors and issued in the future.
Preferred Stock
The board of directors
is authorized, subject to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of preferred stock in one or more series without stockholder approval. Each such series of preferred
stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting
rights, liquidation preferences, conversion rights and preemptive rights.
Investors’ Rights Agreement
Upon completion of this offering, the holders of an aggregate of 10,742,500 shares of our common stock that were issued or are issuable upon
the conversion of our preferred stock, assuming the conversion is effective prior to the completion of this offering, will be entitled to the rights described below with respect to registration of the resale of such shares under the Securities Act
pursuant to the second amended and restated investors’ rights agreement by and among us and certain of our stockholders dated April 30, 2014, as amended.
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Registration of shares of common stock in response to the exercise of the following rights would
result in the holders being able to trade these shares without restriction under the Securities Act when the applicable registration statement is declared effective. We generally must 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 upon the earlier of the third anniversary of this offering or at such time as all of the holder’s registrable securities can be sold pursuant to Rule 144.
Demand registration rights.
If, at any time six months following the effective date of the registration statement of this offering, the
holders of a majority of the then outstanding registrable securities issued or issuable upon the conversion of our preferred stock request that we file a Form S-1 registration statement with respect to at least 20% of the registrable securities then
outstanding, we may be required to register their shares, subject to certain exceptions. Depending on certain conditions, however, we may defer such registration for up to 60 days. The underwriters of any underwritten offering have the right to
limit the number of shares registered by these holders for marketing reasons.
Piggyback registration rights.
If at any time we
propose to register any shares of our common stock under the Securities Act after this offering, subject to certain exceptions, the holders of registrable securities will be entitled to notice of the registration and to include their share of
registrable securities in the registration. The underwriters of any underwritten offering have the right to limit the number of shares registered by these holders for marketing reasons, subject to certain exceptions.
Form S-3 registration rights.
If at any time when we are eligible to use the Form S-3 registration statement, the holders of at least a
majority of then outstanding registrable securities issued or issuable upon conversion of our preferred stock may request that we effect a registration on Form S-3 under the Securities Act, so long as the proposed aggregate offering price of the
shares to be registered by the holders requesting registration is at least $2 million, subject to certain exceptions.
Anti-Takeover Effects of
Delaware Law and Our Restated Certificate of Incorporation and Bylaws
Certain provisions of Delaware law, our restated certificate of
incorporation and our amended and restated bylaws to become effective prior to the completion of this offering 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 persons seeking to acquire control of us to first negotiate with our
board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging such proposals, including proposals that are priced
above the then-current market value of our common stock, because, among other reasons, the negotiation of such proposals could result in an improvement of their terms.
Certificate of Incorporation and Bylaws.
Our restated certificate of incorporation and amended and restated bylaws to become effective in connection with this offering include
provisions that:
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authorize the board of directors to issue, without further action by the stockholders, up to 5,000,000 shares of undesignated preferred stock;
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require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;
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specify that special meetings of our stockholders can be called only by the board of directors, the chairman of the board, or the chief executive officer;
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establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board of directors;
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require the vote of the holders of at least a majority of the outstanding shares of our common stock to consummate a change of control, including the issuance of a number of shares that would result in a change of
control;
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establish the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain derivative actions or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any
action asserting a claim against us arising pursuant to the Delaware General Corporation Law, or DGCL, or any action asserting a claim governed by the internal affairs doctrine; and
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require the affirmative vote of holders of at least 66
2
⁄
3
% of the total votes eligible to be cast in the election of directors
to amend, alter, change or repeal our bylaws; and provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum.
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Delaware anti-takeover statue.
We are subject to the provisions of Section 203 of the DGCL 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 stockholder for a period of three years following the date the person became an interested stockholder unless:
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prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; or
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upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and
(2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or at or subsequent to the date of
the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66
2
⁄
3
% of the outstanding voting stock which is not owned by the interested stockholder.
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Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to
the “interested stockholder” and 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 DGCL, our restated certificate of incorporation and our amended and restated bylaws to become effective in connection with
this offering could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of the JDSs 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.
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Quasi-California Corporation
Additionally, because we will not be listed on a national securities exchange following the completion of this offering, we may be treated as a
so-called “quasi-California corporation” and subject to certain provisions of the General Corporation Law of the State of California so long as our securities are not traded on at least one of the major United States stock exchanges and if
(i) more than half of our voting securities are held by persons of record having addresses, according to our records, in California and (ii) more than half of our business during our latest full income year is conducted in California, as determined
by a statutory formula weighing our property, payroll and sales on a consolidated basis. These provisions include the State of California’s requirement to obtain separate approval from holders of each class of capital stock on a merger to the
exclusion of the law of the jurisdiction in which the corporation is incorporated. Other provisions included in the “quasi-California corporation” rules relate to the election of directors, the removal of directors without cause and other
provisions. It is unsettled whether these provisions apply to us. As a result, our stockholders may not have complete predictability over whether these requirements apply to us or not. If these rules do apply to us, we may be required to follow the
rules of two different states, which could increase our costs to comply and also may frustrate or prevent corporate transactions, such as a merger, if we must comply with additional voting requirements.
Transfer Agent and Registrar
The
transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15th Avenue, Brooklyn, New York 11219.
Listing
We intend to apply to list
our JDSs on the Mothers market of the Tokyo Stock Exchange under the securities identification code
“M-6697.”
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DESCRIPTION OF JAPANESE DEPOSITARY SHARES
Japanese Depositary Shares
We have
decided to issue to the public, and list on the Mothers market of the Tokyo Stock Exchange, Japanese Depositary Shares, or JDSs, instead of our common stock. JDSs are a representative security, and each JDS will represent one share of common stock
that will be held in trust pursuant to a trust agreement. JDSs are the Japanese counterpart to American Depositary Shares, or ADSs, and permit a mechanism whereby a foreign company’s securities can be traded as domestic equity in Japan. We have
decided to utilize JDSs because we believe they will offer greater liquidity on the Tokyo Stock Exchange than our common stock would, and the JDSs will be more accessible to Japanese investors. As foreign shares, our common stock would require
Japanese investors to hold a foreign share account, and some Japanese brokerage firms do not permit their clients to trade in foreign shares. JDSs, however, can be traded as Japanese domestic securities by all Japanese brokerage firms, do not
require a foreign share account and may be traded on margin. Additionally, through the facilities of our trust agreement, any dividends or other cash distributions we make in U.S. dollars will be converted and distributed to our JDS holders in
Japanese yen.
JDSs are representative securities (
juekishouken
) representing the beneficiary interests as defined under the Trust
Law (
shintaku-hou
) of Japan, as amended, and are issued by the Trustees in accordance with the provisions of the trust agreement among us, the settlor and Trustees and the holders of the JDSs. Specifically, Mitsubishi UFJ Trust and Banking
Corporation, as Trustee, will issue the JDSs in conjunction with the Master Trust Bank of Japan, Ltd., as Trustee, and Mizuho Securities Co., Ltd. as Initial Settlor. Each JDS will represent a beneficiary interest in one share of common stock
entrusted with Mizuho Trust & Banking Co. (USA) and Mitsubishi UFJ Trust and Banking Corporation’s New York Branch, as custodians for custody operations of the entrusted securities. Each JDS will also represent a beneficiary interest
in cash which may be held by the Trustees.
We will not treat JDS holders as our stockholders, other than as required by law, and
accordingly, you, as a JDS holder, will not have a stockholder’s rights. Delaware state law governs stockholders’ rights in our company. The Trustees will be the holder of the shares of common stock underlying your JDSs. As a holder of
JDSs, you will have a JDS holder’s rights. The trust agreement sets out the rights of the JDS holders as beneficiaries of the trust as well as the rights and obligations of the parties. The laws of Japan govern the trust agreement and the JDSs.
The following is a summary of the material provisions of the trust agreement. For more complete information, you should read the entire
trust agreement. For directions on how to obtain copies of those documents, see “Where You Can Find More Information.”
Holding the JDSs
How will you hold your JDSs?
The
Japanese book-entry transfer system for listed securities under the Act on Book-Entry of Company Bonds, Shares, etc. of Japan, as amended, or the Book-Entry Act, will apply to the JDSs. Under the bookentry transfer system, in order for any person to
hold, sell or otherwise dispose of JDSs, they must have an account at an account management institution unless such person has an account at JASDEC directly. See
“-JASDEC.”
Dividends and Other Distributions
How will you
receive dividends and other distributions on our shares of common stock?
The Trustees have agreed to pay to you the cash dividends or
other distributions it receives on shares of our common stock. You will receive these distributions in proportion to the number of JDSs you hold as of the record date set by the Trustees (in consultation with us) with respect to the JDSs.
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Cash
. The Trustees will convert any cash dividend or other cash distribution we pay on the shares
of common stock or any net proceeds from the sale of any shares of common stock, rights, securities or
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other entitlements into Japanese yen if it may do so on a practicable basis. If (i) the Trustees judge that that is not possible or lawful, (ii) any government approval, license or
registration is needed and is not obtained, or (iii) the costs related to approval or license is inappropriately high, the trust agreement allows the Trustees not to convert and distribute the foreign currency. It will hold the foreign currency
it cannot convert for the account of the JDS holders. The Trustees may invest cash held by the Trustees so long as the purpose of trust is not interfered with, which may result in loss of some or all of the value of such assets.
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Before making a distribution, any taxes or other governmental charges may be withheld. See “Tax Matters.” The Trustees will distribute only whole Japanese yen and will round fractional Japanese yen down to the
nearest whole yen. The exchange rate will be the market rate as of the date on which the Trustees transfer the funds. However, a different exchange rate that the Trustees judge as reasonably appropriate may be used in certain circumstances.
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Shares
. The Trustees will issue and allocate additional JDSs representing any shares of common stock we distribute as a dividend, stock split or free distribution to the extent reasonably practicable and
permissible under applicable law. The Trustees will only distribute whole JDSs. The Trustees will try to sell shares of common stock which would require it to deliver a fractional JDS and distribute the net proceeds in the same way as it does with
cash. If the Trustees judge that any share dividends are likely to be subject to withholding tax, the Trustees may sell the distributed shares and distribute the net proceeds. The Trustees may not use or sell the entrusted assets to pay its fees and
expenses in connection with that distribution.
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Other distributions
. Subject to receipt of timely notice from us requesting that the Trustees make a distribution available to you, and provided the Trustees have determined such distribution is lawful and
practicable and in accordance with the terms of the trust agreement, the Trustees will send to you anything else we distribute on our common stock by any means it thinks is legal and practicable. If it cannot make the distribution directly, the
Trustees may decide to sell what we distributed and distribute the net proceeds in the same way as it does with cash. If the Trustees cannot sell what we distributed, the Trustees will waive its rights to receive it on your behalf.
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The Trustees are not responsible if it decides that it is unlawful or impracticable to make a distribution available to any
JDS holder. We have no obligation to register JDSs, shares, rights or other securities under the Securities Act in order to make a distribution to JDS holders. We also have no obligation to take any other action to permit the distribution of JDSs,
shares, rights or anything else to JDS holders. This means that you may not receive the distributions we make on our common stock or receive any value for them if it is illegal or impracticable for us or for the Trustees to make them available to
you.
Entrustment and Cancellation
How are
JDSs issued?
The Initial Settlor will entrust the shares of our common stock offered pursuant to this registration statement and
the Trustees will accept the entrustment of such shares. In this process, the Initial Settlor will transfer the shares to an account designated by the Trustees. Upon completion of the transfer of the common stock to the Trustees, the Trustees will
then issue JDSs to you upon your purchase or other acquisition of them.
After the initial issuance of the JDSs, the Settlors may from
time to time entrust additional shares of our common stock and issue correspondingly more JDSs. Additional entrustments will follow the same process as the initial issuance of the JDSs described above.
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How do JDS holders cancel a JDS?
You may request the cancellation of your JDSs by surrendering your JDSs to the Trustees or by providing appropriate instructions to your
broker. Upon receipt of payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the Trustees will deliver the underlying shares of common stock and any other securities underlying the JDSs
to you or a person you designate.
Voting Rights
How do you vote?
You may instruct
the Trustees to vote the shares of common stock underlying your JDSs. Otherwise, you will not be able to exercise your right to vote unless you withdraw the shares of common stock underlying your JDSs, as set forth above. However, you may not know
about the meeting sufficiently in advance to withdraw the shares of common stock.
The Trustees will notify you of an upcoming vote
and arrange to deliver voting materials to you. The materials will include (1) a notice of the stockholders’ meeting which will be prepared for you by the Trustees and an instruction regarding exercise of voting rights, or a document which
is prepared for you by the Trustees containing matters to be consented or delegated to a proxy and an instruction on consent or a proxy, (2) a document explaining that you will be entitled to instruct the Trustees how to vote the shares
underlying your JDSs pursuant to laws, the provisions of the trust agreement, and our amended and restated certificate of incorporation and bylaws and (3) a document briefly explaining procedures surrounding the voting rights. For instructions
to be valid, we will notify the Trustees in writing of the date of the stockholders’ meeting within a reasonable amount of time. The Trustees will vote or have its agents vote the shares of common stock underlying your JDSs in accordance with
the voting instructions received from you (including deemed instructions to give a discretionary proxy to a person designated by us in accordance with the next paragraph) unless they judge that such voting and instruction conflicts with laws, the
provisions of the trust agreement, and our amended and restated certificate of incorporation and bylaws. The Trustees will only vote or attempt to vote as you instruct, or are deemed to have instructed.
If the Trustees receive an instruction document without clear or specific instruction, the Trustees shall deem such instruction document to be
a blank vote, unless the voting materials that are distributed to you specify how your JDSs will be voted absent specific or clear instructions. A blank vote is similar to an abstention, meaning the vote shall count only for purposes of establishing
a quorum, but not counted toward the outcome of the vote.
We cannot assure you that you will receive the voting materials in time to
ensure that you can instruct the Trustees to vote the common stock underlying your JDSs. In addition, the Trustees and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting
instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if the common stock underlying your JDSs is not voted as you requested.
In order to give you a reasonable opportunity to instruct the Trustees how to vote the shares of common stock underlying your JDSs, we will
try to give the Trustees notice of any such meeting and details concerning the matters to be voted upon sufficiently in advance of the meeting date.
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Fees and Expenses
As a JDS holder, you will be required to pay the following fees under the terms of the trust agreement:
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Service
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Fees
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Conversion of JDSs into shares of common stock
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¥5,000
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As a JDS holder you will also be responsible to pay certain charges such as:
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taxes (including applicable interest and penalties) and other governmental charges;
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the registration fees as may from time to time be in effect for the registration of shares of common stock or other entrusted securities on the share register and applicable to transfers of shares of common stock or
other entrusted securities to or from the name of the custodian, the trustee or any nominees upon the making of entrustments and withdrawals, respectively;
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certain cable, telex and facsimile transmission and delivery expenses;
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the expenses and charges incurred by the trustee in the conversion of foreign currency;
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the fees and expenses incurred by the trustee in connection with compliance with exchange control regulations and other regulatory requirements applicable to shares of common stock and JDSs; and
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the fees and expenses incurred by the trustee, the custodian, or any nominee in connection with the servicing or delivery of entrusted property.
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JDS fees and charges payable upon conversion of JDSs into shares of common stock are charged to the person to whom the shares are delivered.
In the case of JDSs issued by the Trustees into JASDEC, or presented to the Trustees via JASDEC, the JDS issuance and cancellation fees and charges are charged to the JASDEC participant(s) receiving the JDSs or the JASDEC participant(s) surrendering
the JDSs for cancellation, as the case may be, on behalf of the beneficial owner(s) and will be charged by the JASDEC participant(s) to the account(s) of the applicable beneficial owner(s) in accordance with the procedures and practices of the
JASDEC participant(s) as in effect at the time. JDS fees and charges in respect of distributions and the JDS service fee are charged to the holders as of the applicable JDS record date. In the case of distributions of cash, the amount of the
applicable JDS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the JDS service fee, holders as of the JDS record date will be invoiced for the amount of the JDS fees
and charges. For JDSs held through JASDEC, the JDS fees and charges for distributions other than cash and the JDS service fee are charged to the JASDEC participants in accordance with the procedures and practices prescribed by JASDEC and the JASDEC
participants in turn charge the amount of such JDS fees and charges to the beneficial owners for whom they hold JDSs.
In the event
of non-payment of handling fees, the Trustees may, under the terms of the trust agreement, refuse the requested service until payment is received or may set off the amount of the handling fees from any distribution to be made to the JDS holder. Note
that the fees and charges you may be required to pay may vary over time and may be changed by us and by the Trustees. You will receive prior notice of such changes.
Payment of Taxes
You will be responsible
for any taxes or other governmental charges payable on the trust. The Trustees may apply payments owed to you or sell common stock underlying your JDSs to pay any taxes owed and you will remain liable for any deficiency. If the Trustees sell common
stock, it will, if appropriate, reduce the number of JDSs to reflect the sale and pay to you any net proceeds, or send to you any property, remaining after it has paid the taxes. You agree to indemnify us, the trustees, the custodian and each of our
and their respective agents, directors, employees and affiliates for, and hold each of them harmless from, any claims with respect to taxes (including applicable interest and penalties thereon) arising from any tax benefit obtained for you.
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Reclassifications, Recapitalizations and Mergers
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If we:
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Then:
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Change the nominal or par value of our shares of common stock
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The shares received by the trustee will become entrusted securities.
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Reclassify, split up or consolidate any of the entrusted securities
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Each JDS will to the extent not prohibited by law represent its equal share of the new entrusted securities.
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Distribute securities on the shares of common stock that are not distributed to you or
recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action
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The trustee may to the extent not prohibited by law distribute some or all of the cash, shares or other securities it received. It may also deliver new JDSs or ask you to surrender your outstanding JDSs in exchange for new JDSs
identifying the new entrusted securities.
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Amendment and Termination
How may the trust agreement be amended?
The Trustees may amend the trust agreement with approval from us and the Settlor, which approval may not be unreasonably withheld, where an
amendment is immaterial or does not conflict with the purpose of the trust. If an amendment is material, a JDS holder who may suffer from damage from the amendment may request that its JDSs be redeemed by the Trustees at a fair price unless it does
not express an intent to agree to the amendment.
How may the trust agreement be terminated?
In certain situations the trust agreement may be terminated. These situations may include: if the JDSs are delisted from the Tokyo Stock
Exchange and relisting on a Japanese exchange is not reasonably likely; if any party to the agreement, other than a trustee, is in material breach of the agreement, provided that if Settlor is in material breach of the agreement, the Trust shall not
terminate if we replace the Settlor and the Trustees approve of such replacement; if termination of the agreement is required by law; following the resignation of dismissal of both trustees and if a new trustee is not reasonably expected to be
appointed; or in certain other situations. In each such case we and the Trustees are obligated to immediately inform each other of the occurrence of such event.
After termination, the Trustees and its agents will do the following under the trust agreement: collect distributions on the underlying
shares, sell rights and other property, and deliver shares of common stock and other entrusted securities upon cancellation of JDSs after payment of any fees, charges, taxes or other governmental charges. After termination, the Trustees may sell any
remaining entrusted securities by public or private sale. After that, the Trustees will hold the money it received on the sale, as well as any other cash it is holding under the trust agreement, pro rata to the JDS holders that have not surrendered
their JDSs. The Trustees may invest certain assets held by the trust, which may result in a partial or complete loss of value of such assets. The Trustee’s only obligations will be to account for the money and other cash and the Trustee will
not be liable for any loss incurred by you due to such liquidation arrangement. After termination, our only obligations will be to indemnify the Trustee and to pay fees and expenses of the trust that we agreed to pay.
Records of JDS Holders
The Trustees will
maintain JDS holder records at the principal office of Mitsubishi UFJ Trust and Banking Corporation. You may inspect such records at such office during regular business hours but solely for the purposes permitted by law. You will be treated as a
book-entry beneficial interest holder by JASDEC under the Book-Entry Act. The attribution of relevant beneficial interests will be determined in accordance with the JDS holder records.
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These facilities may be closed from time to time, to the extent not prohibited by law or if any
such action is deemed necessary or advisable by the trustee or us, in good faith, at any time or from time to time because of any requirement of law, any government or governmental body or commission or any securities exchange on which the JDSs are
listed, or under any provision of the trust agreement or provisions of, or governing, the entrusted securities, or any meeting of our stockholders or for any other reason.
Limitations on Obligations and Liability
Limits on
our Obligations and the Obligations of the Trustee; Limits on Liability to Holders of JDSs
The trust agreement expressly limits
our obligations and the obligations of the other parties thereto. It also limits our liability and the liability of the Trustees and settlors. The Trustees and their agents will not be liable to you unless there is the lack of due care in connection
with the performance of their obligations. We will not be subject to any liability under the trust agreement to the Trustees, the settlors or any of you, except in connection with our obligations as specifically set forth in the trust agreement any
negligent or bad faith breach of such obligations by us. We, the Trustees and the settlors:
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are not liable if any of us is prevented or delayed from performing our obligations under the trust agreement due to (i) the enactment, abolishment or amendment of future laws of Japan, the U.S. or any other
country, or of any other governmental authority or regulatory authority or financial instruments exchange, or (ii) any act of extraordinary natural phenomena, war, other circumstances beyond our control (including but not limited to
nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, acts of terrorism, use of chemical, biological and electromagnetic weapons, revolutions, rebellions, breakdown of system for electricity, communication or
clearing system, system-down);
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are not liable as a result of your inability to benefit from any distribution or benefit that is made available to holders of our common stock when we, the trustees and the settlor perform our obligations in accordance
with the trust agreement; and;
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are not liable for any consequential damages that may result from a breach of the trust agreement by us, the trustees or the settlors.
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The Trustees and their agents also disclaim any liability for any failure to carry out any instructions to vote, the manner in which any vote
is cast or the effect of any vote or failure to determine that any distribution or action may be lawful or reasonably practicable or for allowing any rights to lapse in accordance with the provisions of the trust agreement, the failure or timeliness
of any notice from us, the content of any information submitted to it by us for distribution to you or for any inaccuracy of any translation thereof, any investment risk associated with the acquisition of an interest in the entrusted securities, the
validity or worth of the entrusted securities, the credit-worthiness of any third party, for any tax consequences that may result from ownership of JDSs, shares of common stock or entrusted securities or for any information provided (or not
provided) by JASDEC or JASEC participants.
In the trust agreement, we, the Trustees and the settlor also agree to indemnify each other
under certain circumstances.
Derivative Suits on Behalf of Holders of JDSs
The trust agreement permits the trustees to request the payment of litigation expenses by you prior to initiating any litigation or proceeding
that you may request. The trustees are not under any obligation to initiate any litigation or proceeding against us, or any other party, unless requested to do so by a beneficiary that pays expenses up front and the trustees deem it as reasonable.
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Your Right to Receive the Common Stock Underlying Your JDSs
You may cancel your JDSs and receive the underlying common stock as described above under “How do JDS holders cancel a JDS?”. You may
cancel your JDSs at any time other than:
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when cessation of trading the JDSs on the Tokyo Stock Exchange has or is occurring;
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when the Trustees determine that there would be difficulties in conducting an exchange due to circumstances in which the custodian has difficulties in transferring the underlying common stock to you;
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when you owe money to pay fees, taxes and similar charges; or
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when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to JDSs or to the withdrawal of our common stock.
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JASDEC
The Japanese book-entry transfer
system for listed securities under the Book-Entry Act will apply to the JDSs. Under this system, JDSs listed on any Japanese stock exchange are traded electronically and not represented by certificates. Under the book-entry transfer system, in order
for any person to hold, sell or otherwise dispose of JDSs, they must have an account at an account management institution unless such person has an account at JASDEC. Account management institutions include financial instruments business operators
(i.e., securities firms), banks, trust companies and certain other financial institutions that meet the requirements prescribed by the Book-Entry Act, and only those financial institutions that meet further requirements specified in the Book-Entry
Act can open accounts at JASDEC directly.
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TAX MATTERS
Material United States Federal Income Tax Consequences to Non-U.S. Holders
The following summary describes the material U.S. federal income tax considerations of the acquisition, ownership and disposition of the JDSs
by “non-U.S. holders” (as described below under the heading “—Non-U.S. Holder Defined”). For U.S. federal income tax purposes, including for purposes of application of the income tax treaty between the United States and
Japan (the “Treaty”), holders of the JDSs will be treated as the owners of the underlying shares of our common stock that are represented by the JDSs, and deposits and withdrawals of shares of our common stock by holders in exchange for
the JDSs will not be subject to U.S. federal income tax. Unless the context otherwise requires, all references in this section to our “common stock” are deemed to refer likewise to JDSs representing an ownership interest in shares of our
common stock.
This summary does not address all aspects of U.S. federal income tax considerations relating thereto. This summary also
does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent provided below.
Special rules different from those described below may apply to certain non-U.S. holders that are subject to special treatment under the Code,
including, without limitation:
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banks, insurance companies or other financial institutions,
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partnerships or entities or arrangements treated as partnerships or other pass-through entities for U.S. federal tax purposes (or investors in such entities),
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corporations that accumulate earnings to avoid U.S. federal income tax,
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persons subject to the alternative minimum tax or Medicare contribution tax,
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tax-exempt entities (including private foundations) or tax-qualified retirement plans,
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controlled foreign corporations or passive foreign investment companies,
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persons who acquired our common stock as compensation for services,
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dealers in securities or currencies,
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traders in securities that elect to use a mark-to-market method of accounting for their securities holdings,
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persons that own, or are deemed to own, more than five percent of our capital stock (except to the extent specifically set forth below),
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U.S. expatriates, certain former citizens or long-term residents of the United States,
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persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction,
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persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes), or
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persons deemed to sell our common stock under the constructive sale provisions of the Code.
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In addition, if a partnership or an entity or an arrangement classified as a partnership for U.S. federal income tax purposes is a beneficial
owner of our common stock, the tax treatment of a partner in the partnership or an owner of the entity will depend upon the status of the partner or other owner and the activities of the partnership or other entity. Therefore, this summary does not
address tax considerations applicable to partnerships that hold our common stock, and partners in such partnerships should consult their tax advisors.
This summary also does not address tax considerations applicable to entities that are disregarded for U.S. federal income tax purposes
(regardless of their place of organization or formation).
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The information provided below is based upon provisions of the Code, Treasury regulations
promulgated thereunder, administrative rulings and judicial decisions as of the date hereof. Such authorities may be subject to differing interpretations, repealed, revoked or modified, perhaps retroactively, so as to result in U.S. federal income
tax consequences different from those discussed below. We have not requested a ruling from the Internal Revenue Service, or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no
assurance that the IRS will not take a contrary position regarding the tax consequences of the acquisition, ownership and disposition of our common stock, or that any such contrary position would not be sustained by a court. In either case, the tax
considerations of owning or disposing of our common stock could differ from those described below and as a result, we cannot assure you that the tax consequences described in this discussion will not be challenged by the IRS or will be sustained by
a court if challenged by the IRS.
INVESTORS CONSIDERING THE PURCHASE OF JDSs SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS, AND TAX TREATIES.
Non-U.S. Holder Defined
For purposes of
this summary, a “non-U.S. holder” is any beneficial owner of the JDSs, other than a partnership, that is not:
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an individual who is a citizen or resident of the United States (as determined under U.S. federal income tax rules),
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a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state therein or the District of Columbia,
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a trust if it (1) is subject to the primary supervision of a court within the United States and one of more U.S. persons have 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, or
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an estate whose income is subject to U.S. income tax regardless of its source.
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If you are a
non-U.S. citizen that is an individual, you may, in some cases, be deemed to be a resident alien (as opposed to a nonresident alien) by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at
least 183 days during a three-year period ending in the current calendar year. Generally, for this purpose, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present
in the second preceding year, are counted.
Resident aliens are generally subject to U.S. federal income tax as if they were U.S.
citizens. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the ownership or disposition of our common stock.
Distributions
If we make distributions
on our common stock, such distributions will generally constitute dividends for U.S. federal income tax purposes to the extent they are paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax
principles. Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a non-U.S. holder’s adjusted tax basis in our common stock. Any
remaining excess will be treated as gain realized on the sale or exchange of our common stock as described below under the heading “—Gain on Disposition of our Common Stock.” The amount of any distribution of property other than cash
will be the fair market value of that property on the date of distribution.
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Any distribution on our common stock that is treated as a dividend paid to a non-U.S. holder that
is not effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States will generally be subject to U.S. withholding tax at a 30 percent rate or such lower rate as may be specified under the terms of an
applicable income tax treaty between the United States and the non-U.S. holder’s country of residence. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty. Generally, in
order for us or our paying agent to withhold tax at a lower treaty rate, a non-U.S. holder must certify its entitlement to treaty benefits. Under the Treaty, dividends paid to qualifying Japanese holders of our common stock are generally subject to
a U.S. withholding tax of 10 percent. A non-U.S. holder generally can meet this certification requirement by providing a properly executed IRS Form W-8BEN or
W-8BEN-E
(or any successor form) or appropriate substitute form to us or our paying agent. Holders of JDSs will provide these forms to the Trustees which will, in turn, provide them to us or our paying agent. In the case of a non-U.S. holder that is an
entity, Treasury Regulations and the relevant tax treaty provide rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends will be treated as paid to the entity or to those holding an interest in that
entity. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to the agent. The holder’s agent will then be
required to provide certification to us or our paying agent, either directly or through other intermediaries. For payments made to a partnership or other pass-through entity, the certification requirements generally apply to the partners or other
owners rather than to the partnership or other entity, and the partnership or other entity must provide the partners’ or other owners’ documentation to us or our paying agent. A non-U.S. holder that is eligible for a reduced rate of U.S.
federal withholding tax under an income tax treaty with the United States may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS in a timely manner.
Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder, and if
required by an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States, are not subject to U.S.
withholding tax. To obtain this exemption, a non-U.S. holder must provide us or our paying agent with a properly executed IRS Form W-8ECI certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are
taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition to being taxed at graduated income tax rates, dividends received by corporate non-U.S. holders that are effectively connected with a
U.S. trade or business of the corporate non-U.S. holder may also be subject to an additional “branch profits tax,” which is imposed, under certain circumstances, at a rate of 30 percent (or such lower rate as may be specified by an
applicable tax treaty) on the corporate non-U.S. holder’s effectively connected earnings and profits, subject to certain adjustments.
For additional withholding rules that may apply to dividends paid to certain foreign entities, see the discussion below under the heading
“—Foreign Accounts.”
Gain on Disposition of our Common Stock
Subject to the discussions below under the heading “—Backup Withholding and Information Reporting” and “—Foreign
Accounts,” non-U.S. holders will generally not be subject to U.S. federal income tax on gain realized on the sale, exchange or other disposition of our common stock unless:
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the gain is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business and if required by an applicable income tax treaty between the United States and the non-U.S. holder’s country
of residence, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States;
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(b)
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the non-U.S. holder is a nonresident individual and is present in the United States for 183 days or more in the taxable year of the sale, exchange or other disposition of our common stock, and certain other requirements
are met; or
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(c)
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the rules of the Foreign Investment in Real Property Tax Act, or FIRPTA, apply to treat the gain as effectively connected with a U.S. trade or business.
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A non-U.S. holder described in (a) above, will generally be required to pay tax on the net gain derived from the sale, exchange or other
disposition of our common stock at regular graduated U.S. federal income tax rates, and corporate non-U.S. holders described in (a) above may be subject to the additional branch profits tax at a 30 percent rate or such lower rate as may be
specified by an applicable income tax treaty.
An individual non-U.S. holder described in (b) above, will be required to pay a flat
30 percent tax on the gain derived from the sale, exchange or other disposition of our common stock, or such other reduced rate as may be specified by an applicable income tax treaty, which gain 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).
With respect to (c) above, in general, the FIRPTA
rules may apply to a sale, exchange or other disposition of our common stock if we are, or were within the shorter of the five-year period preceding the disposition and the non-U.S. holder’s holding period, a U.S. real property holding
corporation, or a USRPHC. In general, we would be a USRPHC if the fair market value of U.S. real property interests that we hold equals or exceeds 50 percent of the sum of the fair market values of our (i) U.S. real property interests,
(ii) interests in real property located outside of the United States, and (iii) other assets that we use or hold for use in our trade or business. We do not believe that we are a USRPHC and we do not anticipate becoming a USRPHC; however,
there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, gain realized by a non-U.S. holder on a disposition of our common stock will not be subject to U.S. federal income tax as long as (1) our
common stock is regularly traded on an established securities market, and (2) the non-U.S. holder owned, directly, indirectly and constructively, no more than five percent of our outstanding common stock at all times within the shorter of
(i) the five-year period preceding the disposition or (ii) the holder’s holding period. There can be no assurance that our common stock will qualify as regularly traded on an established securities market.
For additional withholding rules that may apply to proceeds of a disposition of our common stock paid to certain foreign entities, see the
discussion below under the heading “—Foreign Accounts.”
U.S. Federal Estate Tax
The estates of nonresident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a
U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent, unless an applicable estate tax treaty between the United States and the decedent’s country of
residence provides otherwise. Investors are urged to consult their own tax advisors regarding the U.S. federal estate tax consequences of the ownership or disposition of our common stock.
Backup Withholding and Information Reporting
The Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments
are dividends and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by “backup
withholding” rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to comply with the reporting requirements by failing to provide his taxpayer identification number or other
certification of exempt status to the payor, furnishing an incorrect identification number, or failing to report interest or dividends on his returns. The backup withholding tax rate is currently 28 percent. The backup withholding rules do not apply
to payments to corporations, whether domestic or foreign, provided they establish such exemption.
Payments to non-U.S. holders of
dividends on common stock generally will not be subject to backup withholding, so long as the non-U.S. holder certifies its nonresident status (and we or our paying agent do not
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have actual knowledge or reason to know the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied) or otherwise establishes an exemption. U.S. backup
withholding generally will not apply to a non-U.S. holder who provides a properly executed applicable IRS Form W-8BEN or
W-8BEN-E
or otherwise establishes an exemption.
We must report annually to the IRS any dividends paid to each non-U.S. holder and the tax withheld, if any, with respect to these dividends. Copies of these reports may be made available to tax authorities in the country where the non-U.S. holder
resides.
Under the Treasury regulations, the payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder
made to or through a U.S. office of a broker generally will be subject to information reporting and backup withholding unless the beneficial owner certifies, under penalties of perjury, among other things, its status as a non-U.S. holder (and the
broker does not have actual knowledge or reason to know the holder is a U.S. person) or otherwise establishes an exemption. The payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a non-U.S.
office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. Information reporting, but not backup withholding, will apply to a payment of proceeds, even if that payment is made outside of
the United States, if a non-U.S. holder sells our common stock through a non-U.S. office of a broker that is:
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a U.S. person (including a foreign branch or office of such person),
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a “controlled foreign corporation” for U.S. federal income tax purposes,
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a foreign person 50 percent or more of whose gross income from certain periods is effectively connected with a U.S. trade or business, or
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a foreign partnership if at any time during its tax year (a) one or more of its partners are U.S. persons who, in the aggregate, hold more than 50 percent of the income or capital interests of the partnership or
(b) the foreign partnership is engaged in a U.S. trade or business, unless the broker has documentary evidence that the beneficial owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise
establishes an exemption (and the broker has no actual knowledge or reason to know to the contrary).
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Backup withholding is
not an additional tax. Any amounts withheld from a payment to a holder of common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder and may entitle the holder to a refund, provided
that the required information is furnished to the IRS in a timely manner.
Foreign Accounts
A U.S. federal withholding tax of 30 percent may apply to dividends and the gross proceeds of a disposition of our common stock paid to
a foreign financial institution (as specifically defined by the applicable rules) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to
collect and provide to the U.S. tax authorities
(or, where permitted by an applicable intergovernmental agreement, to the local tax authorities) substantial information regarding U.S. account holders of such institution (which includes certain equity holders of such institution, as well as
certain account holders that are foreign entities with U.S. owners). This U.S. federal withholding tax of 30 percent will also apply on dividends and the gross proceeds of a disposition of our common stock paid to a non-financial foreign entity
unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. The 30 percent
federal withholding tax described in this paragraph cannot be reduced under an income tax treaty with the United States. The withholding tax described above will not apply if the foreign financial institution or non-financial foreign entity
otherwise qualifies for an exemption from the rules. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Holders should consult with their own tax advisors
regarding the possible implications
of the withholding described herein.
The withholding provisions described above generally apply to payments of gross proceeds from a sale or other disposition of our common stock that occurs after December 31, 2018, and to payments of
dividends.
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THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION
PURPOSES ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, GIFT, ESTATE, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON
STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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THE JAPANESE EQUITY MARKETS
Japanese Securities Laws
As a U.S.
company offering securities on a Japanese stock exchange, we are subject to various laws and regulations in both jurisdictions. Some of these laws and regulations, in turn, can affect the ability of holders of our securities to transfer or sell our
securities.
At present, Japan does not restrict the export or import of capital, except for transactions with related parties of the
former regime of Iraq and other parties designated by the Ministry of Finance of Japan, some of which are designated in accordance with applicable resolutions adopted by the United Nations and the European Union.
There are no limitations on the right of non-resident owners to hold or vote their shares imposed by Japanese law or our amended and restated
articles of incorporation or amended and restated bylaws.
The Tokyo Stock Exchange and the Mothers Market
With a total market capitalization of more than approximately ¥580 trillion as of the end of 2016, the Tokyo Stock Exchange is one of the
largest stock exchanges in the world. The aggregate annual trading value of the Tokyo Stock Exchange in 2016 was approximately ¥692 trillion for share trading (total of domestic and foreign shares).
The Mothers market of the Tokyo Stock Exchange was established in November 1999. It is designed for companies with high growth potential, and
all prospective enterprises with unique technologies and services are candidates for Mothers listing, regardless of industry. The aggregate annual trading value of the Mothers market in 2016 was approximately ¥30 trillion for share trading
(total of domestic and foreign shares).
Issuers are required to provide investors on an ongoing basis with information such as annual and
quarterly reports, including cash flow statements and a corporate action timetable. This information is required to be submitted in electronic form, thus enabling the stock exchange to disseminate corporate information via the Internet.
Trading of shares, including JDSs, listed on the Mothers market takes place through an electronic trading system. Trading takes place every
business day from 9:00 a.m. to 11:30 a.m. and from 12:30 p.m. to 3:00 p.m., Tokyo time. Trading on the Tokyo Stock Exchange is done through registered securities firms who are members of the Tokyo Stock Exchange.
Transactions of the Tokyo Stock Exchange are normally settled on the third business day following trading. Trading can be suspended by the
Tokyo Stock Exchange if orderly stock exchange trading is temporarily endangered or if a suspension is in the public interest.
Under the
rules of the Tokyo Stock Exchange, the corporate governance of a company not listed on a stock exchange in its home country will be examined by reference to the corporate governance rules for a Japanese company listed on the Tokyo Stock Exchange.
The Tokyo Stock Exchange listing rules provide as follows:
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An issuer of listed shares must have (1) a board of directors, (2) a board of audit and supervisory board members, an audit and supervisory committee (
kansa-tou-iinkai
), or nominating committee, etc.
(
shimei-iinkai-tou
) and (3) an independent public accountant; and
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An issuer of listed shares shall create and maintain a system necessary to secure proper conduct of business in compliance with the articles of incorporation and applicable law and regulations.
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During the listing examination process, the Tokyo Stock Exchange will review our governance mechanisms.
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Trading Units on the Tokyo Stock Exchange
Trading on the Tokyo Stock Exchange is in specific trading units consisting of one or more shares. The number of shares per trading unit is
determined by the regulations of the Tokyo Stock Exchange. We expect that the JDSs will initially trade in increments of 100 JDSs. One trading unit shall be the minimum permitted to be traded.
Report of Substantial Shareholdings
The
Financial Instruments and Exchange Act of Japan requires any person who has become a holder of more than 5% of the total issued shares, including JDSs, of a company listed on any Japanese stock exchange or whose shares or JDSs are traded on the
over-the-counter market to file with the relevant Local Finance Bureau, within five business days, a report concerning those shareholdings. A similar report must also be filed to reflect any change of 1% or more in the above shareholdings. Copies of
any reports must also be furnished to the company and to all Japanese stock exchanges on which the company’s shares or JDSs are listed or, in the case of shares or JDSs traded on the over-the-counter market, the Japan Securities Dealers
Association. For this purpose, shares issuable to a 5% or greater shareholder upon exercise of subscription warrants are taken into account in determining both the number of shares held by that shareholder and the company’s total issued share
capital.
Daily Price Fluctuation Limits under Japanese Stock Exchange Rules
Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are
order-driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing
price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price
above or below the relevant daily limit may not be able to sell the shares at such price on a particular trading day, or at all.
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has not been a public market for shares of the JDSs or our underlying common stock. Future sales of substantial
amounts of shares of our common stock, including shares issued upon the exercise of outstanding equity awards, in the public market after this offering, or the possibility of these sales occurring, could cause the prevailing market price for the
JDSs to fall or impair our ability to raise equity capital in the future.
Upon the completion of this offering a total of 16,280,238
shares of common stock, excluding restricted shares outstanding that remain unvested, will be outstanding, assuming no option exercises after June 30, 2017. Of these shares, all 1,520,000 shares of common stock sold in this offering by us, plus any
shares sold upon exercise of the underwriters’ option to purchase additional shares from us, will be in the form of JDSs and 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 Rule 144 under the Securities Act, which is summarized below. Of these restricted securities, 12,077,739 shares are subject to lock-up agreements with the underwriters and such shares may not be sold
for a period of 90 days. Subject to the lock-up agreements described below and the provisions of Rule 144 under the Securities Act, these restricted securities will first become available for sale in the public market as follows:
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Date
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Number of
Shares of
Common Stock
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Equivalent
Number of JDSs
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On the date of this prospectus
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2,682,499
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2,682,499
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90 days after the date of this prospectus
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12,077,739
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12,077,739
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Rule 144
In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who is not our affiliate and has not been our
affiliate at any time during the preceding three months will be entitled to sell any shares of our common stock that such person has beneficially owned for at least six months, including the holding period of any prior owner other than one of our
affiliates, without regard to volume limitations. Sales of our common stock by any such person would be subject to the availability of current public information about us if the shares to be sold were beneficially owned by such person for less than
one year.
In addition, under Rule 144, a person may sell shares of our common stock acquired from us immediately upon the closing of this
offering, without regard to volume limitations or the availability of public information about us, if:
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the person is not our affiliate and has not been our affiliate at any time during the preceding three months; and
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the person has beneficially owned the shares to be sold for at least 12 months, including the holding period of any prior owner other than one of our affiliates.
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Beginning 90 days after the date of this prospectus, our affiliates who have beneficially owned shares of our common stock for at least six
months, including the holding period of any prior owner other than one of our
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affiliates, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
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1% of the number of shares of our common stock then-outstanding, which will equal approximately 16,280 shares of common stock, or 16,280 JDSs, immediately after this offering; and
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the average weekly trading volume in our common stock during the four calendar weeks preceding the date of filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with respect to the sale.
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Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the
availability of current public information about us.
Lock-Up Agreements
In connection with this offering we and our officers, directors, and certain holders of our capital stock have agreed with the underwriters,
subject to certain exceptions, not to dispose of or hedge any of our common stock or securities convertible into or exchangeable for shares of common stock, file or cause to be filed a registration statement covering shares of common stock or any
securities that are convertible into, exchangeable for, or represent the right to receive, common stock or any substantially similar securities, or publicly disclose the intention to do any of the foregoing, during the period from the date of this
prospectus continuing through the date 90 days after the date of this prospectus, except with the prior written consent of the underwriters. The restrictions in the lock-up agreement do not apply to any sale of JDSs representing shares with a sale
price that is 1.5 or more times greater than the initial public offering price and the sale is executed through Mizuho Securities on the Mothers market. This agreement does not apply to the issuance by us of shares under any existing employee
benefit plans. This agreement is subject to certain exceptions as set forth in “Underwriting.” In addition, the underwriters may, in their sole discretion, waive the contractual lock-up prior to the expiration of the lock-up agreements.
Registration Rights
Upon
completion of this offering, certain holders of our outstanding preferred stock will be entitled to various rights with respect to the registration under the Securities Act of shares of our common stock issuable upon conversion of our preferred
stock. 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. See “Description of Capital
Stock—Investors’ Rights Agreement” for additional information.
Registration Statements
We intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of common stock subject to options
outstanding or reserved for issuance under our stock plans. We expect to file this registration statement as soon as practicable after this offering. However, none of the shares registered on Form S-8 will be eligible for resale until the expiration
of the lock-up agreements to which they would be subject upon grant.
109
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the underwriters, for whom Mizuho Securities Co., Ltd. is acting as
managing underwriter, have agreed to purchase from us the number of shares of common stock represented by the number of JDSs listed below, at a public offering price less the underwriting discounts and commissions set forth on the cover page of this
prospectus:
|
|
|
|
|
|
|
Underwriter
|
|
Number of
JDSs
|
|
|
Mizuho Securities Co., Ltd
|
|
|
|
|
|
Daiwa Securities Co. Ltd
|
|
|
|
|
|
SBI Securities Co. Ltd
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,520,000
|
|
|
|
|
|
|
|
The underwriting agreement provides that the obligations of the underwriters to purchase the JDSs
offered hereby are subject to certain conditions precedent and that the underwriters will purchase all of the JDSs offered by this prospectus, other than those covered by the option to purchase additional shares described below, if any of these
shares are purchased.
We have agreed to indemnify the underwriters against some specified types of liabilities, including liabilities
under the Securities Act, and to contribute to payments the underwriter may be required to make in respect of any of these liabilities.
The underwriters are offering the JDSs, subject to prior sale, when, as and if issued to and accepted by it, subject to approval of legal
matters by its counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriter 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.
Commission and Discounts
We have been advised by the underwriters that they propose to offer the JDSs to the public at the public offering price set forth on the cover
of this prospectus and to dealers at a price that represents a concession not in excess of $ per JDS under the public offering price. The underwriters may allow, and these dealers may re-allow, a
concession of not more than $ per JDS to other dealers. After the initial public offering the underwriters may change the offering price and other selling terms. This offering of the JDSs by the
underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part. The underwriters will pay for any option shares by converting the ¥
price per JDS to Japanese investors, less an underwriting discount of ¥ per JDS, to U.S. dollars at the rate prevailing on the date of exercise of
the over-allotment option.
The underwriting discounts and commissions per JDS are equal to the public offering price per JDS less the
amount paid by the underwriter to us per JDS. The underwriting discounts and commissions are 8% of the initial public offering price. The following table shows the per JDS and total underwriting discounts and commissions to be paid to the
underwriters by us. The underwriters will pay us in dollars but intend to require investors in Japan to make payment in Japanese yen. The per JDS offering price stated in Japanese yen is
¥ ; per JDS amounts in dollars have been rounded. Such amounts are shown assuming both no exercise and full exercise of the over-allotment option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
|
|
|
Per
JDS
|
|
|
Without Option
|
|
|
With Full
Option (1)
|
|
|
Discounts and commission paid by us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
(1)
|
Calculated assuming the rate of ¥ to $1.00.
|
110
We estimate that the total expenses of this offering, including registration, filing and
listing fees, and printing, legal and accounting expenses, but excluding the underwriting discounts and commissions, payable by us will be approximately $2,618,418. Pursuant to a financial advisory service agreement, we entered into with the
underwriters to assist with our registration and listing in Japan, we have agreed to pay the underwriters a monthly fee of approximately $8,000 and to reimburse the underwriters for certain fees and expenses related to this agreement.
The underwriters have advised us that they do not intend to confirm sales to any accounts over which they exercise discretionary authority.
Option to Purchase Additional Shares
We have granted to the underwriter an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to 228,000
additional shares at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus. To the extent that the underwriters exercise this over-allotment option, it will become obligated, subject
to conditions, to purchase these additional shares. We will be obligated, pursuant to the option, to sell these additional shares to the underwriter to the extent the option is exercised. If any additional shares are purchased, the underwriters will
offer the additional shares, to be represented by JDSs, on the same terms as those on which the initial JDSs referred to in the above table are being offered.
To facilitate the ability of the underwriters to settle transactions involving additional JDSs during the 30-day over-allotment period, Mizuho
Securities Co., Ltd, as managing underwriter, has entered into a share lending arrangement with one of our stockholders covering 228,000 of our shares of common stock to be represented by JDSs. We have registered the equivalent number of shares of
our common stock and JDSs equivalent to these borrowed shares as the shares that we register will ultimately be the shares delivered to the underwriters in connection with settling trades during the 30 day over-allotment period. The underwriters are
obligated to return all borrowed shares to the lending stockholder concurrent with the exercise of the underwriters’ over-allotment option and the issuance of new shares by us to cover the number of JDSs purchased by the underwriters in the
exercise of their over-allotment option. In exchange for agreeing to lend the 228,000 shares of common stock, the lending stockholder will not be subject to the lock-up agreement terms described above. No fees or other remuneration will be paid by
the underwriters to the lending stockholder for the loan of these shares of our common stock.
No Sales of Similar Securities
In connection with this offering, we and each of our officers and directors and certain of our security holders have agreed that, subject to
certain exceptions, for a period of 90 days from the date of this prospectus, we and they will not, without the prior written consent of the underwriters, directly or indirectly, offer, sell, pledge, contract to sell (including any short sale),
grant any option to purchase or otherwise dispose of any shares of our common stock, shares of common stock which may be issued upon exercise of a stock option or warrant and any other security convertible into or exchangeable for our common stock,
or enter into any hedging transaction relating to our common stock. One of the exceptions provided in these lock-up agreements is for any sale of JDSs representing shares with a sale price that is 1.5 or more times greater than the initial public
offering price and the sale is executed through Mizuho Securities on the Mothers market. This consent may be given at any time without public notice, except as required by applicable law. There are no agreements between the underwriters and any of
our security holders or affiliates releasing them from these lock-up agreements prior to the expiration of the 90-day period.
Price
Stabilization, Short Positions and Penalty Bids
In connection with the offering, the underwriters may purchase and sell the JDSs
in the open market. These transactions may include short sales, purchases to cover positions created by short sales and stabilizing transactions.
111
Short sales involve the sale by the underwriter of a greater number of JDSs than it is
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 from us in the offering. The underwriters may close out any covered short position by
either exercising their option to purchase additional shares or purchasing JDSs 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 JDSs
available for purchase in the open market as compared to the price at which they may purchase shares through the option to purchase additional shares granted to it.
Naked short sales are any sales in excess of the option to purchase additional shares. The underwriters must close out any naked short
position by purchasing JDSs 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 the JDSs in the open market prior to the completion of the
offering. Stabilizing transactions consist of various bids for or purchases of the JDSs made by the underwriters in the open market prior to the completion of the offering.
Purchases to cover a short position and stabilizing transactions may have the effect of preventing or slowing a decline in the market price of
the JDSs. Additionally, these purchases may stabilize, maintain or otherwise affect the market price of the JDSs. As a result, the price of the shares may be higher than the price that might otherwise exist in the open market. These transactions may
be effected on the Mothers market of the Tokyo Stock Exchange, in the over-the-counter market or otherwise.
Listing
We intend to apply to have the JDSs approved for listing on the Mothers market of the Tokyo Stock Exchange under the securities identification
code
“M-6697
.”
Pricing of this Offering
Prior to this offering, there has been no public market for the JDSs or our underlying common stock. The initial public offering price will be
determined by negotiations among us and the underwriters. In determining the initial public offering price, we and the underwriters expect to consider a number of factors including:
|
|
•
|
|
the information set forth in this prospectus and otherwise available to the underwriters;
|
|
|
•
|
|
prevailing market conditions;
|
|
|
•
|
|
our prospects and the history and prospects for the industry in which we compete;
|
|
|
•
|
|
an assessment of our management;
|
|
|
•
|
|
our prospects for future earnings;
|
|
|
•
|
|
the general condition of the securities markets at the time of this offering;
|
|
|
•
|
|
the recent market prices of, and demand for, publicly traded shares of generally comparable companies; and
|
|
|
•
|
|
other factors deemed relevant by the underwriters and us.
|
Neither we nor the underwriters can
assure investors that an active trading market will develop for the JDSs, or that the JDSs will trade in the public market at or above the initial public offering price.
We intend to apply for the listing of the JDSs on the Mothers market of the Tokyo Stock Exchange. No additional action is being taken in any
jurisdiction outside the United States to permit a public offering of the JDSs or our underlying common stock, or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in
jurisdictions outside the United States and Japan are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this
112
prospectus applicable to that jurisdiction. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction
in which such an offer or a solicitation is unlawful.
Other Relationships
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, we pay advisory fees to the underwriter as described above under the heading “Commission and
Discounts.”
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.
Electronic Offer, Sale and Distribution of JDSs
A prospectus in electronic format may be made available on the websites maintained by the underwriters, or selling group members, if any,
participating in the offering and may be distributed by electronic means, such as e-mail. The underwriters may agree to allocate a number of JDSs to selling group members for sale to their online brokerage account holders. Internet distributions
will be allocated by the underwriters to selling group members that may make Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters’, or any selling
group member’s, if any, website and any information contained in any other website maintained by the underwriters, or selling group member, if any, is not part of the prospectus or the registration statement of which the prospectus forms a
part.
113
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon for us by Pillsbury Winthrop Shaw Pittman LLP, Palo Alto,
California. Anderson Mori
& Tomotsune, Tokyo, Japan, is representing the underwriters in this offering.
EXPERTS
The consolidated financial statements as of December 31, 2016 and 2015 and for the years then ended included in this Prospectus and the
Registration Statement, have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere herein and in the Registration Statement, given on the authority of said firm as experts
in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL 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 offered
hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information about us and the
common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to
the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. Upon completion of this
offering, we will be required to file periodic reports, proxy statements, and other information with the SEC pursuant to the Exchange Act. You may read and copy this information at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about
issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.
114
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Stockholders
Techpoint, Inc.
San Jose, California
We have audited the accompanying consolidated balance sheets of Techpoint, Inc. (the “Company”) as of December 31, 2016 and
2015 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. 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. The Company is not required to have, nor
were we engaged to perform, an audit of its 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, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Techpoint, Inc. at December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ BDO USA, LLP
San Jose, California
March 7, 2017
F-2
TECHPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
Pro Forma
Stockholders’
Equity
June 30,
2017
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,463
|
|
|
$
|
10,006
|
|
|
$
|
11,932
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2
|
|
|
|
79
|
|
|
|
126
|
|
|
|
|
|
|
Inventory
|
|
|
1,381
|
|
|
|
2,583
|
|
|
|
2,094
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
466
|
|
|
|
273
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
11,312
|
|
|
|
12,941
|
|
|
|
14,566
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT — NET
|
|
|
170
|
|
|
|
401
|
|
|
|
375
|
|
|
|
|
|
|
DEFERRED TAX ASSETS
|
|
|
829
|
|
|
|
1,022
|
|
|
|
980
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
172
|
|
|
|
1,188
|
|
|
|
1,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
12,483
|
|
|
$
|
15,552
|
|
|
$
|
17,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,444
|
|
|
$
|
777
|
|
|
$
|
659
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
192
|
|
|
|
481
|
|
|
|
838
|
|
|
|
|
|
|
Liability related to early exercised stock options
|
|
|
186
|
|
|
|
223
|
|
|
|
172
|
|
|
|
|
|
|
Customer deposits
|
|
|
1,359
|
|
|
|
745
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,181
|
|
|
|
2,226
|
|
|
|
1,742
|
|
|
|
|
|
|
OTHER LIABILITIES
|
|
|
62
|
|
|
|
90
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,243
|
|
|
|
2,316
|
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock: 11,660,000 shares authorized, no par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series Seed convertible preferred stock — 4,660,000 shares designated; 4,660,000 shares issued
and outstanding (aggregate liquidation value of $1,165) as of June 30, 2017 (unaudited), December 31, 2016 and 2015; no shares issued and outstanding as of June 30, 2017, pro forma (unaudited)
|
|
|
1,156
|
|
|
|
1,156
|
|
|
|
1,156
|
|
|
$
|
—
|
|
|
Series A convertible preferred stock — 4,500,000 shares designated; 4,500,000 shares issued
and outstanding (aggregate liquidation value of $4,500) as of June 30, 2017 (unaudited), December 31, 2016 and 2015; no shares issued and outstanding as of June 30, 2017, pro forma (unaudited)
|
|
|
4,477
|
|
|
|
4,477
|
|
|
|
4,477
|
|
|
|
—
|
|
|
Series B convertible preferred stock — 2,500,000 shares designated; 1,582,500 shares issued
and outstanding (aggregate liquidation value of $3,165) as of June 30, 2017 (unaudited), December 31, 2016 and 2015; no shares issued and outstanding as of June 30, 2017, pro forma (unaudited)
|
|
|
3,161
|
|
|
|
3,161
|
|
|
|
3,161
|
|
|
|
—
|
|
|
Common stock, no par value — 20,500,000 shares authorized; 4,017,738, 3,725,238 and 3,332,852
shares issued and outstanding as of June 30, 2017 (unaudited), December 31, 2016 and 2015, respectively; 14,760,238 shares issued and outstanding as of June 30, 2017, pro forma (unaudited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Additional paid-in capital
|
|
|
298
|
|
|
|
813
|
|
|
|
1,174
|
|
|
|
9,968
|
|
|
Retained Earnings
|
|
|
148
|
|
|
|
3,629
|
|
|
|
6,043
|
|
|
|
6,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
9,240
|
|
|
|
13,236
|
|
|
|
16,011
|
|
|
$
|
16,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
12,483
|
|
|
$
|
15,552
|
|
|
$
|
17,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
TECHPOINT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended,
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
REVENUE
|
|
$
|
20,245
|
|
|
$
|
27,156
|
|
|
$
|
13,640
|
|
|
$
|
15,269
|
|
|
COST OF REVENUE
|
|
|
8,803
|
|
|
|
12,735
|
|
|
|
6,448
|
|
|
|
6,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
11,442
|
|
|
|
14,421
|
|
|
|
7,192
|
|
|
|
8,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,964
|
|
|
|
4,380
|
|
|
|
2,196
|
|
|
|
2,662
|
|
|
Selling, general and administrative
|
|
|
2,592
|
|
|
|
4,678
|
|
|
|
2,462
|
|
|
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,556
|
|
|
|
9,058
|
|
|
|
4,658
|
|
|
|
5,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
|
3,886
|
|
|
|
5,363
|
|
|
|
2,534
|
|
|
|
3,702
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
3
|
|
|
|
—
|
|
|
|
11
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
3,889
|
|
|
|
5,363
|
|
|
|
2,545
|
|
|
|
3,692
|
|
|
INCOME TAXES
|
|
|
(168
|
)
|
|
|
1,882
|
|
|
|
833
|
|
|
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
4,057
|
|
|
$
|
3,481
|
|
|
$
|
1,712
|
|
|
$
|
2,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to preferred stockholders
|
|
|
3,170
|
|
|
|
2,627
|
|
|
|
1,298
|
|
|
|
1,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common stockholders
|
|
|
887
|
|
|
|
854
|
|
|
|
414
|
|
|
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
0.24
|
|
|
$
|
0.12
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
0.28
|
|
|
|
0.23
|
|
|
|
0.11
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma basic
|
|
|
|
|
|
|
0.24
|
|
|
|
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma diluted
|
|
|
|
|
|
|
0.23
|
|
|
|
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding in computing net income per share attributable to common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,007
|
|
|
|
3,494
|
|
|
|
3,426
|
|
|
|
3,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
3,774
|
|
|
|
4,358
|
|
|
|
4,298
|
|
|
|
4,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma basic
|
|
|
|
|
|
|
14,236
|
|
|
|
|
|
|
|
14,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma diluted
|
|
|
|
|
|
|
15,101
|
|
|
|
|
|
|
|
15,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
TECHPOINT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Retained
Earnings
(Accumulated
Deficit)
|
|
|
Total
Stockholders’
Equity
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
Balances as of December 31, 2014
|
|
|
10,742,500
|
|
|
$
|
8,794
|
|
|
|
2,893,084
|
|
|
$
|
—
|
|
|
$
|
91
|
|
|
$
|
(3,909
|
)
|
|
$
|
4,976
|
|
|
Exercise of stock options and vesting of early exercised stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
439,768
|
|
|
|
—
|
|
|
|
43
|
|
|
|
—
|
|
|
|
43
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164
|
|
|
|
—
|
|
|
|
164
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,057
|
|
|
|
4,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2015
|
|
|
10,742,500
|
|
|
|
8,794
|
|
|
|
3,332,852
|
|
|
|
—
|
|
|
|
298
|
|
|
|
148
|
|
|
|
9,240
|
|
|
Exercise of stock options and vesting of early exercised stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
392,386
|
|
|
|
—
|
|
|
|
76
|
|
|
|
—
|
|
|
|
76
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
439
|
|
|
|
—
|
|
|
|
439
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,481
|
|
|
|
3,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2016
|
|
|
10,742,500
|
|
|
|
8,794
|
|
|
|
3,725,238
|
|
|
|
—
|
|
|
|
813
|
|
|
|
3,629
|
|
|
|
13,236
|
|
|
Exercise of stock options and vesting of early exercised stock options (unaudited)
|
|
|
—
|
|
|
|
—
|
|
|
|
292,500
|
|
|
|
—
|
|
|
|
72
|
|
|
|
—
|
|
|
|
72
|
|
|
Stock-based compensation (unaudited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
289
|
|
|
|
—
|
|
|
|
289
|
|
|
Net Income (unaudited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,414
|
|
|
|
2,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2017 (unaudited)
|
|
|
10,742,500
|
|
|
$
|
8,794
|
|
|
|
4,017,738
|
|
|
$
|
—
|
|
|
$
|
1,174
|
|
|
$
|
6,043
|
|
|
$
|
16,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
TECHPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended,
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
3,481
|
|
|
$
|
1,712
|
|
|
$
|
2,414
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
94
|
|
|
|
160
|
|
|
|
58
|
|
|
|
101
|
|
|
Stock-based compensation
|
|
|
164
|
|
|
|
439
|
|
|
|
187
|
|
|
|
289
|
|
|
Write-off of long lived assets
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
9
|
|
|
Deferred income taxes
|
|
|
(829
|
)
|
|
|
(193
|
)
|
|
|
(117
|
)
|
|
|
42
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2
|
)
|
|
|
(77
|
)
|
|
|
(15
|
)
|
|
|
(47
|
)
|
|
Inventory
|
|
|
(286
|
)
|
|
|
(1,202
|
)
|
|
|
(891
|
)
|
|
|
489
|
|
|
Prepaid expenses and other current assets
|
|
|
(322
|
)
|
|
|
193
|
|
|
|
(409
|
)
|
|
|
(141
|
)
|
|
Other assets
|
|
|
(151
|
)
|
|
|
(23
|
)
|
|
|
4
|
|
|
|
(3
|
)
|
|
Accounts payable
|
|
|
1,134
|
|
|
|
(791
|
)
|
|
|
(924
|
)
|
|
|
(5
|
)
|
|
Accrued expenses
|
|
|
52
|
|
|
|
200
|
|
|
|
1,161
|
|
|
|
115
|
|
|
Customer deposits
|
|
|
1,323
|
|
|
|
(614
|
)
|
|
|
(657
|
)
|
|
|
(672
|
)
|
|
Deferred rent
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other liabilities
|
|
|
62
|
|
|
|
28
|
|
|
|
24
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,287
|
|
|
|
1,608
|
|
|
|
133
|
|
|
|
2,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(88
|
)
|
|
|
(346
|
)
|
|
|
(188
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(88
|
)
|
|
|
(346
|
)
|
|
|
(188
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
184
|
|
|
|
113
|
|
|
|
112
|
|
|
|
21
|
|
|
Payments of deferred offering costs
|
|
|
—
|
|
|
|
(832
|
)
|
|
|
(634
|
)
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
184
|
|
|
|
(719
|
)
|
|
|
(522
|
)
|
|
|
(584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
5,383
|
|
|
|
543
|
|
|
|
(577
|
)
|
|
|
1,926
|
|
|
CASH AND CASH EQUIVALENTS — Beginning of period
|
|
|
4,080
|
|
|
|
9,463
|
|
|
|
9,463
|
|
|
|
10,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS — End of period
|
|
$
|
9,463
|
|
|
$
|
10,006
|
|
|
$
|
8,886
|
|
|
$
|
11,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
821
|
|
|
$
|
1,819
|
|
|
$
|
1,216
|
|
|
$
|
1,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid deferred offering costs
|
|
$
|
53
|
|
|
$
|
161
|
|
|
$
|
90
|
|
|
$
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of early exercised stock options
|
|
$
|
16
|
|
|
$
|
76
|
|
|
$
|
35
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment purchased but not yet paid
|
|
$
|
—
|
|
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
TECHPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Organization
Techpoint, Inc. (the “Company”) was incorporated in California in April 2012. The Company is a fabless semiconductor company that
designs, markets and sells mixed-signal integrated circuits for multiple video applications in the security surveillance and automotive markets. The Company is headquartered in San Jose, California.
The Company has subsidiaries in Japan and China and branch offices in Korea and Taiwan. The China subsidiary and Taiwan branch office provide
sales support to customers. The Japan subsidiary and Korea office provide sales support to customers and are also involved in product development. The Japan and China subsidiaries were incorporated in November 2015 and April 2016, respectively.
Basis of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”). All intercompany
balances and transactions have been eliminated. The functional currency of each of the Company’s subsidiaries is the U.S. dollar. Foreign currency gains or losses are recorded as other income (expense) in the Consolidated Statements of
Operations.
Unaudited Pro Forma Balance Sheet
Upon completion of the Company’s planned initial public offering (“IPO”) on the Mothers market of the Tokyo Stock Exchange,
yielding to the Company gross proceeds of at least in excess of $25 million, all of the shares of convertible preferred stock will automatically convert into shares of common stock. Unaudited pro forma stockholders’ equity assumes the
conversion of all outstanding convertible preferred stock into common stock as of the date of the most recent balance sheet presented. As of June 30, 2017 and December 31, 2016, the convertible preferred stock will convert into approximately
10,742,500 shares of common stock (see Note 6 “Convertible Preferred Stock”) upon completion of the IPO.
The unaudited pro
forma information does not reflect any pro forma adjustments for common stock to be issued in conjunction with the IPO or any related estimated net proceeds.
Unaudited Interim Consolidated Financial Statements
The interim Consolidated Balance Sheet as of June 30, 2017, the Consolidated Statements of Operations and Consolidated Statements of Cash Flows
for the six months ended June 30, 2017 and 2016, the Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2017, and the related footnote disclosures are unaudited. The unaudited interim consolidated financial
statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which only include normal recurring adjustments, necessary to present fairly the
Company’s financial position as of June 30, 2017 and its results of operations, and cash flows for the six months ended June 30, 2017 and 2016. The results of operations for the six months ended June 30, 2017 are not necessarily indicative of
the results to be expected for the full fiscal year or for any other future annual or interim periods.
Use of Management’s Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of
F-7
revenue and expenses during the reporting period. Significant estimates included in the consolidated financial statements include inventory valuation, valuation allowance for recorded deferred
tax assets, and stock based compensation. These estimates are based upon information available as of the date of the consolidated financial statements. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
The
Company considers all highly liquid financial instruments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market
funds, the fair value of which approximates cost.
Fair Value of Financial Instruments
The Company estimates certain financial assets and liabilities at fair value based on available market information and valuation methodologies
considered to be appropriate. However, considerable judgment is required in interpreting market data to develop the estimate of fair value. The use of different market assumptions and/or estimation methodologies could have a material effect on
estimated fair value amounts. See Note 3: “Fair Value Measurements” of these Notes to Consolidated Financial Statements for a further discussion on fair value of financial instruments.
Concentration of Customer and Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. Risks associated with cash and cash equivalents are mitigated by banking with creditworthy institutions. The Company generally requires advance payments from customers. The Company also performs credit evaluations of its
customers and provides credit to certain customers in the normal course of business. The Company has not incurred bad debt write-offs during any of the periods presented. For the six months ended June 30, 2017 and 2016, and for the years ended
December 31, 2016 and 2015, one customer, a distributor, accounted for 70%, 87%, 85% and 82% of revenue, respectively. Additionally, for the six months ended June 30, 2017 and 2016, and for the years ended December 31, 2016 and 2015, one
of our end-customers accounted for 61%, 65%, 62% and 78% of revenue, respectively, which primarily occurred through this distributor. One of the Company’s other customers accounted for 12% of revenue for the six months ended June 30, 2017.
No other customers accounted for 10% or greater of our revenue in the six months ended June 30, 2017 and 2016, and the years ended December 31, 2016 or 2015.
Concentration of Supplier Risk
The Company is a fabless producer of semiconductors and is dependent on two subcontractors for substantially all of its production
requirements. The failure of either subcontractor to fulfill the production requirements of the Company on a timely basis would adversely impact future results. Although there are other subcontractors that are capable of providing similar services,
an unexpected change in either subcontractor would cause delays in the Company’s products and potentially result in a significant loss of revenue.
Inventories
Inventories are
stated at the lower of cost or market. Upon the adoption of ASU 2015-11 in the first quarter of fiscal 2017, inventories are stated at the lower of cost or net realizable value. Cost is computed using the standard cost, which approximates actual
cost determined on a first-in, first-out basis. Inventories include work in process and finished good parts that may be specialized in nature and subject to rapid obsolescence. Because of the cyclical nature of the market, inventory levels,
obsolescence of technology, and product life cycles, the Company generally writes down inventories to net realizable value based on forecasted product demand. The amount written down for the six months ended June 30, 2017 and 2016, was $0.2 million
and $0.4 million, respectively, and for the years ended December 31, 2016 and 2015 was $0.8 million and $0.1 million,
F-8
respectively. Inventory write downs for excess quantity and technological obsolescence are charged to cost of sales when evidence indicates clearly that a loss has been sustained.
Property and Equipment
Property
and equipment, are stated at cost less accumulated depreciation, and are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives range from two to three years for computer equipment,
furniture and leasehold improvements.
The Company evaluates the recoverability of property, plant and equipment in accordance with
Accounting Standards Codification (“ASC”) No. 360,
Accounting for the Property, Plant, and Equipment
. (“ASC 360”). The Company performs periodic reviews to determine whether facts and circumstances exist that would
indicate that the carrying amounts of property and equipment exceeds their fair values. If facts and circumstances indicate that the carrying amount of property and equipment might not be fully recoverable, projected undiscounted net cash flows
associated with the related asset or group of assets over their estimated remaining useful lives are compared against their respective carrying amounts. In the event that the projected undiscounted cash flows are not sufficient to recover the
carrying value of the assets, the assets are written down to their estimated fair values based on their expected discounted future cash flows attributable to those assets.
Deferred Offering Costs
Deferred
offering costs, consisting of legal, accounting and filing fees directly relating to the Company’s initial public offering, are capitalized. The deferred offering costs will be reclassified to stockholders’ equity and offset against the
IPO proceeds upon the completion of the offering. In the event the offering is abandoned or terminated, deferred offering costs will be expensed immediately. As of June 30, 2017, December 31, 2016 and 2015, the Company capitalized
$1.8 million, $1.0 million and $53,000 of deferred offering costs, respectively, which is included in other assets in the accompanying consolidated balance sheets.
Product Warranty
The Company
generally warrants its products for one year from the date of shipment against defects. The Company accrues for anticipated warranty costs upon shipment based on the number of shipped units, historical analysis of the volume of product returned
under the warranty program, management’s judgment regarding anticipated rates of warranty claims and associated repair costs.
Employee Benefit
Plan
The Company sponsors a 401(k) tax-deferred savings plan for all employees in the United States who meet certain eligibility
requirements. Participants may contribute up to the amount allowable as a deduction for federal income tax purposes. The 401(k) Plan provides for a discretionary employer-matching contribution. The Company has not made any matching contributions to
the 401(k) Plan to date.
Revenue Recognition
Revenue from the sale of the Company’s products is recognized when all of the following criteria are met: (1) persuasive evidence of
an arrangement exists; (2) the product has been delivered; (3) the price is fixed or determinable; and (4) collection is reasonably assured.
The Company principally sells its products to distributors who, in turn, sell to ODMs, contract manufacturers and design houses. The Company
generally recognizes revenue when it ships its product to the distributors. The Company’s delivery terms are primarily free on board shipping point, at which time title and all risks of ownership are transferred to the distributor. As of June
30, 2017, December 31, 2016 and 2015, substantially all of the Company’s customers paid in advance of shipment, and no stock rotation, price protection or return rights were offered.
F-9
Research and Development Costs
Research and development costs are expensed as incurred. Such costs consist primarily of expenditures for labor, benefits and mask sets.
Stock-Based Compensation
The
Company measures the cost of employee services received in exchange for equity incentive awards, including stock options, based on the grant date fair value of the award. The fair value is estimated using the Black-Scholes option pricing model which
requires us to estimate certain key assumptions including, stock price, future stock price volatility, expected term of the options, risk free rates, and dividend yields. The Company adjusts compensation expense for forfeiture of equity incentive
awards as they occur. The resulting cost is recognized over the period that the employee is required to provide services for the award, which is usually the vesting period. The Company recognizes compensation expense over the vesting period using
the straight-line method and classifies these amounts based on the department to which the related employee is assigned. See Note 11 “Stock-Based Compensation” for a description of the Company’s stock-based employee compensation plans
and the assumptions the Company uses to calculate the fair value of stock-based employee compensation.
Stock-based awards issued to
non-employees are recognized as expense over the requisite service period at their then current fair value. The Company determines the fair value of its stock options issued to non-employees utilizing the Black-Scholes option pricing model.
Stock-based compensation expense for stock options issued to nonemployees is recognized over the requisite service period or when it is probable that the performance condition will be satisfied. The fair value of stock-based awards to non-employees
is measured at each reporting period until a measurement date is reached.
Income Taxes
The Company accounts for income taxes using an asset and liability approach as prescribed in ASC 740-10,
Income Taxes
(“ASC
740-10”). The Company records the amount of taxes payable or refundable for the current and prior years and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company’s financial
statements or tax returns. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
ASC 740-10 prescribes a recognition threshold and measurement framework for the financial statement reporting and disclosure of an income tax
position taken or expected to be taken on a tax return. Under ASC 740-10, a tax position is recognized in the financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination,
including resolution of any related appeals or litigation processes. A tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50% likelihood of being realized upon
settlement. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes in the Consolidated Statements of Income.
The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax
laws across multiple tax jurisdictions. Although ASC 740-10 provides clarification on the accounting for uncertainty in income taxes recognized in the financial statements, the recognition threshold and measurement framework will continue to require
significant judgment by management. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on the Company’s results of operations.
Net Income Per Common Share
Basic
and diluted net income per common share are presented in conformity with the two-class method required for participating securities. All dividends shall be declared pro rata on the common stock and preferred stock on a pari passu basis according to
the number of shares of common stock held by such holders.
F-10
Under the two-class method, net income attributable to common stockholders is determined by
allocating undistributed earnings between common stock and Series Seed, Series A and Series B convertible preferred stock. In computing diluted net income attributable to common stockholders, undistributed earnings are reallocated to reflect the
potential impact of dilutive securities. Basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the period, which excludes
dilutive unvested early exercised stock options.
Diluted net income per share attributable to common stockholders is computed by dividing
the net income attributable to common stockholders by the weighted average number of common shares outstanding, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested early-exercised stock
options using the treasury stock method.
Unaudited pro forma basic and diluted net income per share were computed to give effect to the
conversion of the Series Seed, Series A and Series B convertible preferred shares using the as-if converted method into common shares as though the conversion had occurred as of the beginning of the period presented.
The following table presents the calculation of basic and diluted net income per share (amounts in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Six Months Ended,
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Net income attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,057
|
|
|
$
|
3,481
|
|
|
$
|
1,712
|
|
|
$
|
2,414
|
|
|
Net income allocable to preferred stockholders
|
|
|
3,170
|
|
|
|
2,627
|
|
|
|
1,298
|
|
|
|
1,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common shareholders —basic
|
|
|
887
|
|
|
|
854
|
|
|
|
414
|
|
|
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4,057
|
|
|
|
3,481
|
|
|
|
1,712
|
|
|
|
2,414
|
|
|
Net income allocable to preferred stockholders
|
|
|
3,002
|
|
|
|
2,477
|
|
|
|
1,223
|
|
|
|
1,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common shareholders —diluted
|
|
|
1,055
|
|
|
|
1,004
|
|
|
|
489
|
|
|
|
729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic net income per common share
|
|
|
3,007
|
|
|
|
3,494
|
|
|
|
3,426
|
|
|
|
3,849
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options (1)
|
|
|
767
|
|
|
|
864
|
|
|
|
872
|
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted net income per common share
|
|
|
3,774
|
|
|
|
4,358
|
|
|
|
4,298
|
|
|
|
4,648
|
|
|
Net Income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
0.24
|
|
|
$
|
0.12
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.28
|
|
|
$
|
0.23
|
|
|
$
|
0.11
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Including early-exercised options.
|
The potentially dilutive securities outstanding as of June
30, 2017, December 31, 2016 and 2015 that were excluded from the computation of diluted net income per common share for the periods presented as their effect would have been antidilutive was 82,000, 56,000 and 39,000 shares, respectively,
related to stock options.
F-11
The following table presents the unaudited calculation of pro forma basic and diluted net income
per share (amounts in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
June 30, 2017
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
Net income
|
|
$
|
3,481
|
|
|
$
|
2,414
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computing basic net income per common share
|
|
|
3,494
|
|
|
|
3,849
|
|
|
Pro forma weighted average conversion of convertible preferred stock
|
|
|
10,743
|
|
|
|
10,743
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing pro forma basic net income per share
|
|
|
14,237
|
|
|
|
14,592
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing pro forma basic net income per share
|
|
|
14,237
|
|
|
|
14,592
|
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
864
|
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing pro forma diluted net income per share
|
|
|
15,101
|
|
|
|
15,391
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per share (unaudited):
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.23
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
Recently Issued Accounting Pronouncements
Cash flows Guidance. In August 2016, the FASB issued ASU 2016-15 (ASC Topic 230), Classification of Certain Cash Receipts and Cash Payments.
The new guidance clarifies the classification of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination,
insurance settlement proceeds, and distributions from certain equity method investees. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted.
The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements. The Company does not expect that the adoption of this amendment will have a material impact on its consolidated financial
statements.
Stock Compensation Guidance. In March 2016, the FASB issued ASU 2016-09 (ASC Topic 718), Stock Compensation —
Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting for share based payment transactions, including the income tax consequences, forfeitures, and statutory tax withholding requirements, as well as classification
on the statement of cash flows. ASU 2016-09 is effective for the Company beginning the first quarter of fiscal 2017. The Company adopted the guidance in the first quarter of fiscal 2017, which resulted in no material impacts on its financial
position, results of operations, or cash flows, and expects the primary impact of this standard to be the income tax effects of awards recognized in the income statement when the awards are vested or settled. The potential tax impacts remain unknown
until the award vest or settlement date.
Lease Guidance. In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic
842)
(“ASU 2016-02”). ASU 2016-02 requires lessees to recognize all leases with terms in excess of one year on their balance sheet as a right-of-use asset and a lease liability at the commencement date. The new standard also simplifies
the accounting for sale and leaseback transactions. The amendments in this update are effective for annual periods beginning after December 15, 2018, and interim periods therein and must be adopted using a modified retrospective method for
leases existing at, or entered into after, the beginning of the earliest comparative period
F-12
presented in the financial statements. Early adoption is permitted. The Company does not expect that the adoption of this amendment will have a material impact on its consolidated financial
statements.
Deferred Income Tax Classification Guidance. In November 2015, the FASB issued Accounting Standards Update
No. 2015-17,
Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”), which simplifies the presentation of deferred income taxes by eliminating the need for entities to separate deferred income tax liabilities and assets
into current and noncurrent amounts in a classified statement of financial position. ASU 2015-17 is effective for companies beginning after December 15, 2016, with early application permitted as of the beginning of an interim or annual
reporting period. The Company adopted this new standard on a prospective basis for the year ended December 31, 2015, thus resulting in the reclassification of current deferred tax assets to noncurrent on the accompanying consolidated balance
sheet.
Inventory Measurement Guidance. In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, amending ASC
330. Upon adoption, this topic supersedes the existing guidance under ASC 330 and aims to simplify the subsequent measurement of inventory. Currently, inventory can be measured at the lower of cost or market, which could result in several potential
outcomes, as market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin. The major amendments would be as follows: 1. Inventory should be measured at the lower of cost or net realizable
value. 2. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. 3. The amendment does not apply to inventory measured under LIFO or the
retail inventory method. 4. The amendment does apply to all other inventory, which includes inventory measured via FIFO or average cost. ASU 2015-11 becomes effective for periods beginning after December 15, 2016 (including interim reporting
periods within those fiscal years), or the first quarter of fiscal 2017. The Company adopted this guidance in the first quarter of fiscal 2017, which resulted in no material impact on its consolidated financial statements.
Revenue Recognition Guidance. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, creating ASC Topic 606. Upon
adoption, this topic supersedes the existing guidance under ASC 605 and aims to simplify the number of requirements to follow for revenue recognition and make revenue recognition more comparable across various entities, industries, jurisdictions and
capital markets. There are 5 core principles: 1. Identify the contract(s) with a customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to performance obligations in
the contract. 5. Recognize revenue when (or as) the entity satisfies a performance obligation. Additional considerations under this update include: accounting for costs to obtain or fulfill a contract with a customer and additional quantitative and
qualitative disclosures. ASU 2014-09 will become effective for periods beginning after December 15, 2017 (including interim reporting periods within those periods), or the first quarter 2018, and allows for retrospective or modified
retrospective application. The Company is in the initial stages of evaluating the effect of the standard on the Company’s financial statements and continues to evaluate the available transition methods.
|
2.
|
BALANCE SHEET COMPONENTS
|
INVENTORY
Inventory consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Finished goods
|
|
$
|
1,216
|
|
|
$
|
1,741
|
|
|
$
|
1,406
|
|
|
Work in process
|
|
|
165
|
|
|
|
842
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
1,381
|
|
|
$
|
2,583
|
|
|
$
|
2,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
PROPERTY AND EQUIPMENT — Net
Property and equipment — net consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Computer equipment
|
|
$
|
290
|
|
|
$
|
605
|
|
|
$
|
638
|
|
|
Furniture
|
|
|
37
|
|
|
|
37
|
|
|
|
31
|
|
|
Leasehold Improvements
|
|
|
—
|
|
|
|
22
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
327
|
|
|
|
664
|
|
|
|
727
|
|
|
Less: accumulated depreciation
|
|
|
(157
|
)
|
|
|
(263
|
)
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment — net
|
|
$
|
170
|
|
|
$
|
401
|
|
|
$
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded $101,000, $57,000, $160,000 and $94,000 of depreciation expense for the six months ended
June 30, 2017 and 2016, and the years ended December 31, 2016 and 2015, respectively.
ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Payroll-related expenses
|
|
$
|
75
|
|
|
$
|
144
|
|
|
$
|
220
|
|
|
Engineering services
|
|
|
30
|
|
|
|
110
|
|
|
|
118
|
|
|
Professional fees
|
|
|
50
|
|
|
|
95
|
|
|
|
368
|
|
|
Accrued Warranty
|
|
|
28
|
|
|
|
83
|
|
|
|
69
|
|
|
Taxes Payable
|
|
|
1
|
|
|
|
27
|
|
|
|
25
|
|
|
Other
|
|
|
8
|
|
|
|
22
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
192
|
|
|
$
|
481
|
|
|
$
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CUSTOMER DEPOSITS
Customer deposits represent payments received in advance of shipments of $73,000, $745,000 and $1,359,000 as of June 30, 2017 and
December 31, 2016 and 2015, respectively.
|
3.
|
FAIR VALUE MEASUREMENTS
|
Fair value is defined as the exchange price that would be
received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company measures financial
assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs. A financial instrument’s classification within
the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1
. Quoted prices in active markets for identical assets or liabilities.
Level 2
. Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and.
F-14
Level 3
. Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
Financial assets measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
|
(in thousands)
|
|
|
As of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (unaudited)
|
|
$
|
4,940
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
4,932
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
2,919
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017 and December 31, 2016 and 2015, money market funds are classified as level 1 because
they are valued using quoted market prices and are included in Cash and cash equivalents in the accompanying Consolidated Balance Sheets.
Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in deciding how to allocate resources and in assessing performance.
The Company’s chief operating decision maker, the chief executive officer, reviews financial information presented on a consolidated
basis for purposes of regularly making operating decisions and assessing financial performance. Accordingly, the Company considers itself to be in one reportable segment, which is comprised of one operating segment, the designing, marketing and
selling of mixed-signal integrated circuits for the security surveillance and automotive markets.
Product revenue from customers is
designated based on the geographic region to which the product is delivered. Revenue by geographic region was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
China
|
|
$
|
17,637
|
|
|
$
|
23,815
|
|
|
$
|
12,228
|
|
|
$
|
12,838
|
|
|
South Korea
|
|
|
1,470
|
|
|
|
1,600
|
|
|
|
723
|
|
|
|
1,451
|
|
|
Taiwan
|
|
|
1,128
|
|
|
|
1,214
|
|
|
|
649
|
|
|
|
374
|
|
|
Other
|
|
|
10
|
|
|
|
527
|
|
|
|
40
|
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,245
|
|
|
$
|
27,156
|
|
|
$
|
13,640
|
|
|
$
|
15,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
Revenue by principal product lines were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Security surveillance
|
|
$
|
20,237
|
|
|
$
|
26,531
|
|
|
$
|
13,612
|
|
|
$
|
14,027
|
|
|
Automotive
|
|
|
8
|
|
|
|
625
|
|
|
|
28
|
|
|
|
1,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,245
|
|
|
$
|
27,156
|
|
|
$
|
13,640
|
|
|
$
|
15,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets are attributed to the geographic region where they are located. Net long-lived assets
by geographic region were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Taiwan
|
|
$
|
38
|
|
|
$
|
255
|
|
|
$
|
203
|
|
|
United States
|
|
|
87
|
|
|
|
83
|
|
|
|
129
|
|
|
Japan
|
|
|
5
|
|
|
|
39
|
|
|
|
26
|
|
|
China
|
|
|
32
|
|
|
|
19
|
|
|
|
14
|
|
|
South Korea
|
|
|
8
|
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
170
|
|
|
$
|
401
|
|
|
$
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
COMMITMENTS AND CONTINGENCIES
|
Operating Leases
The Company leases facilities under non-cancellable lease agreements expiring through fiscal year 2020.
As of December 31, 2016, the aggregate future minimum lease payments under operating leases consist of the following (in thousands):
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
2017
|
|
$
|
416
|
|
|
2018
|
|
|
338
|
|
|
2019
|
|
|
345
|
|
|
2020
|
|
|
59
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,158
|
|
|
|
|
|
|
|
Rent expense under operating leases was $387,000 and $278,000 for the years ended December 31, 2016 and
2015, respectively. Rent expense under operating leases was $268,000 and $201,000 for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017, the Company’s future minimum lease payments under operating leases
totaled $1.0 million.
Purchase Commitments
As of December 31, 2016, the Company had purchase commitments with its third-party suppliers through fiscal year 2018. Future minimum
payments under purchase commitments are $100,000 and $50,000 for the years ending December 31, 2017 and 2018, respectively. As of June 30, 2017, future minimum payments under purchase commitments are $110,000 and $63,000 for the years ending
December 31, 2017 and 2018, respectively.
F-16
Litigation
Although the Company is not currently subject to any litigation, and no litigation is currently threatened against it, the Company may be
subject to legal proceedings, claims and litigation, including intellectual property litigation, arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. The
Company accrues amounts that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss that is reasonably estimable.
Indemnification
.
During
the normal course of business, the Company may make certain indemnities, commitments and guarantees which may include intellectual property indemnities to certain of the Company’s customers in connection with the sales of the Company’s
products and indemnities for liabilities associated with the infringement of other parties’ technology based upon the Company’s products. The Company’s exposure under these indemnification provisions is generally limited to the total
amount paid by a customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the agreement. In addition, the Company indemnifies its
officers, directors and certain key employees while they are serving in good faith in such capacities.
The Company has not recorded any
liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. Where necessary, the Company accrues for losses for any known contingent liabilities, including those that may arise from indemnification
provisions, when future payment is probable.
|
6.
|
CONVERTIBLE PREFERRED STOCK
|
The Company has authorized and issued Series Seed Preferred
Stock (“Series Seed”), Series A preferred stock (“Series A”), and Series B preferred stock (“Series B”). Preferred stock outstanding as of December 31, 2016 and 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Issued
|
|
December 31, 2016 and 2015
|
|
|
Series
|
|
|
Price
per Share
|
|
|
Shares
Authorized
|
|
|
Shares
Issued and
Outstanding
|
|
|
Aggregate
Liquidation
Value
|
|
|
Carrying Value
|
|
|
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Seed
|
|
July 2012
|
|
$
|
0.25
|
|
|
|
4,660,000
|
|
|
|
4,660,000
|
|
|
$
|
1,165
|
|
|
$
|
1,156
|
|
|
A
|
|
November 2012 to June 2013
|
|
$
|
1.00
|
|
|
|
4,500,000
|
|
|
|
4,500,000
|
|
|
|
4,500
|
|
|
|
4,477
|
|
|
B
|
|
June 2014 to October 2014
|
|
$
|
2.00
|
|
|
|
2,500,000
|
|
|
|
1,582,500
|
|
|
|
3,165
|
|
|
|
3,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
11,660,000
|
|
|
|
10,742,500
|
|
|
$
|
8,830
|
|
|
$
|
8,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no changes to the outstanding Convertible Preferred Stock for the six months ended June 30,
2017.
The holders of convertible preferred stock have various rights and preferences as follows until such shares are converted into
shares of common stock upon completion of this offering:
Conversion
Each share of preferred stock shall be convertible, at the option of the holder thereof, at any time, and without the payment of additional
consideration by the holder thereof, into such number of fully paid and nonassessable shares of common stock as is determined by dividing the original issue price for such series of preferred stock by the conversion price for such series of
preferred stock in effect at the time of conversion. The conversion price for each series of preferred stock shall initially mean the original issue price for such series of preferred stock.
F-17
In the event of a liquidation, dissolution or winding up of the Company or a deemed liquidation
event, the conversion rights shall terminate at the close of business on the last full day preceding the date fixed for the first payment of any funds and assets distributable on such event to the holders of preferred stock.
Upon either (a) the closing of the sale of shares of common stock to the public in a firm-commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of 1933, as amended, yielding to the Company gross proceeds of at least in excess of twenty five million dollars ($25,000,000) in the aggregate, or (b) the date and time,
or the occurrence of an event, specified by vote or written consent of the holders of at least a majority of the outstanding shares of preferred stock at the time of such vote or consent, voting as a single class on an as-converted basis,
(i) all outstanding shares of preferred stock shall automatically be converted into shares of common stock and (ii) such shares may not be reissued by the Company.
Dividends
All dividends shall be
declared pro rata on the common stock and the preferred stock on a pari passu basis according to the number of shares of common stock held by such holders. For this purpose, each holder of shares of preferred stock is to be treated as holding the
greatest whole number of shares of common stock then issuable upon conversion of all shares of preferred stock held by such holder.
No
dividends have been declared to date.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any deemed liquidation event, before any
payment shall be made to the holders of common stock by reason of their ownership thereof, the holders of shares of preferred stock then outstanding shall be entitled to be paid out of the funds and assets available for distribution to its
shareholders, (a) for the series seed preferred stock, an amount per share equal to the greater of: (i) the original series seed issue price, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have
been payable had all shares of series seed preferred stock been converted into common stock immediately prior to such liquidation, dissolution or winding up or deemed liquidation event, (b) for the series A preferred stock, an amount per share
equal to the greater of (i) the original series A issue price, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of series A preferred stock been converted into common
stock immediately prior to such liquidation, dissolution or winding up or deemed liquidation event, and (c) for the series B preferred stock, an amount per share equal to the greater of (i) the original series B issue price, plus any
dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of series B preferred stock been converted into common stock immediately prior to such liquidation, dissolution or winding up or
deemed liquidation event. If upon any such liquidation, dissolution or winding up or deemed liquidation event of the Company, the funds and assets available for distribution to the shareholders of the Company shall be insufficient to pay the holders
of all shares of preferred stock the full amount to which they are entitled, the holders of shares of preferred stock shall share ratably in any distribution of the funds and assets available for distribution in proportion to the respective amounts
that would otherwise be payable in respect of the shares of preferred stock held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. The original series seed issue price shall mean $0.25 per
share. The original series A issue price shall mean $1.00 per share. The original series B issue price shall mean $2.00 per share.
Upon
completion of the distribution described above, all of the remaining assets of the Company available for distribution to shareholders shall be distributed among the holders of preferred stock and common stock pro rata based on the number of shares
of common stock held by each (assuming full conversion of all such preferred stock); provided, however, that (i) the holders of series seed preferred stock shall not be entitled to further participate in any distribution of the remaining assets
of the Company following receipt by such holders of series
F-18
seed preferred stock of aggregate distributions equal to $0.50 per share of series seed preferred stock (as adjusted for any stock splits, stock dividends, combinations, recapitalizations or the
like, (ii) the holders of series A preferred stock shall not be entitled to further participate in any distribution of the remaining assets of the Company following receipt by such holders of series A preferred stock of aggregate distributions
equal to $2.00 per share of series A preferred stock (as adjusted for any recapitalizations), and (iii) the holders of series B preferred stock shall not be entitled to further participate in any distribution of the remaining assets of the
Company following receipt by such holders of series B preferred stock of aggregate distributions equal to $4.00 per share of series B preferred stock (as adjusted for any recapitalizations).
Voting
On any matter presented to
the shareholders of the Company for their action or consideration at any meeting of shareholders of the Company (or by written consent of shareholders in lieu of meeting), each holder of outstanding shares of preferred stock shall be entitled to
cast the number of votes equal to the number of whole shares of common stock into which the shares of preferred stock held by such holder are convertible as of the record date for determining shareholders entitled to vote on such matter. Fractional
votes shall not be permitted and any fractional voting rights available on an as-converted basis (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). Except as provided by law or by the other provisions of the third amended and restated articles of incorporation, holders of preferred stock shall vote together with the holders of common stock as a single class
on an as-converted basis, shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock, and shall be entitled, notwithstanding any provision hereof, to notice of any shareholders’ meeting in
accordance with the bylaws of the Company.
The Company was authorized to issue 20,500,000 shares of common stock with
no par value per share as of June 30, 2017, December 31, 2016 and 2015. The shares of common stock issued and outstanding were 4,017,738, 3,725,238 and 3,332,852, excluding 413,667, 606,833 and 640,386 legally issued shares subject to
repurchase related to the early exercise of options to purchase common stock as of June 30, 2017, December 31, 2016 and 2015, respectively.
The Company has reserved the following number of shares of common stock for future issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Series Seed preferred stock
|
|
|
4,660,000
|
|
|
|
4,660,000
|
|
|
Series A preferred stock
|
|
|
4,500,000
|
|
|
|
4,500,000
|
|
|
Series B preferred stock
|
|
|
1,582,500
|
|
|
|
1,582,500
|
|
|
Stock option plan:
|
|
|
|
|
|
|
|
|
|
Outstanding stock awards
|
|
|
1,575,667
|
|
|
|
1,662,501
|
|
|
Shares available for future issuance under the 2012 Stock Option Plan
|
|
|
1,987,983
|
|
|
|
1,608,649
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common stock reserved for future issuances
|
|
|
14,306,150
|
|
|
|
14,013,650
|
|
|
|
|
|
|
|
|
|
|
|
In 2012, the Company adopted a stock option plan (“2012
Plan”) to provide additional incentives to employees and to promote the best interests of the Company and its stockholders. Under the Plan, the Board of
F-19
Directors may grant incentive stock options to employees, and directors, and non-qualified stock options or restricted stock awards to employees, directors and consultants. The Company has
reserved 5,400,000 shares of its common stock for issuance under the 2012 Plan. The exercise price of each option equals the fair value of the Company’s stock on the date of grant, as determined by the board of directors.
The Company has various vesting agreements with employees. Options granted to employees generally vest over a five-year period with 20%
vesting at the end of one year and the remaining to vest monthly thereafter. Options granted generally are exercisable up to 10 years.
Early
Exercise of Stock Options
Certain employees and directors have exercised options granted under the 2012 Plan prior to vesting. The
unvested shares are subject to a repurchase right held by us at the original purchase price. The proceeds initially are recorded as liability related to early exercised stock options and reclassified to additional paid in capital as the repurchase
right lapses. The Company issued 37,167, 302,083, 302,083 and 459,425 unvested shares of common stock upon early exercise for the six months ended June 30, 2017 and 2016, and for the years ended December 31, 2016 and 2015, respectively, for
total exercise proceeds of $26,000, $113,000, $113,000 and $163,000, respectively. For the six months ended June 30, 2017 and 2016, and for the year ended December 31, 2016, the Company repurchased 45,666, 37,167 and 37,167, respectively,
shares of unvested common stock related to early exercised stock options at the original purchase price due to termination of employees. No shares of common stock related to unvested stock options were repurchased during the year ended
December 31, 2015. As of June 30, 2017 and December 31, 2016 and 2015, 413,667, 606,833 and 640,386 shares, respectively, held by employees and nonemployees were subject to repurchase at an aggregate price of $172,000, $223,000 and
$186,000, respectively.
Stock option activity under the 2012 Plan is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Available
for Grant
|
|
|
Options
Issued and
Outstanding
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
|
As of December 31, 2014
|
|
|
3,043,450
|
|
|
|
1,352,354
|
|
|
$
|
0.12
|
|
|
|
8.6
|
|
|
$
|
327
|
|
|
Granted
|
|
|
(561,800
|
)
|
|
|
561,800
|
|
|
|
0.42
|
|
|
|
|
|
|
|
|
|
|
Exercised (1)
|
|
|
—
|
|
|
|
(439,768
|
)
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
35,000
|
|
|
|
(35,000
|
)
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
2,516,650
|
|
|
|
1,439,386
|
|
|
$
|
0.25
|
|
|
|
8.4
|
|
|
$
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(560,834
|
)
|
|
|
560,834
|
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
|
Exercised (1)
|
|
|
—
|
|
|
|
(392,386
|
)
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
62,167
|
|
|
|
(62,167
|
)
|
|
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
2,017,983
|
|
|
|
1,545,667
|
|
|
$
|
0.81
|
|
|
|
8.2
|
|
|
$
|
3,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted (unaudited)
|
|
|
(428,500
|
)
|
|
|
428,500
|
|
|
$
|
2.92
|
|
|
|
|
|
|
|
|
|
|
Exercised (1) (unaudited)
|
|
|
—
|
|
|
|
(292,500
|
)
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
Cancelled (unaudited)
|
|
|
49,166
|
|
|
|
(49,166
|
)
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017 (unaudited)
|
|
|
1,638,649
|
|
|
|
1,632,501
|
|
|
$
|
1.48
|
|
|
|
8.5
|
|
|
$
|
2,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest as of December 31, 2016
|
|
|
|
|
|
|
1,448,214
|
|
|
$
|
0.79
|
|
|
|
8.2
|
|
|
$
|
3,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of December 31, 2016
|
|
|
|
|
|
|
301,137
|
|
|
$
|
0.52
|
|
|
|
7.4
|
|
|
$
|
715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to Vest as of June 30, 2017 (unaudited)
|
|
|
|
|
|
|
1,525,921
|
|
|
$
|
1.44
|
|
|
|
8.51
|
|
|
$
|
2,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of June 30, 2017 (unaudited)
|
|
|
|
|
|
|
296,703
|
|
|
$
|
0.93
|
|
|
|
7.79
|
|
|
$
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
|
(1)
|
Includes vesting of early-exercised options.
|
The stock options outstanding and exercisable by
exercise price at December 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Vested and Exercisable
|
|
|
Exercise Price
|
|
Number
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
$0.03
|
|
|
157,500
|
|
|
|
5.8
|
|
|
$
|
0.03
|
|
|
|
50,000
|
|
|
$
|
0.03
|
|
|
$0.10
|
|
|
108,333
|
|
|
|
6.4
|
|
|
$
|
0.10
|
|
|
|
64,167
|
|
|
$
|
0.10
|
|
|
$0.16
|
|
|
185,750
|
|
|
|
7.1
|
|
|
$
|
0.16
|
|
|
|
59,333
|
|
|
$
|
0.16
|
|
|
$0.37
|
|
|
487,583
|
|
|
|
8.3
|
|
|
$
|
0.37
|
|
|
|
69,333
|
|
|
$
|
0.37
|
|
|
$0.97
|
|
|
322,667
|
|
|
|
9.2
|
|
|
$
|
0.97
|
|
|
|
21,845
|
|
|
$
|
0.97
|
|
|
$2.51
|
|
|
283,834
|
|
|
|
9.7
|
|
|
$
|
2.51
|
|
|
|
36,459
|
|
|
$
|
2.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,545,667
|
|
|
|
8.2
|
|
|
$
|
0.81
|
|
|
|
301,137
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The stock options outstanding and exercisable by exercise price at June 30, 2017, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Vested and Exercisable
|
|
|
Exercise Price
|
|
Number
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
$0.03
|
|
|
36,500
|
|
|
|
5.3
|
|
|
$
|
0.03
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$0.10
|
|
|
59,167
|
|
|
|
5.9
|
|
|
$
|
0.10
|
|
|
|
30,000
|
|
|
$
|
0.10
|
|
|
$0.16
|
|
|
160,250
|
|
|
|
6.6
|
|
|
$
|
0.16
|
|
|
|
68,833
|
|
|
$
|
0.16
|
|
|
$0.37
|
|
|
384,084
|
|
|
|
7.9
|
|
|
$
|
0.37
|
|
|
|
75,500
|
|
|
$
|
0.37
|
|
|
$0.97
|
|
|
280,333
|
|
|
|
8.7
|
|
|
$
|
0.97
|
|
|
|
50,461
|
|
|
$
|
0.97
|
|
|
$2.51
|
|
|
283,834
|
|
|
|
9.2
|
|
|
$
|
2.51
|
|
|
|
59,626
|
|
|
$
|
2.51
|
|
|
$2.89
|
|
|
55,000
|
|
|
|
9.7
|
|
|
$
|
2.89
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$2.93
|
|
|
373,333
|
|
|
|
9.9
|
|
|
$
|
2.93
|
|
|
|
12,283
|
|
|
$
|
2.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,632,501
|
|
|
|
8.5
|
|
|
$
|
1.48
|
|
|
|
296,703
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options exercised for the six months ended June 30, 2017 and 2016, and for
the years ended December 31, 2016 and 2015 was $423,000, $752,000, $752,000 and $564,000, respectively.
Restricted Stock Awards
During the year ended December 31, 2016, the Company granted 30,000 shares of common stock as restricted stock unit awards, and the related
stock-based compensation was immaterial. All restricted stock unit awards are subject to repurchase as of December 31, 2016. No restricted stock unit awards were granted for the six months ended June 30, 2017.
|
9.
|
STOCK-BASED COMPENSATION
|
The Company records stock-based compensation based on fair
value as of the grant date using the Black-Scholes option-pricing model. The Company recognizes such costs as compensation expense on a straight-line
F-21
basis over the employee’s requisite service period, which is generally five years. The Company’s valuation assumptions are as follows:
Fair value of common stock
— Given the absence of a public trading market, the Company’s Board of Directors
considered numerous objective and subjective factors to determine the fair value of the Company’s common stock which included, but were not limited to (i) contemporaneous independent third-party valuations of the Company’s common
stock; (ii) the rights and preferences of the Company’s preferred stock relative to common stock; (iii) the lack of marketability of common stock; (iv) developments in the business; and (v) the likelihood of achieving a
liquidity event, such as an initial public offering or sale of the company, given prevailing market conditions.
Risk-free interest
rate
— The Company bases the risk-free interest rate used in the Black-Scholes option-pricing model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent expected term of the options for each
option group.
Expected term
— The expected term represents the period that the Company’s stock-based
awards are expected to be outstanding. To determine the expected term, we generally apply the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award as
we do not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term.
Volatility
— As the Company does not have any trading history to determine the volatility of its common stock,
the Company determines volatility based on the historical stock volatilities of a group of publicly listed guideline companies over a period equal to the expected terms of the options.
Dividend yield
— The Company has never declared or paid any cash dividends and does not currently plan to pay a
cash dividend in the foreseeable future. Consequently, the Company used an expected dividend yield of zero.
Employee Stock Awards
The remaining unrecognized stock-based compensation expense related to non-vested options, was $1.5 million and $822,000 as of June 30, 2017
and December 31, 2016, respectively, and will be recognized over a weighted-average remaining period of approximately 3.9 and 3.7 years, respectively.
The following table summarizes the weighted-average assumptions used in the Black-Scholes option-pricing model to determine fair value of
stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Expected term (in years)
|
|
|
6.30
|
|
|
|
6.19
|
|
|
|
6.24
|
|
|
|
6.30
|
|
|
Risk-free interest rate
|
|
|
1.67
|
%
|
|
|
1.38
|
%
|
|
|
1.48
|
%
|
|
|
2.02
|
%
|
|
Expected volatility
|
|
|
46
|
%
|
|
|
51
|
%
|
|
|
51
|
%
|
|
|
53
|
%
|
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Fair value of common stock
|
|
$
|
0.86
|
|
|
$
|
2.35
|
|
|
$
|
2.01
|
|
|
$
|
3.05
|
|
The weighted-average grant date fair value for employee stock awards for the six months ended June 30, 2017
and 2016, and for the years ended December 31, 2016 and 2015 was $1.63, $1.36, $1.36 and $0.53, respectively.
F-22
Stock-Based Compensation Expense —
The following table summarizes the
distribution of stock-based compensation expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Cost of revenue
|
|
$
|
7
|
|
|
$
|
15
|
|
|
$
|
7
|
|
|
$
|
13
|
|
|
Research and development
|
|
|
73
|
|
|
|
102
|
|
|
|
48
|
|
|
|
77
|
|
|
Selling, general and administrative
|
|
|
84
|
|
|
|
322
|
|
|
|
132
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
164
|
|
|
$
|
439
|
|
|
$
|
187
|
|
|
$
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not realize any income tax benefit from stock option exercises for the six months ended June
30, 2017 and 2016, and for the years ended December 31, 2016 and 2015.
Non-Employee Stock Awards
The Company estimates the fair value of non-employee stock options using a Black-Scholes option pricing model with the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Expected term (in years)
|
|
|
10.0
|
|
|
|
10.0
|
|
|
|
10.0
|
|
|
|
10.0
|
|
|
Risk-free interest rate
|
|
|
2.09
|
%
|
|
|
2.02
|
%
|
|
|
1.69
|
%
|
|
|
2.48
|
%
|
|
Expected volatility
|
|
|
50
|
%
|
|
|
53
|
%
|
|
|
50
|
%
|
|
|
55
|
%
|
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Fair value of common stock
|
|
$
|
0.84
|
|
|
$
|
2.68
|
|
|
$
|
2.39
|
|
|
$
|
2.93
|
|
The Company granted non-employee stock options to purchase 20,000, 67,000, 157,834 and 131,800 shares of
common stock and recognized stock-based compensation related to non-employee stock options of $92,000, $123,000, $200,000 and $124,000 for the six months ended June 30, 2017 and 2016, and for the years ended December 31, 2016 and 2015,
respectively. The weighted-average grant date fair value for non-employee stock awards for the six months ended June 30, 2017 and 2016, and for the years ended December 31, 2016 and 2015 was $1.93, $1.44, $2.16 and $0.53, respectively.
The remaining unrecognized stock-based compensation expense related to non-vested options, was $159,000 and $181,000 as of June 30, 2017 and
December 31, 2016, respectively, and will be recognized over a weighted-average remaining period of approximately four years.
The components of income before income taxes are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
United States
|
|
$
|
3,888
|
|
|
$
|
5,311
|
|
|
Foreign
|
|
|
1
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
3,889
|
|
|
$
|
5,363
|
|
|
|
|
|
|
|
|
|
|
|
F-23
The components of the provision for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
659
|
|
|
$
|
2,034
|
|
|
Foreign
|
|
|
1
|
|
|
|
40
|
|
|
State
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
661
|
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred — net
|
|
|
(829
|
)
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
(168
|
)
|
|
$
|
1,882
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
U.S. statutory federal taxes at statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
State taxes — net of federal benefit
|
|
|
0.01
|
|
|
|
0.01
|
|
|
Research and development credits (benefit)
|
|
|
(4.08
|
)
|
|
|
(2.59
|
)
|
|
Permanent items & other
|
|
|
0.55
|
|
|
|
2.55
|
|
|
Change in valuation allowance
|
|
|
(34.80
|
)
|
|
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(4.32
|
)%
|
|
|
35.09
|
%
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2017, the Company’s provision for income taxes was primarily
attributable to its domestic tax provision.
The components of deferred tax assets for federal and state income taxes are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2016
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
71
|
|
|
$
|
71
|
|
|
Research and other credits
|
|
|
151
|
|
|
|
211
|
|
|
Accruals
|
|
|
192
|
|
|
|
464
|
|
|
Intangibles
|
|
|
623
|
|
|
|
574
|
|
|
Other
|
|
|
50
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
1,087
|
|
|
|
1,417
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(222
|
)
|
|
|
(282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
865
|
|
|
|
1,135
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
|
Fixed Assets
|
|
|
(36
|
)
|
|
$
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
$
|
829
|
|
|
$
|
1,022
|
|
|
|
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not
that some portion or all of its deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible or
includable in taxable income. Management considers projected future taxable income and tax
F-24
planning strategies in making this assessment. Based on the level of current period taxable income and its expected recurring profitability, Management believes it is more likely than not the
Company will realize benefits of deductible differences and thus has not recorded a full valuation allowance. The Company’s valuation allowance increased by $60,000 as of December 31, 2016 compared to December 31, 2015. During the
year ended December 31, 2015, the Company released $1.4 million of valuation allowance.
As of December 31, 2016, the Company had net
operating loss carryforwards of nil and $1,218,000 for federal and state income tax purposes, respectively, available to offset future taxable income. These net operating losses will begin to expire in 2032 if unused. The Company also has research
and other tax credit carryforwards of approximately nil and $400,000 for federal and state income tax purposes, respectively. The state tax credits can be carried forward indefinitely. Current tax laws impose substantial restrictions on the
utilization of net operating losses and credit carryforwards in the event of an “ownership change”, as defined by the Internal Revenue Code (IRC). If there should be an ownership change, the Company’s ability to utilize its
carryforwards could be limited.
As of December 31, 2016, the Company had unrecognized tax benefits of $90,000 and $100,000 for
federal and state income tax purposes, respectively, due to research and development credits. The reversal only of the unrecognized federal tax benefit would impact the effective tax rate since the California deferred tax assets are subject to a
full valuation allowance. The Company’s tax filings for the fiscal years from 2012 to 2016 remain open in various tax jurisdictions. The Company does not anticipate that its unrecognized tax benefit will change significantly in the coming
fiscal year.
The Company evaluated subsequent events through March 7, 2017, the
date on which consolidated financial statements for the year ended December 31, 2016 were issued.
On January 23, 2017, the Company
renewed its operating lease agreement for its office facility in Taiwan, extending the expiration date to February 28, 2018. Future minimum lease payments for this operating lease agreement amount to approximately $24,000 and $5,000 for the years
ended December 31, 2017 and 2018, respectively.
For the six months ended June 30, 2017, the Company evaluated subsequent events
through August 31, 2017, the date on which the unaudited interim consolidated financial statements were available to be issued.
F-25
1,520,000 Japanese Depositary
Shares
Representing 1,520,000 Shares of Common Stock
Techpoint, Inc.
Japanese Depositary Shares
PROSPECTUS
Mizuho Securities Co., Ltd
Daiwa Securities Co.
Ltd. SBI Securities Co. Ltd.
, 2017
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
Item 13.
|
Other Expenses of Issuance and Distribution
|
The following table sets forth the various
expenses expected to be incurred by the Registrant in connection with the sale and distribution of the securities being registered hereby, other than underwriting discounts and commissions. All amounts are estimated except the SEC registration fee.
|
|
|
|
|
|
|
SEC registration fee
|
|
$
|
1,418
|
|
|
Tokyo Stock Exchange listing fee
|
|
|
22,000
|
|
|
Accounting fees and expenses
|
|
|
517,000
|
|
|
Legal fees and expenses
|
|
|
1,675,000
|
|
|
Printing and engraving expenses
|
|
|
160,000
|
|
|
Registrar and Transfer Agent’s fees
|
|
|
47,000
|
|
|
Miscellaneous
|
|
|
196,000
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,618,418
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification of Directors and Officers
|
Section 102 of the Delaware General
Corporation Law, or DGCL, allows a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director
breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of the DGCL or obtained an improper personal
benefit.
Section 145 of the DGCL provides, among other things, that we may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action, suit or proceeding—other than an action by or in the right of the Registrant—by reason of the fact that the person is or was a director, officer, agent or
employee of the Registrant, or is or was serving at our request as a director, officer, agent or employee of another corporation, partnership, joint venture, trust or other enterprise against expenses, including attorneys’ fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding. The power to indemnify applies (a) if such person is successful on the merits or otherwise in defense of any
action, suit or proceeding, or (b) if such person acting in good faith and in a manner he or she reasonably believed to be in the best interest, or not opposed to the best interest, of the Registrant, and with respect to any criminal action or
proceeding had no reasonable cause to believe his or her conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the Registrant as well but only to the extent of defense expenses, including attorneys’ fees
but excluding amounts paid in settlement, actually and reasonably incurred and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event
of any adjudication of liability to the Registrant, unless the court believes that in light of all the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of
dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time, may avoid liability by causing his or her dissent to such
actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.
II-1
The Registrant’s restated certificate of incorporation and amended and restated bylaws,
filed as Exhibits 3.1(b) and 3.2(b) hereto, provide that the Registrant shall indemnify its directors, officers, employees and other agents to the fullest extent not prohibited by the DGCL or any other applicable law. In addition, the
Registrant has entered into agreements to indemnify its directors and expects to continue to enter into agreements to indemnify all of its directors. Prior to the closing of the offering, the Registrant plans to amend and restate its indemnification
agreements with its directors and enter into similar agreements with each of its officers. These agreements will require the Registrant, among other things, to indemnify its directors and officers against certain liabilities which may arise by
reason of their status or service as directors or officers to the fullest extent not prohibited by law. These indemnification provisions and the indemnification agreements may be sufficiently broad to permit indemnification of the Registrant’s
officers and directors for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, which we refer to as the Securities Act. The Registrant also intends to maintain director and officer liability
insurance, if available on reasonable terms.
The form of Underwriting Agreement, filed as Exhibit 1.1 hereto, provides for
indemnification by the underwriters of the Registrant and its officers and directors for certain liabilities, including liabilities arising under the Securities Act, and affords certain rights of contribution with respect thereto.
The form of Trust Agreement, filed as Exhibit 4.3 hereto, provides for indemnification by you of the Registrant, the trustees and the settlor,
each of their respective agents for certain liabilities that may arise in connection with the administration of the JDSs.
|
Item 15.
|
Recent Sales of Unregistered Securities
|
The following sets forth information regarding
all unregistered securities sold since December 31, 2013:
On various dates between April and October 2014, the Registrant issued and
sold an aggregate of 1,582,500 shares of Series B convertible preferred stock at a per share price of $2.00, for an aggregate purchase price of $3,165,000 to a total of 12 accredited investors. Of this amount, $500,000 was paid for by cancellation
of principal under the promissory notes described in the paragraph immediately above.
The Registrant has granted stock options to its
directors, officers, employees, and consultants to purchase an aggregate of 2,362,684 shares of common stock pursuant to the Registrant’s 2012 Stock Incentive Plan, with exercise prices ranging from $0.10 to $3.18 per share.
The Registrant has issued and sold an aggregate of 1,787,350 shares of its common stock pursuant to awards granted under the Registrant’s
2012 Stock Incentive Plan, for an aggregate purchase price of $410,724.
The Registrant has granted restricted stock unit awards to
consultants totaling 30,000 shares of common stock pursuant to the Registrants 2012 Stock Incentive Plan.
Unless otherwise stated, the
sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of
the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions
represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were placed upon the stock certificates issued in these transactions.
|
Item 16.
|
Exhibits and Financial Statement Schedules
|
(a)
Exhibits
See the Exhibit Index attached to this registration statement, which is incorporated herein by reference.
II-2
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.
|
II-3
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 San Jose, State of California, on the 31
st
day of August, 2017.
|
|
|
|
|
TECHPOINT, INC.
|
|
|
|
|
By
|
|
/
S
/ F
UMIHIRO
K
OZATO
|
|
|
|
Fumihiro Kozato
President and Chief Executive Officer
|
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 the dates indicated.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/
S
/ F
UMIHIRO
K
OZATO
Fumihiro Kozato
|
|
President, Chief Executive Officer (Principal Executive Officer) and Director
|
|
August 31, 2017
|
|
|
|
|
|
/
S
/ Y
UKIKO
T
EGARDEN
Yukiko Tegarden
|
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|
|
August 31, 2017
|
|
|
|
|
|
*
Robert Cochran
|
|
Director
|
|
August 31, 2017
|
|
|
|
|
|
*
Fun-Kai Liu
|
|
Director
|
|
August 31, 2017
|
|
|
|
|
|
*
Koji Mori
|
|
Director
|
|
August 31, 2017
|
|
|
|
|
|
*
Dr. Yaichi Aoshima, Ph.D.
|
|
Director
|
|
August 31, 2017
|
|
|
|
|
|
*By:
|
|
/
S
/ F
UMIHIRO
K
OZATO
|
|
|
|
Fumihiro Kozato
Attorney-in-Fact
|
II-4
EXHIBIT INDEX
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
|
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1.1
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English Translation of Form of Underwriting Agreement
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1.2
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English Translation of Form of Green Shoe Option Agreement
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1.3*
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English Translation of Form of Agreement Concerning Share Lending Transaction of Shares of Common Stock of Techpoint, Inc.
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3.1(a)
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Certificate of Incorporation of the Registrant
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3.1(b)
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Amended and Restated Certificate of Incorporation of the Registrant, to be in effect upon the completion of this offering
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3.2(a)
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Bylaws of the Registrant
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3.2(b)
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Amended and Restated Bylaws of the Registrant, to be in effect upon the completion of this offering
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4.1*
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Form of Common Stock Certificate
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4.2
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Second Amended and Restated Investors’ Rights Agreement, dated April 30, 2014, between the Registrant and certain investors, and form of amendment
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4.3
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English Translation of Form of Trust Agreement between the Registrant, the trustees, the settlor and the beneficial holders of Japanese Depositary Shares issued thereunder
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5.1*
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Opinion of Pillsbury Winthrop Shaw Pittman LLP
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10.1#
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Form of Indemnification Agreement between the Registrant and its officers and directors
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10.2#
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2012 Stock Incentive Plan and forms of agreements thereunder
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10.3#
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Form of 2017 Stock Incentive Plan and forms of agreements thereunder
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10.4
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Lease between the Registrant and Silicon Valley Center Office LLC, dated September 22, 2014, as amended
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23.1
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Consent of BDO USA, LLP, Independent Registered Public Accounting Firm
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23.2*
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Consent of Pillsbury Winthrop Shaw Pittman LLP (included in Exhibit 5.1)
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24.1†
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Power of Attorney (see page II – 4 to this Registration Statement on Form S-1)
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*
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To be filed by amendment.
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#
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Management contract or compensatory arrangement
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Exhibit 1.1
[Form of the Agreement][Translation of Japanese original text and For reference purposes only]
Techpoint, Inc. New Share Underwriting Agreement
Techpoint, Inc. (the “
Issuer
”), in connection with the listing of beneficiary certificates of a beneficiary-certificate-issuing trust whose
trust assets are the shares of common stock of the Issuer on the Tokyo Stock Exchange, Inc (the “
TSE
”), with respect to 1,520,000 shares of common stock (the “
Shares
”) newly issued pursuant to the resolutions of the
board of directors’ meetings held on August 30, 2017 (Pacific Standard Time) and September 8, 2017 (Pacific Standard Time), enters into this New Share Underwriting Agreement (this “
Agreement
”) with Mizuho Securities
Co., Ltd. (the “
Manager
”) with respect to the underwriting and offering of the Shares and the beneficiary certificates of a beneficiary-certificate-issuing trust whose trust assets are the Shares (the “
Beneficiary
Certificates
”; such offering, the “
Offering
”). Unless otherwise indicated, the times and dates referred to in this Agreement are in Japan time.
Preamble
The Issuer and the Manager will enter
into the Techpoint Inc. Listed Foreign Stock Trust Beneficiary Certificates Beneficiary Certificate Issuance Trust Agreement and Agreement regarding Issuer dated August 31, 2017 (the “
Trust Agreement
”) with Mitsubishi UFJ Trust
and Banking Corporation and The Master Trust Bank of Japan, Ltd. (collectively, the “
Trustees
”) for the Offering, and the Manager intends to create a beneficiary-certificate-issuing trust whose trust assets are the Shares by
entrusting the Shares to the Trustees pursuant to the Trust Agreement.
In connection with the Offering, and in light of the status of the demand
therefor, the offering of the beneficiary certificates of a beneficiary-certificate-issuing trust whose trust assets are 228,000 shares of common stock of the Issuer to be borrowed by the Manager from a shareholder of the Issuer (the “
Stock
Lender
”) pursuant to the stock lending agreement dated the same as this Agreement between the Manager and the Stock Lender (the “
Borrowed Shares
”; such offering, the “
Offering by Over Allotment
,” and
together with the Offering, the “
Offerings, Etc.
”; the beneficiary certificates offered by the Offerings, Etc. are hereinafter referred to as the “
Offered Beneficiary Certificates
”) will be conducted.
In connection with the Offering by Over Allotment, the Issuer resolved at the board of directors’ meetings held on August 30, 2017 (Pacific Standard
Time) to newly issue 228,000 shares of common stock of the Issuer by way of third-party allotment in which shares are allotted to the Manager (the “
Capital Increase by Third-party Allotment
”), and the payment date is
October 30, 2017. In addition, the Issuer has granted the right to receive allotment of the shares of common stock of the Issuer in respect of the Capital Increase by Third-party Allotment up to the number of shares corresponding to the number
of units of beneficiary certificates offered in the Offering by Over Allotment (the “
Green Shoe Option
”), and the deadline for exercising the Green Shoe Option is October 25, 2017.
For the purpose of returning the Borrowed Shares, the Manager may purchase the beneficiary certificates of a beneficiary-certificate-issuing trust whose trust
assets are the shares of common stock of the Issuer on the TSE up to the number of units of beneficiary certificates offered in the Offering by Over Allotment (the “
Syndicate Covering Transactions
”) during the period from
September 29, 2017 to October 25, 2017. However, as a result of the Syndicate Covering Transactions, it is possible that the application for all or part of the number of shares to be allotted in the Capital Increase by Third-party
Allotment is not conducted, and therefore the final number of shares issued upon the Capital Increase by Third-party Allotment is decreased to that extent or the issuance itself is not conducted at all.
The Issuer filed a registration statement (including preliminary prospectus and prospectus) regarding the Offerings, Etc. to the U.S. Securities and Exchange
Commission (the “
SEC
”) under the U.S. Securities Act of 1933, as amended (the “
U.S. Securities Act
”) and the General Rules and Regulations prescribed by the SEC under the U.S. Securities Act (the “
SEC
Rules
”). The registration statement (including its attachments and amendments) and information that is deemed to constitute part of the registration statement in accordance with Rule 430A and other provisions of the SEC Rules are
hereinafter referred to as the “
U.S. Registration Statement
,” and if a registration statement has been filed in accordance with Rule 462(b) of the SEC Rules, such registration statement is also included in the U.S. Registration
Statement. The prospectus prepared or used with respect to the Offerings, Etc. pursuant to the U.S. Securities Act and the SEC Rules is hereinafter referred to as the “
U.S. Prospectus
.”
With respect to the Offerings Etc., the Issuer filed a securities registration statement to the Kanto Local Finance Bureau under the Financial Instruments and
Exchange Act (as amended; the same applies hereinafter) and relevant laws, ordinances, and regulations. The securities registration statement (including its attachments, exhibits and amendments) is hereinafter referred to as the “
Securities
Registration Statement
.” The prospectus prepared or used with respect to the Offerings, Etc. pursuant to the Financial Instruments and Exchange Act is hereinafter referred to as the “
Japanese Prospectus
” (including
preliminary prospectus and amendments), and together with the U.S. Prospectus, the “
Prospectuses
.”
With respect to the Offerings, Etc.,
the Issuer has submitted to the Manager a pledge (together with this Agreement and the Trust Agreement, collectively the “
Relevant Agreements
”) dated August 31, 2017 to the effect that it will not issue or sell the shares of
common stock of the Issuer or any securities (including the Beneficiary Certificates) that are convertible into or exchangeable for the shares of common stock of the Issuer Shares or commit any other similar acts for a period of 90 days following
the listing day of the Beneficiary Certificates without obtaining the prior written approval of the Manager.
1
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Article 1
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Underwriting Syndicate
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1.
|
The Manager has formed an underwriting syndicate with the following financial instruments business operators (the members of the syndicate are hereinafter collectively referred to as the “
Underwriters
”)
with respect to the Offering, and the Underwriters have executed a syndicate agreement (the “
Syndicate Agreement
”) on the same date as that of this Agreement:
|
Daiwa Securities Co. Ltd.
SBI
SECURITIES Co., Ltd.
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2.
|
The Manager shall handle any business pertaining to this Agreement on behalf of the Underwriters.
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3.
|
The number of units (number of shares) to be underwritten, and method of determination of the number of units to be sold, by each Underwriter will be provided for in the Syndicate Agreement.
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Article 2
|
Method of Underwriting
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The Underwriters shall jointly purchase and underwrite the Shares and the Beneficiary
Certificates at a price of [TBD] yen per share (the “
Underwriting Price
”) from the Issuer.
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Article 3
|
Method of Offering
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1.
|
The Underwriters shall conduct a primary offering of the Beneficiary Certificates as follows:
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(1)
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Number of units of beneficiary certificates to be offered:
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1,520,000 units
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(2)
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Offer price:
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[TBD] yen per unit
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(3)
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Subscription period:
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From September 20, 2017 to September 25, 2017
|
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(4)
|
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Subscription unit of beneficiary certificates:
|
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Increments of 100 units
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(5)
|
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Delivery date:
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September 29, 2017
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(6)
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Listing date:
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Same as above
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2.
|
The Underwriters shall collect an earnest money deposit equal to the offer price set out in the preceding paragraph for each unit from subscribers when subscribers subscribe for acquisition of the Beneficial
Certificates and shall apply the amount equivalent to the Underwriting Price to the payment of the Shares on or before September 26, 2017 (the “
Payment Date
”), and the difference between the offer price and the Underwriting
Price shall be the proceeds of the Underwriters. No interest will accrue on the earnest money deposit.
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Article 4
|
Method of Payment
|
The Manager, on behalf of the Underwriters, shall pay on the Payment Date the amount of
[TBD] yen, calculated by multiplying the Underwriting Price by the number of the shares corresponding to the number of the units of beneficiary certificates to be offered, to the payment location to be determined upon consultation with the Issuer as
the payment for the Shares.
|
Article 5
|
Delivery of Shares and Book-Entry of the Beneficiary Certificates
|
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1.
|
The share certificates representing the Shares shall be held at the settlement institution in the U.S. designated by the Issuer under U.S. law, and the delivery of the Shares to the Underwriters shall be performed by
depositing the Shares to the account of the Manager at the institution designated by the Manager and holding accounts at such settlement institution.
|
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2.
|
The Beneficiary Certificates, in accordance with the Act of Book-Entry of Company Bonds, Shares, etc. of Japan, the Operational Rules regarding Book-Entry Transfer of Shares, etc. of Japan Securities Depositary Center,
Inc. (“
JASDEC
”) and other laws and related regulations, etc., shall be newly recorded to the Manager’s proprietary account (
jiko-kuchi
) at JASDEC collectively; the Beneficiary Certificates in respect of the number of
units to be sold by each Underwriter other than the Manager shall be transferred to each Underwriter’s account at JASDEC on the Delivery Date.
|
The Issuer shall bear any and all expenses for the issuance of the Shares and the Beneficiary
Certificates and for the Offerings, Etc.; provided, however, that a part of those expenses may be borne by the Underwriters under a separate written agreement upon consultation between the Issuer and the Manager. The provisions of this Article will
survive and remain in effect after the completion of the Offerings, Etc. and after the cancellation of this Agreement.
2
|
Article 7
|
Issuer’s Representations and Warranties
|
|
1.
|
The Issuer represents and warrants to the Underwriters the following as of the execution date of this Agreement:
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|
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(1)
|
The Issuer has carried out all procedures required for the U.S. Registration Statement to become effective on September [TBD], 2017 (Eastern Standard Time) under the U.S. Securities Act. No order for suspension of the
effectiveness of the U.S. Registration Statement under the U.S. Securities Act has been issued, and there is no fact that any procedures for such order have been commenced by, or are pending at, the SEC, and to the knowledge of the Issuer, there is
no risk of the commencement of such procedures;
|
|
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(2)
|
The Issuer has carried out all procedures required for the Securities Registration Statement to become effective on September [20], 2017 under the Financial Instruments and Exchange Act. No order for suspension of the
effectiveness of the Securities Registration Statement under the Financial Instruments and Exchange Act has been issued, and there is no fact that any procedures for such order have been commenced by, or are pending at, the Kanto Local Finance
Bureau, and to the knowledge of the Issuer, there is no risk of the commencement of such procedures;
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|
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(3)
|
The U.S. Registration Statement and the U.S. Prospectus have been prepared in accordance with the U.S. Securities Act and the SEC Rules, do not include any false statement with respect to material matters, and do not
omit to state any material matters that should be stated or any facts necessary in order to make the statements therein not misleading;
|
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(4)
|
The Securities Registration Statement and the Japanese Prospectus have been prepared in accordance with the Financial Instruments and Exchange Act and relevant laws, ordinances, and regulations, do not include any false
statement with respect to material matters, and do not omit to state any material matters that should be stated or any facts necessary in order to make the statements therein not misleading; all matters that might particularly have a material impact
on any investor decisions concerning the level of risk involved in investing in the Offered Beneficiary Certificates are contained under the captions “Risk Factors relating to Business, Etc.” and “Special Notes Regarding Offering or
Secondary Offering” in the Securities Registration Statement and the Japanese Prospectus;
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|
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(5)
|
The annual financial statements and notes thereto contained in the Securities Registration Statement and the Japanese Prospectus (collectively, the “
Disclosure Documents
”) (i) fairly present the
financial conditions of the Issuer and its consolidated subsidiaries at the time of the statements being made therein, and (ii) fairly represent the business results, shareholders’ equity, and cash flow of the Issuer and its consolidated
subsidiaries for all of the periods indicated therein, and the statements in (i) and (ii) above are prepared in accordance with the U.S. GAAP;
|
|
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(6)
|
Except as disclosed in the Disclosure Documents, since the last day of the fiscal period for the latest audited financial statements disclosed in the Disclosure Documents, (i) there has not been any material
adverse change or any development involving a prospective material adverse change in the Issuer or on the financial conditions, results of operations, or cash flow of the Issuer or any of its subsidiaries, taken as a whole, or (ii) any change
that might lead to any of such circumstances has occurred;
|
|
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(7)
|
None of the materials set forth in Article 13, Paragraph 5 of the Financial Instruments and Exchange Act (the “
Materials Other Than Prospectuses
”) prepared or used by the Issuer for the Offerings, Etc.
contains any untrue or misleading indication of a material matter or omits to indicate any facts necessary in order to make the indications therein not misleading in the Materials Other Than Prospectuses;
|
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|
(8)
|
The Issuer and its subsidiaries are duly incorporated and validly existing under the laws of the jurisdiction where they are incorporated, and have the full power and authority necessary to hold, lease, or manage assets
and operate business or to execute the Relevant Agreements and perform obligations under the Relevant Agreements; the Issuer and its subsidiaries satisfy all the requirements under all permits, licenses, authorizations, approvals, qualifications,
and other applicable laws and ordinances (not limited to Japanese laws and ordinances; the same applies hereinafter) necessary to conduct business in the jurisdiction where they do so, and the Issuer is in good standing under the laws of the State
of Delaware;
|
|
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(9)
|
The execution of the Relevant Agreements, the performance of the Issuer’s obligations under those agreements, the issuance of the Shares and the Offered Beneficiary Certificates, and the Offerings, Etc. by the
Issuer have been duly approved in accordance with necessary internal procedures of the Issuer (including resolution of the board of directors for the issuance of the Shares and the Offered Beneficiary Certificates and for the Offerings, Etc. as set
out in the first paragraph of this Agreement) and do not conflict with (i) applicable laws or ordinances, (ii) judgments, orders, and directives of the governmental authorities or courts that have jurisdiction over the Issuer or its
assets, properties, or business, (iii) the Issuer’s certificate of incorporation, bylaws, corporate governance guidelines, or any other internal regulations of the Issuer, or (iv) the provisions of any agreement the Issuer has already
executed other than this Agreement; the Relevant Agreements constitute enforceable, valid, and legally binding obligations of the Issuer in accordance therewith;
|
|
|
(10)
|
The authorized capital and issued shares of the Issuer are as described under the caption “Status of the Company, Status of Shares, Etc.” in the Securities Registration Statement and the Japanese Prospectus,
and, except as described therein, no securities convertible into or exchangeable for the Issuer’s shares or warrants, rights or options to purchase such securities from the Issuer have been issued, and the Issuer is not obligated to issue such
securities;
|
|
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(11)
|
The Issuer is authorized to issue the Shares indicated in the Disclosure Documents, and if the Shares are issued
in exchange for the payment of the consideration set out in this Agreement pursuant to this Agreement, the Shares are
|
3
duly issued and fully paid and are not subject to an obligation of additional payment; the shares of common stock of the Issuer are consistent with the statements of the shares of common stock of
the Issuer indicated in the Disclosure Documents in all material respects; there are no issued shares of the Issuer that are issued in breach of the preemption rights or other similar rights held by the holders of other securities of the Issuer;
|
|
(12)
|
Except as provided for in this Agreement, the Shares are not subject to rights or claims to receive allotment of any shares (including, but not limited to, purchase rights), and if the entire amount of the payment of
the Shares are paid pursuant to this Agreement, the Shares are duly and validly issued on the Payment Date without any encumbrances or restrictions such as liens, pledges, or other security interests and have the same rights and interests (excluding
those relating to the rights whose record dates are prior to the Payment Date) as those of the issued shares of common stock of the Issuer (excluding shares of common stock of the Issuer held by the Issuer) in all respects; there are no restrictions
on the rights of shareholders or transfer of the shares of common stock of the Issuer and the Offered Beneficiary Certificates under laws or ordinances or under the Issuer’s certificate of incorporation, bylaws, regulations of the board of
directors or any other internal regulations of the Issuer;
|
|
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(13)
|
Except as disclosed in the Disclosure Documents, neither the Issuer nor any of its subsidiaries are a party to, and none of the property or assets of the Issuer or any of its subsidiaries are the subject of, litigation
or any other judicial or administrative proceeding that is pending or in progress and that would have a material impact on the issuance of the Shares and the Offered Beneficiary Certificates and on the Offerings, Etc., and to the knowledge of the
Issuer after reasonable investigation, no fact exists that any such judicial or administrative proceedings are being prepared or considered;
|
|
|
(14)
|
The Issuer has carried out all procedures required to be conducted by the Issuer under laws and ordinances (not limited to Japanese laws and ordinances), including the obtaining of permits and approvals and the advance
filing (including the filing of the U.S. Registration Statement, the Securities Registration Statement and amendments thereto), that are to be completed before the execution date of this Agreement in connection with the execution of the Relevant
Agreements, the performance of the Issuer’s obligations thereunder, the issuance of the Shares and the Offered Beneficiary Certificates, and the Offerings, Etc.; and
|
|
|
(15)
|
To the knowledge of the Issuer after reasonable investigation, there are no facts or circumstances not publicly announced that, if made public, might have a material impact on the completion of the issuance of the
Shares and the Offered Beneficiary Certificates and the completion of the Offerings, Etc. or on the stock price of the Issuer after it is listed (including, but not limited to, material facts prescribed in Article 166, Paragraph 2 of the Financial
Instruments and Exchange Act and facts relating to the execution or cancellation of a tender offer, etc. prescribed in Article 167, Paragraph 2 of the Financial Instruments and Exchange Act, and excluding the facts or circumstances described in the
Disclosure Documents), and no causes for such facts or circumstances.
|
|
2.
|
If any representation or warranty set out in the preceding paragraph or the certificate set out in Article 10, Item (3) is false, the Issuer shall indemnify the Underwriters for damage, expenses, and other losses
incurred by the Underwriters (including the Manager as a trustee under the Trust Agreement regarding the Beneficiary Certificates; the same applies in Article 12) as a result of their reliance on that false representation or warranty,
|
|
3.
|
If any change of circumstances that might have a material impact on any representation or warranty set out in Paragraph 1 of this Article occurs, the Issuer shall immediately notify the Manager of that change and shall
take measures reasonably requested by the Manager to cure those circumstances. The Issuer shall, at the request of the Manager, refund to the Manager the expenses borne by the Manager as a result of such measures.
|
|
4.
|
The Issuer’s obligations in Paragraph 2 and the second sentence of Paragraph 3 of this Article under the representations and warranties in Paragraph 1 of this Article will survive and remain in effect even after
the completion of the Offerings, Etc. and after the cancellation of this Agreement.
|
|
Article 8
|
Representations and Warranties Relating to Anti-Social Forces
|
|
1.
|
The Issuer hereby represents and warrants to the Underwriters as follows that the Issuer and its subsidiaries (the “
Issuer, Etc.
”), special stakeholders (defined in Article 1, Item (31)(i) of the
Cabinet Office Ordinance on Disclosure of Corporate Affairs, etc.) of the Issuer, Etc., employees of the Issuer, Etc., shareholders of the Issuer, Etc., and customers or vendors, etc. of the Issuer, Etc. have not been involved with any
anti-social force (defined in Article 2, Item (23) of the Rules Concerning Underwriting, etc. of Securities established by the Japan Securities Dealers Association; the same applies hereafter):
|
|
|
(1)
|
None of the Issuer, Etc., special stakeholders of the Issuer, Etc., shareholders of the Issuer, Etc., or customers or vendors, etc. of the Issuer, Etc. is an anti-social force;
|
|
|
(2)
|
No anti-social force is involved, directly or indirectly, in the management of the Issuer, Etc.;
|
|
|
(3)
|
None of the Issuer, Etc., special stakeholders of the Issuer, Etc., or shareholders of the Issuer, Etc. has cooperated or been involved or will cooperate or be involved, in any respect, in the maintenance or operation
of any anti-social force through the provision of funds or any other action; none of the customers or vendors, etc. of the Issuer, Etc. has cooperated or been involved, or to the knowledge of the Issuer after reasonable investigation, will cooperate
or be involved, in any respect, in the maintenance or operation of any anti-social force through the provision of funds or any other action;
|
|
|
(4)
|
None of the Issuer, Etc., special stakeholders of the Issuer, Etc., shareholders of the Issuer, Etc., or customers or vendors, etc. of the Issuer, Etc. has intentionally interacted with any anti-social force; and
|
4
|
|
(5)
|
The Issuer, Etc. do not employ as an employee of the Issuer, Etc. any member of any anti-social force or a person who has interacted with an anti-social force.
|
|
2.
|
If the Issuer becomes aware, through a newspaper report or otherwise, of any information regarding any relationship between (a) the Issuer, Etc., special stakeholders of the Issuer, Etc., shareholders of the
Issuer, Etc., or customers or vendors, etc. of the Issuer, Etc. and (b) an anti-social force, then the Issuer shall immediately notify the Manager to that effect and of the details of that information, promptly investigate the facts relating to
that information, and report the results to the Manager.
|
|
3.
|
If the Issuer is requested by the Manager to submit materials and information regarding facts and matters deemed to imply involvement with anti-social forces, the Issuer shall promptly submit those materials as
requested by the Manager.
|
|
4.
|
If the Manager reasonably determines that any of the representations or warranties in Paragraph 1 of this Article is not true, the Manager may cancel this Agreement upon notification to the Issuer.
|
|
Article 9
|
Issuer’s Covenants
|
|
1.
|
The Issuer shall comply with (i) the U.S. Securities Act, the U.S. Securities Exchange Act of 1934, and the rules prescribed by the SEC under either, (ii) the Financial Instruments and Exchange Act and other
relevant laws, ordinances, and regulations, (iii) orders, guidance, and instructions of the SEC and the Kanto Local Finance Bureau, and (iv) applicable rules of the TSE.
|
|
2.
|
If an order for suspension of the effectiveness of the U.S. Registration Statement by the SEC is issued or is likely to be issued, the Issuer shall immediately notify the Manager to that effect. The Issuer shall use any
and all reasonable efforts to prevent the issuance of an order for suspension of effectiveness, and if an order for suspension of effectiveness is issued, the Issuer shall use any and all reasonable efforts to cancel the order for suspension as soon
as practicably possible.
|
|
3.
|
If an order for suspension of the effectiveness of the Securities Registration Statement by the Kanto Local Finance Bureau is issued or is likely to be issued, the Issuer shall immediately notify the Manager to that
effect. The Issuer shall use any and all reasonable efforts to prevent the issuance of an order for suspension of the effectiveness, and if an order for suspension of the effectiveness is issued, the Issuer shall use any and all reasonable efforts
to cancel the order for suspension as soon as practicably possible.
|
|
4.
|
If the Issuer intends to prepare or file an amended statement of the U.S. Registration Statement or the Securities Registration Statement or an amendment to the U.S. Prospectus or the Japanese Prospectus, the Issuer
shall notify the Manager to that effect and submit a copy to the Manager thereof at a reasonable time prior to the date on which such amended statement or amendment is expected to be filed or used.
|
|
5.
|
The Issuer shall deliver to the Manager such number of the Prospectuses as the Manager reasonably requests without requesting the Manager to pay the expenses necessary for such delivery and agrees that those documents
are used for the purposes approved under the U.S. Securities Act or the Financial Instruments and Exchange Act. The Issuer shall deliver to the Manager such number of the Prospectuses as each of the Underwriters reasonably requests without
requesting the Manager to pay the expenses necessary for such delivery for the period in which such delivery is required under the U.S. Securities Act or the Financial Instruments and Exchange Act. The Issuer shall bear expenses for the compliance
with this item in accordance with the provisions of Article 6.
|
|
6.
|
If the Issuer intends to make a public announcement before the Payment Date, the Issuer must give prior notice the Manager and consult with the Manager on the method, timing, and details of the announcement.
|
|
7.
|
The Issuer shall not, in relation to the Offerings, Etc., prepare or use any material that contains any untrue or misleading indication of a material matter or that omits to indicate any facts necessary in order to make
the indications therein not misleading in that material.
|
|
8.
|
If the Issuer changes the purposes of the funds raised through the Offering, Etc. by the fifth anniversary date of the Payment Date of the Offering, Etc., the Issuer shall notify the Manager to such effect and publicly
disclose the matters concerning such change.
|
|
9.
|
If the Manager needs to perform confirmation and verification under Article 15, Paragraph 1 of the Rules Concerning Underwriting, etc. of Securities established by the Japan Securities Dealers Association even after the
delivery date pursuant to this Agreement, the Issuer shall provide cooperation to the Manager and respond to the request by the Manager under Article 15, Paragraph 2 of the Rules Concerning Underwriting, etc. of Securities.10. If the Issuer fails to
perform the obligations set out in each paragraph of this Article, the Issuer shall indemnify the Underwriters for damage, expenses, and other losses incurred by the Underwriters due to such failure.
|
|
Article 10
|
Submission of Documents
|
The Issuer shall submit to the Manager the following documents, which will be in the
form and substance separately requested by the Manager, by a date designated by the Manager that will be no later than the Payment Date:
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(1)
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a comfort letter as of the execution date of this Agreement from the certified public accountants or auditing firm of the Issuer;
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5
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(2)
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a comfort letter as of the day before the Payment Date from the certified public accountants or auditing firm of the Issuer confirming the details stated in the comfort letter set out in the preceding item on the day
before the Payment Date (or a date separately designated by the Manager);
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(3)
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a certificate as of the Payment Date executed by the CEO of the Issuer attesting that all representations and warranties in Article 7, Paragraph 1 and Article 8, Paragraph 1 of this Agreement would be true and accurate
on the Payment Date even if they were to be restated on the Payment Date;
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(4)
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a legal opinion and disclosure letter as of the Payment Date from Pillsbury Winthrop Shaw Pittman, which is the U.S. legal counsel of the Issuer; and
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(5)
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a legal opinion and disclosure letter as of the Payment Date from Mori Hamada & Matsumoto, which is the Japanese legal counsel of the Issuer.
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Article 11
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Subscription and Payment Obligations
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The obligations of the Underwriters under this Agreement will become
effective upon the satisfaction of the conditions set out below; provided, however, that the Manager may, at its discretion, waive any or all of such conditions:
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(1)
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All representations and warranties set forth in Article 7, Paragraph 1 and Article 8, Paragraph 1 of this Agreement would be true and accurate on the Payment Date even if they were to be restated on the Payment Date;
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(2)
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All covenants and obligations of the Issuer under the Relevant Agreements have been performed;
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(3)
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The Relevant Agreements and other agreements necessary for the issuance of the Shares and the Offered Beneficiary Certificates and for the Offerings, Etc. have been executed and are effective as of the Payment Date;
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(4)
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The Manager has received the documents set out in the preceding Article and a legal opinion as of the Payment Date from Anderson Mori & Tomotsune, which is the Japanese legal counsel of the Manager;
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(5)
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The filings of the U.S. Registration Statement and the Securities Registration Statement regarding the Offerings, Etc. have become effective, and no order for suspension of effectiveness has been issued or is likely to
be issued as of the Payment Date;
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(6)
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The approval of the listing of the Offered Beneficiary Certificates on the TSE is not cancelled as of the Payment Date; and
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(7)
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The Manager or its legal counsel have verified the issuance of the Shares and the Offered Beneficiary Certificates contemplated under this Agreement and the Offering, Etc., and have received documents, opinions, or
letters reasonably requested by the Manager or its legal counsel to obtain evidence for the accuracy of the representations and warranties set out in this Agreement or for the satisfaction of terms and conditions set out in this Agreement before the
Payment Date; with respect to the manner and substance, the procedures taken by the Issuer in connection with the Offerings, Etc. contemplated under this Agreement are satisfactory to the Manager and its legal counsel.
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1.
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If any litigation is commenced or demand for compensation is made against the Underwriters with respect to the issuance of the Shares and the Offered Beneficiary Certificates and to the Offerings, Etc., the Issuer shall
immediately take measures reasonably requested by the Manager to cure such circumstance irrespective of the place where such litigation is filed and the cause of action and shall provide necessary cooperation to the Underwriters with respect to the
Underwriters’ defense, including the provision of evidential materials, etc.
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2.
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The Issuer shall indemnify the Underwriters for damage, expenses, and other losses incurred by the Underwriters due to a filing of litigation or a claim for damages set out in the preceding paragraph, including expenses
necessary for litigation and for negotiation, etc. before litigation, such as attorney’s fees, etc., unless all of the following matters are true:
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(1)
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The Disclosure Documents do not include any false statement with respect to material matters and do not omit to state any material matters that should be stated in the Disclosure Documents or any facts necessary in
order to make the statements therein not misleading in the Disclosure Documents; and
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(2)
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The Materials Other Than Prospectuses prepared or used by the Issuer do not contain any untrue or misleading indication of a material matter or omit to indicate any facts necessary in order to make the indications
therein not misleading in the Disclosure Documents.
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Article 13
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Cancellation of or Amendment to this Agreement
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1.
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If the Manager determines that any of the circumstances set out below has occurred during the period from and including the execution date of this Agreement through and including the Payment Date, the Manager may
immediately cancel this Agreement on behalf of the Underwriters by notifying the Issuer. If this Agreement is cancelled pursuant to this paragraph, the Issuer shall bear any and all expenses relating to such cancellation.
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(1)
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There is a material breach of the representations and warranties set out in Article 7, Paragraph 1 or Article 8, Paragraph 1 and of the certificate set out in Article 10, Item (3);
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(2)
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The Issuer materially breaches any of its obligations set forth in this Agreement;
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(3)
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The Issuer fails or refuses to achieve any of the conditions set out in Article 11; or
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(4)
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The Relevant Agreements (other than this Agreement) and other agreements necessary for the issuance of the Shares and the Offered Beneficiary Certificates and for the Offerings, Etc. are cancelled.
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2.
|
If the Manager determines that any of the circumstances set out below has occurred during the period from and including the execution date of this Agreement through and including the Payment Date, the Manager may cancel
this Agreement upon consultation with the Issuer on behalf of the Underwriters. If this Agreement is cancelled pursuant to this paragraph, the Issuer shall bear any and all expenses relating to such cancellation.
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(1)
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There is, or is likely to be, a change in financial, exchange-related, political, or economic conditions in Japan or abroad that will have a material impact on the issuance of the Shares and the Offered Beneficiary
Certificates and on the Offerings, Etc.; or
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(2)
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There is, or is likely to be, a situation deemed to be an event of force majeure that will render the performance of this Agreement impossible or impracticable.
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3.
|
If it becomes necessary to amend any of the provisions of this Agreement due to any circumstances other than those described in the preceding two paragraphs, the Issuer and the Manager shall determine such amendment
upon consultation in each case.
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Article 14
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Dispute Resolution
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1.
|
Any doubt regarding the provisions of this Agreement and any matter not provided for in this Agreement shall be determined upon consultation between the Issuer and the Manager in each case.
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2.
|
The Tokyo District Court will have exclusive jurisdiction as the court of first instance if any dispute arises between the parties in connection with this Agreement.
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3.
|
This Agreement will be governed by and construed in accordance with the laws of Japan.
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4.
|
The Japanese version of this Agreement shall be the official version. If this Agreement is translated into a language other than Japanese, only the Japanese official version shall be effective as an agreement. If there
is a difference between the Japanese official version and such translation, the Japanese official version will prevail.
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IN WITNESS WHEREOF,
the Issuer and the Manager cause this Agreement to be signed and sealed in duplicate, and each party retains one original.
September , 2017
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Issuer:
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Techpoint Inc.
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2550 N. First Street, Suite 550
San
Jose CA 95131
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Manager:
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Mizuho Securities Co., Ltd.
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1-5-1, Otemachi, Chiyoda-ku, Tokyo
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7
Exhibit 1.2
[Form of the Agreement][Translation of Japanese original text and For reference purposes only]
New Share Purchase Agreement relating to Green Shoe Option
for Techpoint, Inc. Beneficiary Certificates of Securities in Trust
This agreement (the “Agreement”) is made and entered into by and between Techpoint, Inc. (the “Issuer”) and Mizuho Securities Co., Ltd
(“Mizuho Securities” or the “Manager”) with respect to Green Shoe Option (as defined under (1) of Article 1 hereof) to be granted to the Underwriter by the Issuer.
Preamble
The Issuer intends to
list its beneficiary securities of beneficiary securities issuing trusts consisting of the Issuer’s common shares as assets in trust (“Beneficiary Certificates of Securities in Trust”) on the Tokyo Stock Exchange (the
“TSE”). In connection with this, based on its resolutions at its respective Board of Directors Meetings held on August 30, 2017 (Pacific Standard Time) and September 8, 2017 (Pacific Standard Time), the Issuer intends to make an
offering of 1,520,000 units of Beneficiary Certificates of Securities in Trust pursuant to Techpoint, Inc. new share underwriting agreement (the “New Share Underwriting Agreement”) executed by and between the Issuer, Mizuho Securities,
Daiwa Securities Co. Ltd. and SBI SECURITIES Co., Ltd. (the “Offering”).
Mizuho Securities shall, concurrently with the
Offering, make an offering of Beneficiary Certificates of Securities in Trust consisting of 228,000 shares of common stock as assets in trust that Mizuho Securities will borrow from a specified shareholder (the “Borrowed Shares”) (the
“Offering through Over-Allotment”, together with the Offering, the “Offering, etc.”)
Mizuho Securities may, for the
purpose of returning the Borrowed Shares, purchase the Beneficiary Certificates of Securities in Trust on the TSE, up to the number of the Beneficiary Certificates of Securities in Trust with respect to the Offering through Over-Allotment (the
“Syndicate Cover Transactions”).
In addition to above, the Issuer has granted Mizuho Securities a right to undertake
allotments of new shares of common stock to be newly issued by the Issuer, for the purpose of returning the Borrowed Shares as provided in Article 1 hereof.
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Article 1.
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Granting of Green Shoe Option, and issuance and acquisition of new shares by exercising such option
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The Issuer and the Manager shall agree as follows:
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(1)
|
With respect to the Offering through Over-Allotment, the Issuer shall grant the Manager a right to acquire the Issuer’s shares of common stock (the “Green Shoe Option”), up to 228,000 shares, which is the
number of the Borrowed Shares, in the way stipulated in items (3) and (4) of this Article.
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(2)
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In order to issue its new shares of common stock to be acquired by the Manager if and when the Manager exercises the Green Shoe Option, the Issuer approved at its Board of Directors meeting held on August 30, 2017
(Pacific Standard Time) to the sale and issuance of shares of common stock of the Issuer by way of third-party allotment in which shares are alloted to the Manager (the “Capital Increase by Third-party Allotment”), and shall allocate the
Manager the number of shares subscribed by the Manager in accordance with item (4) of this Article (the “Allotted Shares”), provided that the number of the Allotted Shares may not exceed 228,000 shares as provided in item (1) of
the terms and conditions of new shares set forth in the Appendix attached hereto (the “Terms”).
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(3)
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The Manager shall exercise the Green Shoe Option solely for the purpose of returning the Borrowed Shares, provided that and the maximum number of the Allotted Shares the Manager may acquire by using such exercise shall
be limited to the number of shares acquired from the Borrowed Shares through the Syndicate Cover Transactions after subtracting the number of shares converted from the Beneficiary Certificates of Securities in Trust for the purpose of returning the
Borrowed Shares. During the period from September 29, 2017 to October 25, 2017, the Manager may exercise part or all of the Green Shoe Option by issuing a written notice to the Issuer to exercise such option, as well as the number of
shares to be purchased from the Issuer. The Issuer acknowledges that the Manager may exercise the Green Shoe Option solely for the purpose of returning the Borrowed Shares and there may be cases in which there will be no such exercise or
subscription of new shares to be offered through the Third-party Allotment in whole or in part, and accordingly, the ultimate number of shares to be issued through the Capital Increase by Third-party Allotment will decrease to that extent or such
issuance itself will not take place at all.
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(4)
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In the case where the Manager exercises the Green Shoe Option, the Issuer shall take predetermined procedures to allocate shares to the Manager. The Manager shall pay the amount of Issue Price stipulated in (3) of
the Terms multiplied by the number of options exercised (up to the total Issue Price stipulated in (4) of the Terms) by the Payment Date (the “Payment Date”) specified in (7) of the Terms at the payment place designated in
(5) of the Terms.
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Article 2.
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The issuance of shares
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The share certificates representing the Allotted Shares acquired through the exercise of the Green Shoe Option by the Manager
shall be held at the settlement institution in the U.S. designated by the Issuer pursuant to U.S. law, and the delivery of the Allotted Shares to the Manager shall be performed by depositing the Allotted Shares to the account of the Manager at the
institution designated by the Manager and holding accounts at such settlement institution.
The Issuer shall bear all costs incurred in connection with granting and exercising the Green Shoe Option; provided, however,
that a part of those expenses may be borne by the underwriters defined under the New Share Underwriting Agreement under a separate written agreement upon consultation between the Issuer and the Manager.
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Article 4.
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Issuer’s Representations and Warranties
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1.
|
The Issuer shall, on the date hereof, make representations and warrants to the Underwriter as follows:
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(1)
|
The execution of the Agreement, the performance of Issuer’s obligations under the Agreement and the Capital Increase by Third-party Allotment by the Issuer hereunder have been validly approved in accordance with
necessary internal procedures of the Issuer (including resolution for the Capital Increase by the Third-party Allotment) and do not conflict with: (i) applicable laws and ordinances (not limited to Japanese laws and ordinances, the same shall
apply hereinafter); (ii) judgments, orders and directives of the governmental authorities or courts having jurisdiction over the Issuer and its assets, properties or businesses; (iii) the Issuer’s certificate of incorporation, bylaws,
corporate governance guidelines, or any other internal rules of the Issuer; and (iv) the provisions of any agreement the Issuer has already executed other than the Agreement.
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(2)
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Except as provided herein, the Allotted Shares are not subject to rights or claims to receive allotment of any shares (including, but not limited to, purchase rights), and if the amount of the Allotted Shares is fully
paid pursuant to the Agreement, the Allotted Shares shall be duly and validly issued on the Payment Date without any encumbrances or restrictions such as liens, pledges or other security interests, and shall have the same rights and interests
(excluding those relating to the rights whose record dates are prior to the Payment Date) as those of the Issuer’s issued shares of common stock (excluding the Issuer’s shares of common stock held by the Issuer) in all respects; there are
no restrictions on the rights of shareholders or transfer of the shares of common stock of the Issuer and the Offered Beneficiary Certificates under laws or ordinances or under the Issuer’s certificate of incorporation, bylaws, regulations of
the Board of Directors or any other internal rules.
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(3)
|
With respect to the execution of the Agreement, the performance of Issuer’s obligations hereof and the Capital Increase by Third-party Allotment, the Issuer has carried out all procedures required to be conducted
by the Issuer under laws and ordinances, including the obtaining of permits and approvals and the advance filing (including the filing of the U.S. Registration Statement, the Securities Registration Statements and amendments thereto) , that are to
be completed before the execution date of this Agreement.
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(4)
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The Issuer and its subsidiaries (the “Issuer, etc.”), special stakeholders (as defined in Article 1,
Item (31)(i) of the Cabinet Office Ordinance on Disclosure of Corporate Affairs, etc.) of the Issuer, etc., employees of the Issuer, etc., shareholders of the Issuer, etc. and customers and vendors etc. of the Issuer etc., do not fall under
anti-social forces (as defined in Article 2, Item (23) of Rules Concerning
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Underwriting, Etc. of Securities established by the Japan Securities Dealers Association; the same applies hereinafter), and no anti-social force is involved, directly or indirectly, in the
management of the Issuer, etc. Furthermore, none of the Issuer, Etc., special stakeholders of the Issuer, Etc., or shareholders of the Issuer, Etc. has cooperated or been involved or will cooperate or be involved, in any respect, in the maintenance
or operation of any anti-social force through the provision of funds or any other action; none of the customers or vendors, etc. of the Issuer, Etc. has cooperated or been involved, or to the knowledge of the Issuer after reasonable investigation,
will cooperate or be involved, in any respect, in the maintenance or operation of any anti-social force through the provision of funds or any other actionnone of the Issuer, etc., special stakeholders of the Issuer, etc. Furthermore, none of the
Issuer, Etc., special stakeholders of the Issuer, Etc., shareholders of the Issuer, Etc., or customers or vendors, etc. of the Issuer, Etc. has intentionally interacted with any anti-social force and the Issuer, Etc. do not employ as an employee of
the Issuer, Etc. any member of any anti-social force or a person who has interacted with an anti-social force.
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2.
|
If any representation or warranty set out in the preceding paragraph or the certificate set out in Article 5, Item (1) is false, the Issuer shall indemnify the Manager for damage, expenses, and other losses
incurred to the Manager as a result of its reliance on any such false representation and warranty.
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3.
|
If any change of circumstances that might have a material impact on any representation or warranty set out in Paragraph 1 of this Article occurs, the Issuer shall immediately notify the Manager of such change and shall
take measures reasonably required by the Manager to cure those circumstances. The Issuer shall reimburse all expenses incurred to the Manager in implementing such measures.
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4.
|
The Underwriter may terminate the Agreement if it determines that the Issuer’s representations and warranties in Paragraph 1 of this Article are false or inaccurate.
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5.
|
The Issuer’s obligations in Paragraph 2 and the second sentence of Paragraph 3 of this Article under the representation and warranties in Paragraph 1 of this Article will survive and remain in effect even after the
completion of the Capital Increase by Third-party Allotment or after the termination of the Agreement.
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Article 5.
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Submission of documents
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1.
|
The Issuer shall submit a certificate as of the Payment Date, which will be in the form and substance separately requested by the Manager, executed by the CEO of the Issuer attesting that all representations and
warranties in Article 4, Item (1) of the Agreement would be true and accurate as of the Payment Date even if they were to be restated on the Payment Date.
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2.
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The Manager’s payment obligations under the Agreement are subject to the Manager’s receipt of document prescribed in the preceding Paragraph. However, the Manager may waive such a condition at its discretion.
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Article 6.
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Disclosure via Disclosure Documents
|
The Issuer and the Manager shall agree to publicize the transactions under the Agreement in press releases or the securities
registration statements concerning the Offering and amendments thereto and the prospectus and amendments thereto (including their respective attached documents, collectively “Disclosure Documents”), provided that the Issuer and the Manager
are each authorized to disclose the transactions under the Agreement (including the existence of this Agreement) in press releases or Disclosure Documents only when and as required by law, rule or regulation.
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Article 7.
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Dispute Resolution
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1.
|
Any doubt regarding the provisions of this Agreement and any matter not provided for in this Agreement shall be resolved pursuant to the provisions of applicable laws and ordinances, etc., and matters not prescribed in
these provisions shall be decided upon consultation between the parties.
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2.
|
The Agreement shall be governed by and construed in accordance with the laws of Japan. The parties hereunder agree that any dispute arising from or in relation to the Agreement shall be subject to the exclusive
jurisdiction of the Tokyo District Court of Japan as the court of first instance.
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The Agreement shall be revoked without any action by the parties if the Agreement is canceled pursuant to the provisions;
provided that this Article 8 shall not prohibit each party of the Agreement from claiming for damages against the other party of the Agreement due to the other party’s failure to perform the obligations or tors, etc.
IN WITNESS WHEREOF, the Issuer and Mizuho Securities have executed the Agreement in two (2) originals by
affixing their respective names and seals hereto, and each party shall retain one (1) original.
September 16, 2017
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The Issuer
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Chief Executive
Officer and
President
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Fumihiro Kozato
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The Underwriter
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1-5-1,
Otemachi, Chiyoda-ku, Tokyo, Japan
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Mizuho Securities, Co., Ltd.
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Appendix
New Share Offering Terms
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(1)
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The number of new shares to be offered:
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xx shares (maximum)
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(2)
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Allottee:
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Mizuho Securities, Co., Ltd.
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(3)
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Paid-in
amount:
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xx
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(4)
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Total
paid-in
amount:
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xx
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(5)
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Payment place:
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xx
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(6)
|
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Subscription period(end date of offering):
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xx
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(7)
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Payment date:
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xx
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Exhibit 3.1(a)
CERTIFICATE OF INCORPORATION
OF
TECHPOINT
REINCORPORATION SUB, INC.
ARTICLE I
The name of the company is Techpoint Reincorporation Sub, Inc. (the “
Company
”).
ARTICLE II
The address of the
registered office of the Company in the State of Delaware is 3500 South Dupont Highway, Dover, DE 19901, County of Kent. The name of the registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the
Company is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “
DGCL
”).
ARTICLE IV
A. The total number
of shares of capital stock that the Company is authorized to issue is 32,160,000 shares, consisting of 20,500,000 shares of Common Stock, par value $0.0001 per share (the “
Common Stock
”), and 11,660,000 shares of Preferred Stock,
par value $0.0001 per share (the “
Preferred Stock
”).
B. The Preferred Stock shall be divided into series. The first
series shall consist of 4,660,000 shares and shall be designated “
Series Seed Preferred Stock
.” The second series shall consist of 4,500,000 shares and shall be designated “
Series A Preferred Stock
.” The third
series shall consist of 2,500,000 shares and shall be designated “
Series B Preferred Stock
.”
C. The designations,
powers, preferences, and relative participating, optional and other special rights and the qualifications, limitations and restrictions of the Preferred Stock shall be as follows:
1.
Dividends
. All dividends shall be declared pro rata on the Common Stock and the Preferred Stock on a pari passu basis according to
the number of shares of Common Stock held by such holders. For this purpose, each holder of shares of Preferred Stock is to be treated as holding the greatest whole number of shares of Common Stock then issuable upon conversion of all shares of
Preferred Stock held by such holder.
2.
Liquidation Preference
.
(a) In the event of a Liquidation Event (as defined in Section C.2(c) hereof), whether voluntary or involuntary, the holders of Preferred
Stock shall be entitled to receive, on a pari passu basis, prior and in preference to any distribution of any of the proceeds of such Liquidation Event to the holders of Common Stock by reason of their ownership thereof, an amount equal to the
greater of: (1) the applicable Original Issue Price for such series of Preferred Stock, plus all declared but unpaid dividends, on each share of the Preferred Stock held by them, or (2) such amount per share as would have been payable had
all shares of such series of Preferred Stock been converted into Common Stock pursuant to Section C.5 immediately prior to such Liquidation Event. If, upon the occurrence of such Liquidation Event, the proceeds thus distributed among the holders of
Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire proceeds legally available for distribution shall be distributed ratably among the holders of Preferred Stock in
proportion to the preferential amount each such holder is otherwise entitled to receive. For purposes of this Certificate of Incorporation (the “
Certificate
”), the “
Original Issue Price
” shall mean $0.25 per share
of Series Seed Preferred Stock, $1.00 per share of Series A Preferred Stock, and $2.00 per share of Series B Preferred Stock, each as adjusted for any stock dividends, stock splits, stock combinations, recapitalizations or similar events with
respect to such shares.
(b) After payment to the holders of Preferred Stock of the preferential amounts required by Section C.2(a)
hereof, all remaining proceeds legally available for distribution to stockholders of the Company shall be distributed pro rata among the holders of Preferred Stock and Common Stock based on the number of shares of Common Stock then held by them
(assuming full conversion of all of the Preferred Stock) until, with respect to each series of Preferred Stock, the holders thereof have received two times the Original Issue Price applicable to such series of Preferred Stock (the
“
Participation Cap
”), each as adjusted for any stock dividends, stock splits, stock combinations, recapitalizations or similar events with respect to such shares, and shall include any amounts paid pursuant to Section C.2(a) hereof.
(c) For purposes of this Section C.2, a “
Liquidation Event
” shall mean (i) a liquidation, dissolution or winding
up of the Company; (ii) an acquisition of the Company by another person or entity by means of any transaction or series of related transactions to which the Company or a subsidiary is a party (including, without limitation, a merger,
consolidation or other corporate reorganization), other than an acquisition in which the shares of capital stock held by stockholders of the Company immediately prior to such acquisition continue to represent, or are converted into or exchanged for
shares of capital stock that represent, immediately after such acquisition and by virtue of the acquisition, a majority of the total outstanding voting power of the surviving or acquiring person or entity; provided that, for purposes of this Section
C.2, all shares of Common Stock issuable upon (1) the exercise of Options (as defined below) or (2) conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be
outstanding immediately prior to such merger or consolidation, and if applicable, deemed to be converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of Common Stock are converted or exchanged; or
(iii) a sale, lease, exclusive license (unless granted in the ordinary course of business) or other disposition of all or substantially all of the assets of the Company, except where such sale, lease, exclusive license or other disposition is
to
a wholly owned subsidiary of the Company. Notwithstanding the foregoing sentence, a transaction shall not constitute a Liquidation Event if the primary purpose is to change the jurisdiction of
the Company’s incorporation, create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction or engage in a bona fide equity financing
transaction. The treatment of any particular transaction or series of related transactions as a Liquidation Event may be waived by the affirmative vote or written consent of the holders of a majority of the outstanding shares of Preferred Stock,
voting as a single class on an as-converted basis.
(d) If the proceeds to be received by the Company or its stockholders are other than
cash, the value of such proceeds shall be their fair market value as determined in good faith by the Board; provided, however, that any securities shall be valued as follows:
(i) Securities not subject to investment letter or other similar restrictions on free marketability covered by subsection (ii) below:
(A) If traded on a national securities exchange or a national quotation system, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the ten (10) trading-day period ending three (3) trading days prior to the closing of such transaction;
(B) If actively traded over the counter, the value shall be deemed to be the average of the closing bid prices over the ten
(10) trading-day period ending three (3) trading days prior to the closing of such transaction;
(C) If there is no active
public market, the value shall be the fair market value thereof, as determined in good faith by the Board; and
(D) For the purposes of
this Section C.2(d), “trading day” shall mean any day which the exchange or system on which the securities to be distributed are traded is open and “closing prices” or “closing bid prices” shall be deemed to be:
(1) for securities traded primarily on the New York Stock Exchange or the Nasdaq Stock Market, the last reported trade price or sale price, as the case may be, at 4:00 p.m., New York time, on that day, and (2) for securities listed or
traded on other exchanges, markets and systems, the market price as of the end of the regular hours trading period that is generally accepted as such for such exchange, market or system. If, after the date hereof, the benchmark times generally
accepted in the securities industry for determining the market price of a stock as of a given trading day shall change from those set forth above, the fair market value shall be determined as of such other generally accepted benchmark times.
(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in Section C.2(d)(i) to reflect the approximate fair market value
thereof, as determined in good faith by the Board.
(iii) The foregoing methods for valuing non-cash proceeds to be distributed in connection with a
Liquidation Event shall, with the appropriate approval of the definitive agreements governing such Liquidation Event by the Board and the stockholders of the Company under the DGCL and the Certificate, be superseded and governed by the determination
of such value as set forth in the definitive agreements governing such Liquidation Event.
(e)
Allocation of Escrow
. In the event
of a Liquidation Event pursuant to Section C.2(c)(2) in which the Company is a party to an acquisition, if any portion of the consideration payable to the stockholders of the Company is placed into escrow, the merger agreement shall provide that
such consideration shall be allocated pro rata among the holders of capital stock of the Company in proportion to the total consideration otherwise payable to each stockholder.
3.
Redemption
. The shares of Preferred Stock shall not be redeemable at the option of the holders thereof.
4.
Voting Rights
.
(a)
General Voting Rights
. Each holder of shares 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 be converted on the record date for the
vote or consent of stockholders and, except as otherwise required by law or this Certificate, shall have voting rights and powers equal to the voting rights and powers of the Common Stock. Each holder of shares of Preferred Stock shall be entitled
to notice of any stockholders’ meeting in accordance with the Bylaws of the Company and shall vote with holders of the Common Stock upon the election of directors and upon any other matter submitted to a vote of stockholders, except as to those
matters required by law or this Certificate to be submitted to a class vote. Fractional votes by the holders of Preferred Stock shall not, however, be permitted, and 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)
Voting for Directors
.
(i) The holders of a majority of the outstanding shares of Series B Preferred Stock, voting as a separate class, shall be entitled to elect
one member of the Board (the “
Series B Director
”). The holders of a majority of the outstanding shares of Series A Preferred Stock, voting as a separate class, shall be entitled to elect one member of the Board (the “
Series
A Director
”). The holders of a majority of the outstanding shares of Common Stock, voting as a separate class, shall be entitled to elect two members of the Board (the “
Common Directors
”). The holders of a majority of the
outstanding shares of Preferred Stock and Common Stock, voting together as a single class and on an as-converted basis, shall be entitled to elect any remaining members of the Board (the “
Joint Directors
”). At any meeting held for
the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director.
(ii) The Series B Director may be removed from the Board, either with or without cause, only by
the affirmative vote or written consent of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting as a separate class. The Series A Director may be removed from the Board, either with or without cause, only by the
affirmative vote or written consent of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting as a separate class. The Common Directors may be removed from the Board, either with or without cause, only by the
affirmative vote or written consent of the holders of a majority of the outstanding shares of Common Stock, voting as a separate class. The Joint Directors may be removed from the Board, either with or without cause, only by the affirmative vote or
written consent of the holders of a majority of the outstanding shares of Preferred Stock and Common Stock, voting together as a single class and on an as-converted basis.
(iii) In the event of a vacancy in any directorship with respect to which the holders of a class or series are entitled to elect the director
pursuant to subsection (i) above, such vacancy shall be filled only by the affirmative vote or written consent of the holders of a majority of the outstanding shares of such class or series or by any remaining director or directors elected by
the holders of such class or series. If the holders of shares of a class or series entitled to elect directors pursuant to subsection (i) above fail to elect a sufficient number of directors to fill all directorships for which they are entitled
to elect directors, then any directorship not so filled shall remain vacant until such time as the holders of such class or series elect a person or persons to fill such directorships in the manner provided in this Section C.4(b).
5.
Conversion
. The holders of Preferred Stock shall have conversion rights as follows (the “
Conversion Rights
”):
(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 Company or any transfer or other agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Issue Price for such series
of Preferred Stock by the conversion price for such series of Preferred Stock (the “
Conversion Price
”) in effect on the date the certificate is surrendered for conversion. The Conversion Price for each series of Preferred Stock
shall initially mean the Original Issue price for such series of Preferred Stock. Such initial Conversion Price and the rate at which shares of Preferred Stock may be converted into shares of Common Stock shall be subject to adjustment as set forth
in this Section C.5.
(b)
Automatic Conversion
. Each share of Preferred Stock shall automatically be converted into shares of
Common Stock at the then effective Conversion Price for such share upon the earlier of (i) the date, or the occurrence of an event, specified by the vote or written consent of holders of at least a majority of the shares of Preferred Stock then
outstanding, voting as a single class on an as-converted basis, or (ii) the closing of the sale of the Company’s Common Stock (or securities representing an ownership interest in the Company’s Common Stock) to the public (either in
the United States or outside of the United States) in an underwritten public offering, which offering includes shares of the Company’s Common Stock (and/or securities representing an ownership interest in the Company’s Common Stock)
registered under the Securities Act of 1933, as amended (the “
Securities Act
”), other than a registration relating solely to a transaction under Rule 145 under the Securities Act (or any successor thereto) or to an employee benefit
plan of the Company.
(c)
Mechanics of Conversion
.
(i) Except as provided in Section C.5(c)(ii) or C.5(c)(iii) hereof, before any holder of Preferred Stock shall be entitled to convert the
same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or of any transfer or other agent for such stock, and shall give written notice to the Company at
such office of such holder’s election to convert the same and shall state therein the number of shares to be converted and the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Company
shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.
(ii) If the conversion is
in connection with an underwritten offering of securities pursuant to the Securities Act, the conversion may, at the option of any holder tendering shares of Preferred Stock for conversion, be conditioned upon the closing with the underwriters of
the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(iii) If the conversion is in connection with the automatic conversion provisions set forth in
Section C.5(b)(i) hereof, such conversion shall be deemed to have been made on the conversion date specified in the stockholder vote or consent (automatically without any further action by the holder of such shares and whether or not the certificate
representing such shares has been surrendered to the Company or its transfer or other agent), and the persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holders of
such shares of Common Stock on such date; provided, however, that until certificates for the shares of Preferred Stock that have been converted have been delivered to the Company or its transfer or other agent, the Company shall not be obligated to
issue certificates representing the shares of Common Stock issuable upon such conversion.
(d)
Adjustment of Conversion Price Upon Certain Diluting Issuances
.
(i)
Special Definitions
. For purposes of this Section C.5(d), the following definitions apply:
(A) “
Options
” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (defined below).
(B) “
Original Issue Date
” shall mean the date on which a share of Preferred
Stock is first issued.
(C) “
Convertible Securities
” shall mean any evidences of indebtedness, shares or other
securities convertible into or exchangeable for Common Stock.
(D) “
Additional Shares of Common Stock
” shall mean all
shares of Common Stock issued (or, pursuant to Section C.5(d)(iii) hereof, deemed to be issued) by the Company on or after the Original Issue Date, other than shares of Common Stock issued or deemed to be issued:
(1) upon conversion or exercise of convertible or exercisable securities outstanding as of the date hereof, or that are subsequently issued
and which qualify for an exemption from the definition of Additional Shares at the time of such securities’ issuance;
(2) to
employees, directors or officers of, or consultants or advisors to, the Company pursuant to stock grants, stock option, stock bonus, stock purchase or other employee incentive programs, plans or agreements approved by the Board;
(3) in connection with bona fide acquisitions of other businesses or technologies by the Company by merger, consolidation, acquisition of
stock or assets or otherwise, provided that such transaction is approved by the Board;
(4) upon exercise of warrants or other securities
or rights pursuant to equipment lease financings, bank credit arrangements or strategic partnership approved by the Board;
(5) in
connection with an underwritten public offering registered under the Securities Act pursuant to which all outstanding shares of Preferred Stock are automatically converted into Common Stock pursuant to Section C.5(b) hereof or upon exercise of
warrants or rights granted to underwriters in connection with such a public offering;
(6) in connection with an event for which
adjustment of the Conversion Price is made pursuant to Sections C.5(e);
(7) in a transaction that the holders of a majority of outstanding shares of Preferred Stock,
voting as a single class on an as-converted basis, elect in writing to exclude from the definition of Additional Shares of Common Stock, which election may be applied prospectively or retroactively and either generally or in a particular instance;
or
(8) with unanimous approval of the Board to exclude from the definition of Additional Shares of Common Stock.
(ii)
No Adjustment of Conversion Price
. Any provision herein to the contrary notwithstanding, no adjustment in the Conversion Price
shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section C.5(d)(vi) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the Company
is less than the Conversion Price in effect immediately prior to such issue.
(iii)
Deemed Issue of Additional Shares of Common
Stock
. In the event the Company at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then 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 designed to protect against dilution) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities and exercise of such Options, 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:
(A) no further adjustments in the Conversion Price shall be made upon the subsequent issue of Convertible Securities upon the exercise of
such Options or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;
(B)
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 Company, or increase or decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion and/or exchange thereof, the Conversion Price 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 as if such change had been in effect as of the original issue thereof (or upon the occurrence of the record date with respect thereto);
(C) 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 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:
(1) in the case of Convertible Securities or Options for Common Stock, the only Additional
Shares of Common Stock issued were the 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 Company for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Company 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 Company upon such conversion or exchange, and
(2) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof
were issued at the time of issue of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Company for the issue of all
such Options, whether or not exercised, plus the consideration deemed to have been received by the Company (determined pursuant to Section C.5(d)(vi) hereof) upon the issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Conversion
Price to an amount which exceeds the lower of (a) the Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date; and
(E) in the case of any Options which expire by their terms not more than thirty
(30) days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (C) above.
(iv)
Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock
. In the event the Company, at any time
after the Original Issue Date of each series of Preferred Stock, shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section C.5(d)(iii) hereof) without consideration or for a
consideration per share less than the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue, then and in such event, the Conversion Price for such series of Preferred Stock shall be reduced, concurrently with
such issue, to a price (calculated to the nearest tenth of a cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock Outstanding (as defined below) immediately prior
to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at the Conversion Price for such series in effect
immediately prior to such issue, and 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 the above
calculation, “
Common Stock Outstanding
” shall mean the number of shares of Common Stock outstanding immediately prior to such issue, calculated on a fully
diluted basis as if all Convertible Securities had been fully converted into shares of Common Stock immediately prior to such issue and any outstanding Options (whether or not then vested or
exercisable) had been fully exercised immediately prior to such issue (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date, but not including in such calculation any additional shares of
Common Stock issuable with respect to Convertible Securities or Options solely as a result of the adjustment of the applicable Conversion Price resulting from the issuance of Additional Shares of Common Stock causing such adjustment.
(v)
Multiple Closing Dates
. In the event that the Company shall issue, after the Original Issue Date, on more than one date,
Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section C.5(d)(iii)) that would result in an adjustment to the Conversion Price pursuant to the terms of Section C.5(d)(iv) hereof, as
part of the same transaction or a series of related transactions, then, upon the final such issuance, the Conversion Price shall be readjusted to give effect to all such issuances as if they had all occurred on the date of the first such issuance
(and without giving any effect to any interim adjustments from such issuances that were part of the same transaction or series of related transactions).
(vi)
Determination of Consideration
. For purposes of this Section C.5(d), the consideration received by the Company for the issue (or
deemed issue) of any Additional Shares of Common Stock shall be computed as follows:
(A)
Cash and Property
. Such consideration
shall:
(1) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company excluding amounts paid or
payable for accrued interest or accrued dividends and before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Company for any underwriting or otherwise in connection with such issuance;
(2) 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 irrespective of any accounting treatment; and
(3) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (1) and (2) above, as reasonably determined
in good faith by the Board.
(B)
Options and Convertible Securities
. The consideration per share received by the Company for
Additional Shares of Common Stock deemed to have been issued pursuant to Section C.5(d)(iii) hereof, relating to Options and Convertible Securities, shall be determined by dividing:
(1) the total amount, if any, received or receivable by the Company 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 designed to protect against dilution) payable to the Company upon the exercise of such Options 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
(2) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained
therein designed to protect against the dilution) issuable upon the exercise of such Options and/or conversion or exchange of such Convertible Securities.
(e)
Adjustments to Conversion Price for Stock Dividends and for Combinations or Subdivisions of Common Stock
. In the event that the
Company at any time or from time to time after the Original Issue Date shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, or shall
effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock as
provided below), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the Series A Conversion Price in effect immediately
prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. In the event that the Company shall declare or pay, without consideration, any dividend on the Common Stock
payable in any right to acquire Common Stock for no consideration, then the Company shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to
acquire Common Stock.
(f)
Adjustments to Conversion Price for Recapitalizations and Reorganizations
. If the Common Stock issuable
upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination
of shares provided for in Section C.5(e) hereof or a Liquidation Event referred to in Section C.2(c) hereof), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or recapitalization, be adjusted, and
other provision shall be made, so that the Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders thereof would otherwise have been entitled to receive, such number of shares of stock or other
securities, cash or property that would have been subject to receipt by such holders upon conversion of the Preferred Stock immediately before such change. In any such case, appropriate adjustment shall be made in the application of the provisions
of this Section C.5(f) with respect to the rights of the holders of the Preferred Stock after such reorganization or recapitalization such that the provisions of this Section C.5(f) (including adjustment of the Conversion Price then in effect and
the number of shares issuable upon conversion of the Preferred Stock) shall be applicable after such event as nearly equivalent as may be practicable.
(g)
Other Distributions
. In the event the Company shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights not referred to in Section C.5(f) hereof, and other than as set forth in Section C.2(c) hereof,
then, in each such case for the purpose of this Section C.5(g), the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the
Company into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Company entitled to receive such distribution.
(h)
Certificates as to Adjustments
. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this
Section C.5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate executed by the Company’s President or
Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any holder of Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the conversion of the Preferred Stock.
(i)
Notices of Record
Date
. In the event that the Company shall propose at any time (i) to take a record of the holders of its Common Stock for the purpose of declaring any dividend or distribution upon its Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus, or offering 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; (ii) to effect any reorganization or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iii) to effect any Liquidation Event; then, in connection with each such event, the Company
shall send to the holders of Preferred Stock:
(A) at least twenty (20) days’ prior written notice of (1) the date on which
a record shall be taken for such dividend, distribution or subscription rights referred to in clause (i) above (and specifying the date on which the holders of Common Stock shall be entitled thereto) or (2) the date for determining rights
to vote, if any, in respect of the events referred to in clauses (ii) and (iii) above; and
(B) in the case of the events
referred to in clauses (ii) and (iii) above, at least twenty (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 stock, securities, cash or other property deliverable upon the occurrence of such event).
The notice provisions
set forth in this Section C.5(i) may be shortened or waived prospectively or retrospectively by the consent or vote of the holders of a majority of the outstanding shares of Preferred Stock, voting as a single class on an as-converted basis.
(j)
Reservation of Stock Issuable Upon Conversion
. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, the Company shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate.
(k)
Fractional Shares
. No fractional share shall be issued upon the conversion of any share or shares of Preferred Stock. All shares
of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any
fractional share. Any such fractional share so resulting shall be paid in cash based on the then fair market value of a share of Common Stock.
6.
Protective Provisions
. So long as at least fifty percent of the shares of Preferred Stock originally issued remain outstanding, the
Company shall not (by way of amendment, merger, consolidation, reclassification or otherwise), without the vote or written consent by the holders of a majority of the outstanding shares of Preferred Stock, voting as a single class on an as-converted
basis:
(a) Consummate a Liquidation Event or commit to a Liquidation Event without conditioning such consent, agreement or commitment
upon obtaining the approval required by this Section C.6;
(b) Authorize or issue, or obligate itself to issue, any other equity security
(or any security convertible into or exercisable for any such equity security) having a preference over, or being on a parity with, the Preferred Stock with respect to voting rights, dividend rights or liquidation preferences, other than shares of
Preferred Stock authorized under this Certificate;
(c) Increase or decrease (other than by conversion) the authorized number of shares
of Common Stock or Preferred Stock;
(d) Amend this Certificate or the Company’s Bylaws so as to alter or change adversely the
preferences, rights, privileges or powers of, or increase the restrictions upon, the Preferred Stock;
(e) Purchase or otherwise acquire
(or pay into or set aside for a sinking fund for such purpose) any Common Stock or Preferred Stock of the Company; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock (A) from employees,
officers, directors, consultants or other persons performing services for the Company or any subsidiary pursuant to agreements under which the Company has the right to repurchase such shares at cost (or at the lesser of cost or the then fair market
value) upon the occurrence of certain events, such as the termination of employment or other service;
(f) Declare, pay or set aside a dividend on any Common Stock or Preferred Stock of the Company;
or
(g) Increase or decrease the authorized number of directors of the Company.
7.
Status of Converted Stock
. In the event any shares of Preferred Stock shall be converted pursuant to Section C.5 hereof, the shares
so converted shall be cancelled and shall not be issuable by the Company. This Certificate shall be appropriately amended to effect the corresponding reduction in the Company’s authorized capital stock.
8.
Notices
. Any notice required by the provisions of this Section C to be given to the holders of shares of Preferred Stock shall be
deemed given if such notice (i) is deposited in the United States first class mail, postage prepaid, and addressed to each holder of record at his or her address appearing on the books of the Company, (ii) is provided by electronic
transmission in a manner permitted by Section 232 of the DGCL, or (iii) is provided in another manner then permitted by the DGCL.
9.
Waiver
. Any of the rights, powers, privileges and other terms of the Preferred Stock set forth herein may be waived on behalf of all
holders of Preferred Stock by the affirmative written consent or vote of the holders of at least a majority of the shares of Preferred Stock then outstanding, voting as a single class on an as-converted basis.
D. The rights, preferences, privileges and restrictions granted to and imposed on the Common Stock are as set forth below in this Section D.
1.
Dividend Rights
. 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 Common Stock shall be entitled to receive, when, as and if declared by the Board, out of any assets of the Company legally available therefor, such dividends as may be declared from time to time by the Board.
2.
Liquidation Rights
. Upon the liquidation, dissolution or winding up of the Company, or other Liquidation Event, the assets of the
Company shall be distributed as provided in Section C.2 hereof.
3.
Redemption
. The Common Stock is not redeemable at the option of
the holders thereof.
4.
Voting Rights
. The holder of each share of Common Stock shall have the right to one vote for each such
share, shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Company, and shall be entitled to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
To the extent sections of state corporations codes setting forth minimum requirements for the Company’s retained earnings and/or net
assets are applicable to the Company’s repurchase of shares of Common Stock, such code sections shall not apply, to the greatest extent permitted by applicable law, with respect to repurchases by the Company of its Common Stock from employees,
officers, directors, advisors, consultants or other persons performing services for this Company or any subsidiary pursuant to agreements under which the Company has the right to repurchase such shares at cost upon the occurrence of certain events,
such as the termination of service to the Company. Distributions by the Company may be made without regard to the “preferential dividends arrears amount” or any “preferential rights amount,” as such terms may be defined in state
corporations codes.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute, the Board shall have the power, subject to the provisions of Section
C.6 of Article IV, to adopt, amend, repeal or otherwise alter the Bylaws of the Company without any action on the part of the stockholders; provided, however, that the grant of such power to the Board shall not divest the stockholders of nor limit
their power, subject to the provisions of Section C.6 of Article IV, to adopt, amend, repeal or otherwise alter the Bylaws.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of the Company shall so provide.
ARTICLE VIII
Subject to the
provisions of this Certificate, including Section C.6 of Article IV, the Company reserves the right to adopt, repeal, rescind or amend in any respect any provisions contained in this Certificate in the manner now or hereafter prescribed by
applicable law, and all rights conferred on stockholders herein are granted subject to this reservation.
ARTICLE IX
A. To the fullest extent permitted by the DGCL, as it presently exists or as it may hereafter be amended, a director of the Company shall not
be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is amended to eliminate or limit further, or to authorize corporate action eliminating or limiting further the
personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
B. To the fullest extent permitted by the DGCL, as it presently exists or as it may hereafter be amended, the Company shall have the power to
indemnify (and to advance expenses to) any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a
“
Proceeding
”) by reason of the fact that he or she is or was a director, officer,
employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such
Proceeding.
Any amendment, repeal or modification of the foregoing provisions of this Article IX, or the adoption of any provision in
this Certificate inconsistent with this Article IX, shall be prospective only and shall not adversely affect any right or protection of any director of the Company existing at the time of, or increase the liability of any director of the Company
with respect to any acts or omissions of such director occurring prior to, such amendment, repeal, modification or adoption.
ARTICLE X
Unless the Company 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 Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to
the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine. Any person or entity
purchasing or otherwise acquiring any interest in shares of capital stock of the Company shall be deemed to have notice of and consented to the provisions of this Article X.
ARTICLE XI
The name and mailing
address of the incorporator are as follows:
Seetha Balasubramanian
c/o Pillsbury Winthrop Shaw Pittman LLP
2550 Hanover Street
Palo Alto, CA
94304-1114
Executed on June 29, 2017.
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/s/ Seetha Balasubramanian
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Seetha Balasubramanian, Incorporator
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Exhibit 3.1(b)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
TECHPOINT, INC.
Techpoint, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is Techpoint, Inc.
SECOND: The original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on
June 29, 2017, under its original name Techpoint Reincorporation Sub, Inc.
THIRD: Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates, integrates and further amends the provisions of the Certificate of Incorporation of the corporation.
FOURTH: The Certificate of Incorporation of the corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of the corporation is Techpoint, Inc. (the
“Corporation”
).
ARTICLE II
The
registered agent and the address of the registered offices in the State of Delaware are:
Incorporating Services, Ltd.
3500 South Dupont Highway
Dover,
DE 19901
Dover, Delaware 19901
County of Kent
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized
under the Delaware General Corporation Law (the
“DGCL”
).
ARTICLE IV
A.
Classes of Stock
. The total number of shares of all classes of capital stock that the Corporation shall have authority to issue is
80,000,000, of which 75,000,000 shares shall be Common Stock, $0.0001 par value per share (the
“Common Stock”
), and of which 5,000,000 shares shall be Preferred Stock, $0.0001 par value per share (the
“Preferred
Stock”
). The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the then
outstanding shares of Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such Preferred Stock holders is required pursuant to the provisions established by the Board of Directors of the
Corporation (the
“Board of Directors”
) in the resolution or resolutions providing for the issue of such Preferred Stock, and if such holders of such Preferred Stock are so entitled to vote thereon, then, except as may
otherwise be set forth in the certificate of incorporation of the corporation, the only stockholder approval required shall be the affirmative vote of a majority of the voting power of the Common Stock and the Preferred Stock so entitled to vote,
voting together as a single class.
B.
Preferred Stock
. The Preferred Stock may be issued from time to time in one or more series,
as determined by the Board of Directors. The Board of Directors is expressly authorized to provide for the issue, in one or more series, of all or any of the remaining shares of Preferred Stock and, in the resolution or resolutions providing for
such issue, to establish for each such series the number of its shares, the voting powers, full or limited, of the shares of such series, or that such shares shall have no voting powers, and the designations, preferences and relative, participating,
optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof. The Board of Directors is also expressly authorized (unless forbidden in the resolution or resolutions providing for such
issue) to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issuance of shares of that series. In case the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.
C.
Common Stock
.
1.
Relative Rights of Preferred Stock and Common Stock.
All preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations, or restrictions of the Common Stock are expressly
made subject and subordinate to those that may be fixed with respect to any shares of the Preferred Stock.
2.
Voting Rights.
Except as otherwise required by law or the certificate of incorporation of the Corporation, each holder of Common Stock shall have one vote in respect of each share of stock held by such holder of record on the books of the Corporation for the
election of directors and on all matters submitted to a vote of stockholders of the Corporation.
3.
Dividends.
Subject to the
preferential rights of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends
payable either in cash, in property or in shares of capital stock.
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4.
Consummation of Change of Control Event
. So long as at least any shares of Common Stock
(as adjusted for any stock dividends, stock splits, stock combinations, recapitalizations or similar events with respect to such shares) remain outstanding, the Corporation shall not (by way of amendment, merger, consolidation, reclassification or
otherwise), without the vote of the holders of at least a majority of the outstanding shares of Common Stock, voting together as a single class, consummate a Change of Control Event. For purposes of this Section C.4, a “
Change of Control
Event
” shall mean (i) an acquisition of the Corporation by another person or entity by means of any transaction or series of related transactions to which the Corporation, or any subsidiary of the Corporation, is a party (including,
without limitation, a merger, consolidation or other corporate reorganization), other than an acquisition in which the shares of capital stock held by stockholders of the Corporation immediately prior to such acquisition continue to represent, or
are converted into or exchanged for shares of capital stock that represent, immediately after such acquisition and by virtue of the acquisition, a majority of the total outstanding voting power of the surviving or acquiring person or entity; or
(ii) a transaction or series of related transactions to which the Corporation is a party (whether by merger, consolidation, stock acquisition or otherwise) in which a majority of the total outstanding voting power of the Corporation is
transferred. Notwithstanding the foregoing sentence, a transaction shall not constitute a Change of Control Event if the primary purpose is to change the jurisdiction of the Corporation’s incorporation, create a holding company that will be
owned in substantially the same proportions by the persons who held the Corporation’s securities immediately before such transaction.
5.
Dissolution, Liquidation or Winding Up.
In the event of any dissolution, liquidation or winding up of the affairs of the
Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock, holders of Common Stock shall be entitled, unless otherwise provided by law or the certificate of
incorporation of the Corporation, to receive all of the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively.
ARTICLE V
In furtherance
and not in limitation of the powers conferred by the laws of the State of Delaware:
A. The Board of Directors is expressly authorized to
adopt, amend or repeal the bylaws of the Corporation, without any action on the part of the stockholders, by the vote of at least a majority of the directors of the Corporation then in office. In addition to any vote of the holders of any class or
series of stock of the Corporation required by law or the certificate of incorporation of the Corporation, the bylaws may also be adopted, amended or repealed by the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of the shares of the capital stock of the Corporation entitled to vote in the election of directors, voting as one class; provided, however, that the affirmative vote of the holders representing only a majority of the
voting power of the shares of the capital stock of the Corporation entitled to vote in the election of directors, voting as one class, shall be required if such adoption, amendment or repeal of the bylaws has been previously approved by the
affirmative vote of at least two-thirds (2/3) of the directors of the Corporation then in office.
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B. Elections of directors need not be by written ballot unless the bylaws of the Corporation
shall so provide.
C. The books of the Corporation may be kept at such place within or without the State of Delaware as the bylaws of the
Corporation may provide or as may be designated from time to time by the Board of Directors.
D.
Additional Stockholder Approval
Rules
.
1.
Change of Control
. The approval of holders of at least a majority of the outstanding shares of Common Stock, voting
together as a single class, shall be required prior to the issuance of securities by the Corporation that will result in a Change of Control Event (as defined above in Article IV, Section C.4.).
2.
Private Placements
. The affirmative vote of a majority of the votes cast on a proposal to approve a Private Placement (as defined
below) at a duly called stockholder meeting of the Corporation in which a quorum is present as provided in the bylaws of the Corporation (and in which the shares of the capital stock of the Corporation entitled to vote in the election of directors,
voting as one class, is entitled to vote on such a proposal), is required prior to the issuance by the Corporation of its securities in connection with a transaction other than a “public offering” involving: (a) the sale, issuance or
potential issuance by the Corporation of Common Stock (or securities convertible into or exercisable for Common Stock) at a price less than the greater of book or market value which together with sales by officers, directors or Substantial
Stockholders (as defined below) equals 20% or more of Common Stock or 20% or more of the voting power outstanding before the issuance; or (b) the sale, issuance or potential issuance by the Corporation of Common Stock (or securities convertible
into or exercisable for Common Stock) equal to 20% or more of the Common Stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock (any such transaction, a
“
Private Placement
”).
3.
Acquisition of Stock or Assets of Another Company
. The affirmative vote of a
majority of the votes cast on a proposal to approve an Acquisition Transaction (as defined below) at a duly called stockholder meeting of the Corporation in which a quorum is present as provided in the bylaws of the Corporation (and in which the
shares of the capital stock of the Corporation entitled to vote in the election of directors, voting as one class, is entitled to vote on such a proposal), is required prior to the issuance by the Corporation of its securities in connection with the
acquisition of the stock or assets of another company if: (a) where, due to the present or potential issuance of Common Stock, including shares issued pursuant to an earn-out provision or similar type of provision, or securities convertible
into or exercisable for Common Stock, other than a “public offering” for cash: (i) the Common Stock has or will have upon issuance voting power equal to or in excess of 20% of the voting power outstanding before the issuance of stock
or securities convertible into or exercisable for Common Stock; or (ii) the number of shares of Common Stock to be issued is or will be equal to or in excess of 20% of the number of shares of Common Stock outstanding before the issuance of the
stock or securities; or (b) any director, officer or Substantial Shareholder (as defined below) of the Corporation has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the
Corporation or assets to be acquired or in the consideration to be paid in the
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transaction or series of related transactions and the present or potential issuance of Common Stock, or securities convertible into or exercisable for Common Stock, could result in an increase in
outstanding shares of Common Stock or voting power of 5% or more (any such acquisition, an “
Acquisition Transaction
”).
4. An interest consisting of less than either 5% of the number of shares of Common Stock or 5% of the voting power outstanding
of the Corporation shall not be considered a substantial interest or cause the holder of such an interest to be regarded as a “
Substantial Stockholder
.” The approval required by this Article V, Section D shall not be required
for any share issuance if such issuance is part of a court-approved reorganization under the United States federal bankruptcy laws or comparable foreign laws. For purposes of making any computation in this Article V, Section D, when determining the
number of shares issuable in a transaction, all shares that could be issued are included, regardless of whether they are currently treasury shares. When determining the number of shares outstanding, only shares issued and outstanding are considered.
Treasury shares, shares held by a subsidiary, and unissued shares reserved for issuance upon conversion of securities or upon exercise of options or warrants are not considered outstanding. Voting power outstanding as used in this Article V, Section
D refers to the aggregate number of votes which may be cast by holders of those securities outstanding which entitle the holders thereof to vote generally on all matters submitted to the Corporation’s security holders for a vote. The
determination of what constitutes a “public offering” shall be made in good faith by the Board of Directors, taking into account the factors set forth in Rule 5635 (as amended from time-to-time or any successor rule thereto) of the Nasdaq
Stock Market Marketplace Rules (the “
Nasdaq Rules
”).
5. An exception to the stockholder approval
requirements set forth in this Article V, Section D applicable to a specified issuance of securities may be made upon a determination by the Board of Directors made in good faith when: (a) the delay in securing stockholder approval would
seriously jeopardize the financial viability of the Corporation; and (b) reliance by the Corporation on this exception is expressly approved by the audit committee or a comparable body of the Board of Directors comprised solely of independent,
disinterested directors. If the Board of Directors determines in good faith to apply the exception set forth in this Article V, Section D.4. and not seek stockholder approval as provided herein, the Corporation must mail to all stockholders not
later than ten days before the issuance of the securities a letter alerting them to its omission to seek the stockholder approval that would otherwise be required. Such notification shall disclose the terms of the transaction (including the number
of shares of Common Stock that could be issued and the consideration received), the fact that the Corporation is relying on a financial viability exception to the stockholder approval requirements set forth in this Article V, Section D, and that the
audit committee or a comparable body of the Board of Directors comprised solely of independent, disinterested directors has expressly approved reliance on the exception. The Corporation shall also make a public announcement by issuing a press
release disclosing the same information as promptly as possible, but no later than ten days before the issuance of the securities.
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ARTICLE VI
A. The business and affairs of the Corporation shall be managed by a Board of Directors. Other than those directors elected by the holders of
any series of Preferred Stock as provided for or fixed pursuant to the provisions of Article V hereof, each director shall serve until his successor shall be duly elected and qualified or until his earlier resignation, removal from office, death or
incapacity.
B. A majority of the board of directors must be comprised of “
Independent Directors
” as
defined in Rule 5605(a)(2) (as amended from time-to-time or any successor rule thereto) of the Nasdaq Rules (“
Rule 5605(a)(2)
”). If the Corporation fails to comply with this requirement due to one vacancy, or one director
ceases to be independent due to circumstances beyond their reasonable control, the Corporation shall regain compliance with the requirement by the earlier of its next annual stockholders meeting or one year from the occurrence of the event that
caused the failure to comply with this requirement; provided, however, that if the annual stockholder meeting occurs no later than 180 days following the event that caused the failure to comply with this requirement, the Corporation shall instead
have 180 days from such event to regain compliance.
C. The Corporation must have an audit committee of at least three
members, each of whom must be an Independent Director as defined under Rule 5605(a)(2). Notwithstanding the foregoing, one director who: (i) is not an Independent Director as defined in Rule 5605(a)(2); (ii) meets the criteria set forth in
Section 10A(m)(3) under the United States Securities Act of 1933, as amended, and the rules thereunder; and (iii) is not currently an executive officer or employee or a family member of an executive officer, may be appointed to the audit
committee, if the Board of Directors, under exceptional and limited circumstances, determines that membership on the committee by the individual is required by the best interests of the Corporation and its stockholders. If the Corporation fails to
comply with the audit committee composition requirement under this Article VI, Section C, because an audit committee member ceases to be independent for reasons outside the member’s reasonable control, the audit committee member may remain on
the audit committee until the earlier of the Corporation’s next annual stockholders meeting or one year from the occurrence of the event that caused the failure to comply with this requirement. If the Corporation fails to comply with the audit
committee composition requirement under this Article VI, Section C, due to one vacancy on the audit committee, and the cure period in the preceding sentence is not otherwise being relied upon for another member, the Corporation will have until the
earlier of the next annual stockholders meeting or one year from the occurrence of the event that caused the failure to comply with this requirement; provided, however, that if the annual stockholders meeting occurs no later than 180 days following
the event that caused the vacancy, the Corporation shall instead have 180 days from such event to regain compliance.
D. The Corporation
must have a compensation committee of at least two members. Each committee member must be an Independent Director as defined under Rule 5605(a)(2). In addition, in affirmatively determining the independence of any director who will serve on the
compensation committee of the Corporation, the Board of Directors must consider all factors specifically relevant to determining whether a director has a relationship to the Corporation which is material to that director’s ability to be
independent from management in connection with the duties of a compensation committee member, including, but not limited to: (i) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by
the Corporation to such director; and (ii) whether such director is affiliated with the Corporation, a subsidiary of the Corporation or an affiliate of a subsidiary of
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the Corporation. Notwithstanding the foregoing, if the compensation committee is comprised of at least three members, one director who does not meet the foregoing independence requirements set
forth in this Article VI, Section D, and is not currently an executive officer or employee or a family member of an executive officer, may be appointed to the compensation committee if the Board of Directors, under exceptional and limited
circumstances, determines that such individual’s membership on the committee is required by the best interests of the Corporation and its stockholders. A member appointed under this exception may not serve longer than two years on the
compensation committee. If the Corporation fails to comply with the compensation committee composition requirement under this Article VI, Section D, due to one vacancy, or one compensation committee member ceases to be independent due to
circumstances beyond the member’s reasonable control, the Corporation shall regain compliance with the requirement by the earlier of its next annual stockholders meeting or one year from the occurrence of the event that caused the failure to
comply with this requirement; provided, however, that if the annual stockholders meeting occurs no later than 180 days following the event that caused the failure to comply with this requirement, the Corporation shall instead have 180 days from such
event to regain compliance.
E. The Corporation must have a nominating and corporate governance committee of at least two members. Each
committee member must be an Independent Director as defined under Rule 5605(a)(2). Notwithstanding the foregoing, if the nominating and corporate governance committee is comprised of at least three members, one director who does not meet the
foregoing independence requirements set forth in this Article VI, Section E, and is not currently an executive officer or employee or a family member of an executive officer, may be appointed to the nominating and corporate governance committee if
the Board of Directors, under exceptional and limited circumstances, determines that such individual’s membership on the committee is required by the best interests of the Corporation and its stockholders. A member appointed under this
exception may not serve longer than two years on the nominating and corporate governance committee. If the Corporation fails to comply with the nominating and corporate governance committee composition requirement under this Article VI, Section E,
due to one vacancy, or one nominating and corporate governance committee member ceases to be independent due to circumstances beyond the member’s reasonable control, the Corporation shall regain compliance with the requirement by the earlier of
its next annual stockholders meeting or one year from the occurrence of the event that caused the failure to comply with this requirement; provided, however, that if the annual stockholders meeting occurs no later than 180 days following the event
that caused the failure to comply with this requirement, the Corporation shall instead have 180 days from such event to regain compliance.
F. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by a majority vote of the directors
then in office, although less than a quorum, or by a sole remaining director. If there are no directors in office, then an election of directors may be held in the manner provided by statute. Directors chosen pursuant to any of the foregoing
provisions shall hold office until their successors are duly elected and have qualified or until their earlier resignation or removal. No decrease in the number of directors constituting the Board 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, or by the certificate of incorporation or the bylaws of the corporation, may exercise the powers of the full board until the
vacancy is filled.
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ARTICLE VII
A. No action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting and the
power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.
B. Special meetings
of the stockholders of the Corporation may be called only by the Chairman of the Board of the Corporation, the Chief Executive Officer of the Corporation or by a resolution adopted by the affirmative vote of a majority of the Board of Directors, and
any power of stockholders to call a special meeting of stockholders is specifically denied.
C. Advance notice of stockholder nominations
for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner and to the extent provided in the bylaws of the Corporation.
D. 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 DGCL, or (iv) any action asserting a claim 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 VII, Paragraph D.
ARTICLE VIII
A.
Limitation on Liability
. To the fullest extent permitted by the DGCL, as the same exists or as may hereafter be amended (including, but not limited to Section 102(b)(7) of the DGCL), 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. If the DGCL hereafter is amended to further eliminate or limit the liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended DGCL. Any repeal or modification of this paragraph by the stockholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification.
B.
Indemnification
. Each person who is or was a director or officer of the Corporation or 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, employee benefit plan or other enterprise (including the heirs, executors, administrators or estate of such
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person), shall be indemnified and advanced expenses by the Corporation, in accordance with the bylaws of 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 said law permitted the Corporation to provide prior to such amendment) or any
other applicable laws as presently or hereinafter in effect. The right to indemnification and advancement of expenses hereunder shall not be exclusive of any other right that any person may have or hereafter acquire under any statute, provision of
the certificate of incorporation or bylaws of the Corporation, agreement, vote of stockholders or disinterested directors or otherwise.
C.
Insurance
. The Corporation may, to the fullest extent permitted by law, purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any expense, liability or loss incurred by such person in any such
capacity or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
D.
Repeal and Modification
. Any repeal or modification of the foregoing provisions of this Article VIII shall not adversely affect any
right or protection existing hereunder immediately prior to such repeal or modification.
ARTICLE IX
The affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of the shares of the capital
stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend in any respect or repeal this Article IX, Paragraph A of Article V, Paragraphs A and F of Article VI,
Article VII and Article VIII.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the corporation has caused this certificate to be signed by its President and
Chief Executive Officer this
day of September, 2017.
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TECHPOINT, INC.
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By
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Fumihiro Kozato
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President and Chief Executive Officer
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Exhibit 3.2(a)
BYLAWS
OF
TECHPOINT, INC.
(F.K.A. TECHPOINT REINCORPORATION SUB, INC.)
TABLE OF CONTENTS
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Page
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ARTICLE I CORPORATE OFFICES
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1
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1.1
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Principal Office
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1
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1.2
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Other Offices
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1
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ARTICLE II MEETINGS OF STOCKHOLDERS
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1
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2.1
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Place Of Meetings
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1
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2.2
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Annual Meeting
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1
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2.3
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Special Meeting
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1
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2.4
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Notice of Stockholders’ Meetings
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2
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2.5
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Manner of Giving Notice; Affidavit of Notice
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2
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2.6
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Quorum
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2
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2.7
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Adjourned Meeting; Notice
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2
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2.8
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Organization; Conduct of Business
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2
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2.9
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Voting
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3
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2.10
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Waiver of Notice
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3
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2.11
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Stockholder Action by Written Consent Without a Meeting
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3
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|
|
2.12
|
|
Record Date for Stockholder Notice, Voting and Consents
|
|
|
4
|
|
|
2.13
|
|
Proxies
|
|
|
5
|
|
|
2.14
|
|
Meetings by Telephone or Similar Communications
|
|
|
5
|
|
|
|
|
|
ARTICLE III DIRECTORS
|
|
|
5
|
|
|
|
|
|
|
3.1
|
|
Powers
|
|
|
5
|
|
|
3.2
|
|
Number of Directors
|
|
|
5
|
|
|
3.3
|
|
Election, Qualification and Term of Office of Directors
|
|
|
6
|
|
|
3.4
|
|
Resignation and Vacancies
|
|
|
6
|
|
|
3.5
|
|
Place of Meetings; Meetings by Telephone
|
|
|
7
|
|
|
3.6
|
|
Regular Meetings
|
|
|
7
|
|
|
3.7
|
|
Special Meetings; Notice
|
|
|
7
|
|
|
3.8
|
|
Quorum
|
|
|
7
|
|
|
3.9
|
|
Waiver of Notice
|
|
|
8
|
|
|
3.10
|
|
Board Action by Written Consent Without a Meeting
|
|
|
8
|
|
|
3.11
|
|
Fees and Compensation of Directors
|
|
|
8
|
|
|
3.12
|
|
Removal of Directors
|
|
|
8
|
|
|
|
|
|
ARTICLE IV COMMITTEES
|
|
|
9
|
|
|
|
|
|
|
4.1
|
|
Committees of Directors
|
|
|
9
|
|
|
4.2
|
|
Committee Minutes
|
|
|
9
|
|
|
4.3
|
|
Meetings and Action of Committees
|
|
|
9
|
|
|
|
|
|
ARTICLE V OFFICERS
|
|
|
9
|
|
|
|
|
|
|
5.1
|
|
Officers
|
|
|
9
|
|
|
5.2
|
|
Appointment of Officers
|
|
|
10
|
|
|
5.3
|
|
Subordinate Officers
|
|
|
10
|
|
|
5.4
|
|
Removal and Resignation of Officers
|
|
|
10
|
|
|
5.5
|
|
Vacancies in Offices
|
|
|
10
|
|
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
5.6
|
|
Chairman of the Board
|
|
|
10
|
|
|
5.7
|
|
Chief Executive Officer
|
|
|
10
|
|
|
5.8
|
|
President
|
|
|
10
|
|
|
5.9
|
|
Vice Presidents
|
|
|
11
|
|
|
5.10
|
|
Secretary
|
|
|
11
|
|
|
5.11
|
|
Chief Financial Officer
|
|
|
11
|
|
|
5.12
|
|
Assistant Secretary
|
|
|
11
|
|
|
5.13
|
|
Treasurer
|
|
|
12
|
|
|
5.14
|
|
Representation of Shares of Other Corporations
|
|
|
12
|
|
|
5.15
|
|
Authority and Duties of Officers
|
|
|
12
|
|
|
|
|
|
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS
|
|
|
12
|
|
|
|
|
|
|
6.1
|
|
Indemnification of Directors and Officers
|
|
|
12
|
|
|
6.2
|
|
Indemnification of Others
|
|
|
12
|
|
|
6.3
|
|
Payment of Expenses in Advance
|
|
|
13
|
|
|
6.4
|
|
Indemnity Not Exclusive
|
|
|
13
|
|
|
6.5
|
|
Insurance
|
|
|
13
|
|
|
6.6
|
|
Conflicts
|
|
|
13
|
|
|
|
|
|
ARTICLE VII RECORDS AND REPORTS
|
|
|
13
|
|
|
|
|
|
|
7.1
|
|
Maintenance and Inspection of Records
|
|
|
13
|
|
|
7.2
|
|
Inspection by Directors
|
|
|
14
|
|
|
|
|
|
ARTICLE VIII GENERAL MATTERS
|
|
|
14
|
|
|
|
|
|
|
8.1
|
|
Checks
|
|
|
14
|
|
|
8.2
|
|
Execution of Corporate Contracts and Instruments
|
|
|
14
|
|
|
8.3
|
|
Stock Certificates; Partly Paid Shares
|
|
|
15
|
|
|
8.4
|
|
Special Designation on Certificates
|
|
|
15
|
|
|
8.5
|
|
Lost Certificates
|
|
|
15
|
|
|
8.6
|
|
Construction; Definitions
|
|
|
16
|
|
|
8.7
|
|
Dividends
|
|
|
16
|
|
|
8.8
|
|
Fiscal Year
|
|
|
16
|
|
|
8.9
|
|
Seal
|
|
|
16
|
|
|
8.10
|
|
Transfer of Stock
|
|
|
16
|
|
|
8.11
|
|
Stock Transfer Agreements
|
|
|
16
|
|
|
8.12
|
|
Registered Stockholders
|
|
|
16
|
|
|
8.13
|
|
Facsimile Signature
|
|
|
16
|
|
|
8.14
|
|
Conflicts With Certificate of Incorporation
|
|
|
17
|
|
|
|
|
|
ARTICLE IX RIGHT OF FIRST REFUSAL
|
|
|
17
|
|
|
|
|
|
|
9.1
|
|
Right of First Refusal
|
|
|
17
|
|
|
9.2
|
|
Amendment and Waiver; Termination
|
|
|
19
|
|
|
9.3
|
|
Void Transfers
|
|
|
19
|
|
-ii-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
9.4
|
|
Assignment of Rights
|
|
|
19
|
|
|
9.5
|
|
Legends
|
|
|
19
|
|
|
|
|
|
ARTICLE X AMENDMENTS
|
|
|
19
|
|
-iii-
BYLAWS
OF
TECHPOINT, INC.
ARTICLE I
CORPORATE OFFICES
1.1
Principal Office
. The Board of Directors shall fix the location of the principal executive offices of Techpoint Reincorporation Sub, Inc. (the “
Company
”) at any place within or outside the State of Delaware.
1.2
Other Offices
. The Board of Directors may at any time establish other offices at any place or places where the Company is qualified
to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1
Place Of Meetings
. Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the
Board of Directors. In the absence of any such designation, stockholders’ meetings shall be held at the principal office of the Company.
2.2
Annual Meeting
. The annual meeting of stockholders shall be held on such date, time and place, either within or outside the State
of Delaware, as may be designated by the Board of Directors each year. At the meeting, directors shall be elected and any other proper business may be transacted.
2.3
Special Meeting
. Except as provided by applicable law or in the certificate of incorporation, a special meeting of the stockholders
may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the
votes at that meeting. If a special meeting is called by any person or persons other than the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, 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 certified mail, by facsimile or by electronic transmission to the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President or the Secretary of the Company. 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 this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty five (35) nor more than sixty
(60) days after the receipt of the request. Nothing contained in this Section 2.3 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.
-1-
2.4
Notice of Stockholders’ Meetings
. All notices of meetings of stockholders shall
be in writing and shall be given in accordance with Section 2.5 of these Bylaws 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. The notice shall
specify the place (if any), date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5
Manner of Giving Notice; Affidavit of Notice
. Written notice of any meeting of
stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at the stockholder’s address as it appears on the records of the Company. Without limiting the manner by which notice
otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic mail or other electronic transmission in the manner provided in Section 232 of the General Corporation Law of the State of Delaware (the
“
DGCL
”). An affidavit of the secretary or an assistant secretary or of the transfer agent of the Company that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
2.6
Quorum
. Except as provided by applicable law or in the certificate of incorporation, the holders of a majority of the shares of
stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by applicable law or by
the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, either (a) the chairman of the meeting or (b) holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, shall have power to adjourn the meeting to another place (if any), date or time.
2.7
Adjourned
Meeting; Notice
. When a meeting is adjourned to another place (if any), date or time, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place (if any) thereof and the means of remote
communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any
business that 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, notice of the place (if any), date and
time of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxy holders 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 at the meeting.
2.8
Organization; Conduct of Business
. The Chairman of the Board or, in his or her absence, the Chief
Executive Officer or, in his or her absence, the President or, in his or her absence, such person as the Board of Directors may have designated or, in the absence of such a person, such person as may be chosen by the holders of a majority of the
shares entitled to vote
-2-
who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Company, the secretary of
the meeting shall be such person as the chairman of the meeting appoints. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business.
The date and time of opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.
2.9
Voting
. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of
Article II of these Bylaws, subject to the provisions of Sections 217 and 218 of the DGCL (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may be required
by law or otherwise provided in the certificate of incorporation, (a) each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder, (b) all elections shall be determined by a plurality of the
votes cast, and (c) all other matters shall be determined by a majority of the votes cast affirmatively or negatively.
2.10
Waiver of Notice
. Whenever notice is required to be given under any provision of the DGCL or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail
or other electronic transmission by such person, 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 need be specified in any written waiver of notice, or any waiver of notice by electronic transmission, unless so required by the certificate of incorporation or these Bylaws.
2.11
Stockholder Action by Written Consent Without a Meeting
.
(a) Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of
stockholders of the Company, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken,
is (i) 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, and
(ii) delivered to the Company in accordance with Section 228 of the DGCL.
(b) Every written consent shall bear the date of
signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the date the earliest dated consent is delivered to the Company, a
written consent or consents signed by a sufficient number of holders to take action are delivered to the Company in the manner prescribed in this Section 2.11. An electronic mail or other electronic transmission consenting to an action to be
taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for purposes of this Section 2.11 to the extent permitted by,
and shall be delivered in accordance with, Section 228 of the DGCL.
-3-
(c) 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.
(d) 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 (including by electronic mail or other electronic transmission as permitted by law). If the action which is consented to is such as would have required the filing of a certificate under any section of
the DGCL if such action had been voted on by stockholders at a meeting thereof, the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and
written consent have been given as provided in Section 228 of the DGCL.
2.12
Record Date for Stockholder Notice, Voting and
Consents
.
(a) In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to take action by written consent without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect
of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be less than ten (10) nor more than sixty (60) days before the date
of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, if such adjournment
is for thirty (30) days or less, provided that the Board of Directors may fix a new record date for the adjourned meeting.
(b) If
the Board of Directors does not so fix a record date:
(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.
(ii) 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 necessary, shall be the day on which the first written consent is delivered to the Company.
(iii) 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.
-4-
2.13
Proxies
. Each stockholder entitled to vote at a meeting of stockholders or to take
action by written consent without a meeting may authorize another person or persons to act for such stockholder by an instrument in writing or by an electronic transmission permitted by law filed with the secretary of the Company, but no such proxy
shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting,
facsimile or electronic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of
the DGCL.
2.14
Meetings by Telephone or Similar Communications
. If authorized by the Board of Directors, in its sole discretion,
and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:
(a) participate in a meeting of stockholders; and
(b) be deemed present in person and vote at a meeting of stockholders, whether such meeting is to be held at a designated place or solely by
means of remote communication, provided that (i) the Company shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder,
(ii) the Company shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or
hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action
shall be maintained by the Company.
ARTICLE III
DIRECTORS
3.1
Powers
. Subject to the provisions of the DGCL and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders, the business and affairs of the Company shall be managed and
all corporate powers shall be exercised by or under the direction of the Board of Directors.
3.2
Number of Directors
. The number
of directors of the corporation shall not be less than four (4) nor more than seven (7) until changed by amendment of the Certificate of Incorporation or by a Bylaw amending this Section 3.2 duly adopted by the vote or written consent
of holders of a majority of the outstanding shares, provided that if the minimum number of directors is five or more, any proposal to reduce the minimum number of directors to a number less than five cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to or more than sixteen and two-thirds percent (16 2/3%) of the outstanding shares entitled to vote. The exact number of directors shall be fixed
from time to time, within the limits specified in the Certificate of
-5-
Incorporation or in this Section 3.2, by a bylaw or amendment thereof duly adopted by the vote of a majority of the outstanding shares entitled to vote at a duly held meeting at which a
quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote, or by the Board of Directors.
Subject to the foregoing provisions for changing the number of directors, the number of directors of the corporation shall be fixed at five
(5) directors.
3.3
Election, Qualification and Term of Office of Directors
. Except as provided in Section 3.4 of these
Bylaws, and unless otherwise provided in the certificate of incorporation, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these Bylaws. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Unless otherwise
specified in the certificate of incorporation, elections of directors need not be by written ballot.
3.4
Resignation and
Vacancies
.
(a) Any director may resign at any time upon notice given in writing or by electronic transmission to the Board of
Directors, the Chief Executive Officer, the President or the Secretary of the Company. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling
of other vacancies.
(b) Unless otherwise provided in the certificate of incorporation or these Bylaws:
(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 a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class of stock or series thereof are entitled to elect one or more directors by the provisions
of the certificate of incorporation, vacancies and newly created directorships of such class or series may be filled by a majority of the directors elected by such class or series thereof then in office, or by a sole remaining director so elected.
(c) If at any time, by reason of death or resignation or other cause, the Company should have no directors in office, any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the
provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.
-6-
(d) If, at the time of filling any vacancy or any newly created directorship, the directors then
in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the
total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.
3.5
Place of Meetings; Meetings by Telephone
. The Board of Directors of the Company may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or other communications equipment by
means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.6
Regular Meetings
. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
3.7
Special Meetings; Notice
. Special meetings of the Board of
Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Secretary or any two directors. Notice of the time and place of special meetings shall
be delivered personally or by telephone to each director or sent by first-class mail, facsimile or electronic transmission, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the Company. If
the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by facsimile, electronic transmission or telephone, it shall be
delivered at least twenty four (24) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person
giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting and need not specify the place of the meeting as long as the meeting is to be held at the principal
executive office of the Company. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.
3.8
Quorum
. A majority of the directors then in office, but in no event less than one-third (1/3) of the total number of
authorized directors, shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by applicable law or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, the directors present at the meeting may
-7-
adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors as long as any action taken is approved by at least a majority of the required quorum for that meeting.
3.9
Waiver of Notice
. Whenever notice is required to be given under any provision of the DGCL or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, 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 directors, or members of a committee of directors, need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these Bylaws.
3.10
Board Action by Written Consent Without a Meeting
.
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 committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic 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. 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.
3.11
Fees and Compensation of Directors
. Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of
Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the Company in any other capacity and receiving compensation therefor.
3.12
Removal of Directors
. Unless otherwise restricted by applicable law, by the certificate of incorporation or by 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 then entitled to vote at an election of directors; provided, however, that if the stockholders of the Company are entitled to
cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against such director’s removal would be sufficient to elect such director if then cumulatively voted at
an election of the entire Board of Directors.
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ARTICLE IV
COMMITTEES
4.1
Committees of Directors
. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Company. The Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company and may authorize the seal of the Company to be
affixed to all papers which may require it; provided, however, that no such committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter
expressly required by the DGCL to be submitted to stockholders for approval; or (b) adopting, amending or repealing any bylaw of the Company.
4.2
Committee Minutes
. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when
required.
4.3
Meetings and Action of Committees
. Meetings and actions of committees shall be governed by, and held and taken in
accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice)
and Section 3.10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that
notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with
the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1
Officers
. The officers of the Company shall be a Chief Executive Officer and/or a President, a Chief Financial Officer and/or a Treasurer and a Secretary. The Company may also have, at the discretion of the Board of Directors, a Chairman of
the Board, a Treasurer, one or more Vice Presidents, one or more Assistant Secretaries, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the
same person.
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5.2
Appointment of Officers
. The officers of the Company, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, and each shall serve at the pleasure of the Board, subject to the rights, if any, of an officer under any contract of
employment.
5.3
Subordinate Officers
. The Board of Directors may appoint, or empower the Chief Executive Officer or the President
to appoint, such other officers and agents as the business of the Company may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as the Board of Directors may from
time to time determine.
5.4
Removal and Resignation of Officers
. Subject to the rights, if any, of an officer under any contract
of employment, any officer may be removed, either with or without cause, by the Board of Directors or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom the power of removal is conferred by the Board of
Directors. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice, and
unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.
5.5
Vacancies in Offices
. Any vacancy occurring in any office of the Company shall be filled in the manner prescribed by these
Bylaws for regular appointment to that office.
5.6
Chairman of the Board
. The Chairman of the Board, if such an officer be
elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned by the Board of Directors or as may be prescribed by these Bylaws. In the absence or
disability of the Chief Executive Officer and President, the Chairman of the Board shall also be the Chief Executive Officer of the Company and shall have the powers and duties prescribed in Section 5.7 of these Bylaws.
5.7
Chief Executive Officer
. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if
any, the Chief Executive Officer of the Company (if such an officer is appointed) shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the Company. The Chief
Executive Officer shall preside at all meetings of the stockholders and, in the absence or disability of the Chairman of the Board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested
in the office of Chief Executive Officer of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
5.8
President
. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board (if any) or the
Chief Executive Officer (if any), the President shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and other officers of the Company. The President shall have the general powers
and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. In the absence or disability of the Chief Executive Officer, the
President shall perform all the duties of the Chief Executive Officer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer.
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5.9
Vice Presidents
. In the absence or disability of the Chief Executive Officer and
President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have
all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors,
these Bylaws, the Chief Executive Officer, President or the Chairman of the Board.
5.10
Secretary
. The Secretary shall keep or
cause to be kept, at the principal executive office of the Company or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors’ meetings or committee meetings, the number of shares present or represented at stockholders’ meetings and the proceedings thereof. The Secretary shall keep, or
cause to be kept, at the principal executive office of the Company or at the office of the Company’s transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing
the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares and the number and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. The Secretary shall keep the seal of the Company, if one is adopted, in safe
custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.
5.11
Chief Financial Officer
. The Chief Financial Officer shall have the custody of the corporate funds and securities and shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Company, including accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Company
with such depositories as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the Company as may be ordered by the Board of Directors, shall render to the Board of Directors, the Chief Executive
Officer or the President, upon request, an account of all his or her transactions as Chief Financial Officer and of the financial condition of the Company, and shall have other powers and perform such other duties as may be prescribed by the Board
of Directors or the Bylaws.
5.12
Assistant Secretary
. The Assistant Secretary or, if there is more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there is no such determination, then in the order of their election) shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the
Secretary and such other duties and powers as may be prescribed by the Board of Directors or these Bylaws.
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5.13
Treasurer
. The Treasurer (if one is appointed) shall have such duties as may be
specified by the Chief Financial Officer to assist the Chief Financial Officer in the performance of his or her duties and shall perform such other duties and have other powers as may from time to time be prescribed by the Board of Directors or the
Chief Executive Officer.
5.14
Representation of Shares of Other Corporations
. The Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, the Secretary or Assistant Secretary of this Company, or any other person authorized by the Board of Directors or the Chief Executive Officer, the President, the Chief
Financial Officer or a Vice President, is authorized to vote, represent and exercise on behalf of this Company all rights incident to any and all shares of any other corporation standing in the name of this Company. The authority granted herein may
be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority.
5.15
Authority and Duties of Officers
. In addition to the foregoing authority and duties, all officers of the Company shall
respectively have such authority and perform such duties in the management of the business of the Company as may be designated from time to time by the Board of Directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
6.1
Indemnification of Directors and Officers
. The Company shall, to the maximum extent and in the manner permitted by the DGCL,
indemnify each of its directors and officers against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that
such person is or was an agent of the Company. For purposes of this Section 6.1, a “director” or “officer” of the Company includes any person (a) who is or was a director or officer of the Company, (b) who is or
was serving at the request of the Company as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the
Company or of another enterprise at the request of such predecessor corporation.
6.2
Indemnification of Others
. The Company shall
have the power, to the maximum extent and in the manner permitted by the DGCL, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys’ fees), judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Company. For purposes of this Section 6.2, an “employee” or “agent”
of the Company (other than a director or officer) includes any person (a) who is or was an employee or agent of the Company, (b) who is or was serving at the request of the Company as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation.
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6.3
Payment of Expenses in Advance
. Expenses incurred in defending any action or
proceeding for which indemnification is required pursuant to Section 6.1 of these Bylaws or for which indemnification is permitted pursuant to Section 6.2 of these Bylaws, following authorization thereof by the Board of Directors, shall be
paid by the Company in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that the indemnified party is not entitled to be indemnified as authorized in this Article VI.
6.4
Indemnity Not Exclusive
. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the
extent that such additional rights to indemnification are authorized in the certificate of incorporation.
6.5
Insurance
. The
Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company 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 in any such capacity, or arising out of his or her status as such, whether or not the Company would have
the power to indemnify him or her against such liability under the provisions of the DGCL.
6.6
Conflicts
. No indemnification or
advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:
(a) that it would be inconsistent with a provision of the certificate of incorporation, these Bylaws, a resolution of the stockholders or an
agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(b) that it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND
REPORTS
7.1
Maintenance and Inspection of Records
.
(a) The Company shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a
record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records.
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(b) Any stockholder of record, in person or by attorney or other agent, shall, upon written
demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Company’s stock ledger, a list of its stockholders and its other books and records and to make copies or
extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Company at its registered office in Delaware or at
its principal place of business.
(c) A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order for each class and series of stock and showing the address of each such stockholder and the number of shares registered in each such stockholder’s name, shall be open to the examination of any such stockholder for a period of
at least ten (10) days prior to the meeting in the manner provided by law. The stock list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law. This list shall presumptively determine
the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.
(d) The application and
requirements of Section 1501 of the California Corporations Code, to the extent applicable, are hereby expressly waived to the fullest extent permitted thereunder.
7.2
Inspection by Directors
. Any director shall have the right to examine the Company’s stock ledger, a list of its stockholders
and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The
Court may summarily order the Company to permit the director to inspect any and all books and records, the stock ledger and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or
conditions with reference to the inspection or award such other and further relief as the Court may deem just and proper.
ARTICLE VIII
GENERAL MATTERS
8.1
Checks
. From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all
checks, drafts other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Company, and only the persons so authorized shall sign or endorse those instruments.
8.2
Execution of Corporate Contracts and Instruments
. The Board of Directors, except as otherwise provided by applicable law, the
certificate of incorporation or in these Bylaws, may authorize any officers or agents to enter into any contract or execute any instrument in the name of and on behalf of the Company, and such authority may be general or confined to
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specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind
the Company by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
8.3
Stock
Certificates; Partly Paid Shares
.
(a) The shares of the Company shall be represented by certificates, provided that the Board of
Directors of the Company may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Company. Any or all of 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 has ceased
to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
(b) The Company may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Company in the case of uncertificated partly paid shares, the total amount of the consideration to
be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Company shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the
consideration actually paid thereon.
8.4
Special Designation on Certificates
. If the Company is authorized to issue more than one
class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof, and the qualifications, limitations or restrictions of
such preferences and/or rights, shall be set forth in full or summarized on the face or back of the certificate that the Company shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in
Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Company shall issue to represent such class or series of stock a statement that the Company will furnish
without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
8.5
Lost Certificates
. Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is surrendered to the Company and cancelled at the same time. The Company may issue a new certificate of stock or uncertificated shares in the place of any certificate
previously issued by it that is alleged to have been lost, stolen or destroyed and may require the owner of the lost, stolen or destroyed certificate, or the owner’s legal representative, to make an affidavit stating that the certificate has
been lost, stolen or destroyed and/or to give the Company a bond sufficient to indemnify the Company 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 or uncertificated shares.
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8.6
Construction; Definitions
. Unless the context requires otherwise, the general
provisions, rules of construction and definitions in the DGCL shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular and the
term “person” includes both a corporation and a natural person.
8.7
Dividends
. Subject to any restrictions contained in
the DGCL or the certificate of incorporation, the Board of Directors may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property or in shares of the Company’s capital stock. The Board of
Directors may set apart, out of any of the funds of the Company available for dividends, a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing
or maintaining any property of the Company and meeting contingencies.
8.8
Fiscal Year
. The fiscal year of the Company shall be
fixed by resolution of the Board of Directors and may be changed by the Board of Directors.
8.9
Seal
. The Company may adopt a
corporate seal, which may be altered by the Board of Directors, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
8.10
Transfer of Stock
. Upon surrender to the Company or the transfer agent of the Company of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Company to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction in its books.
8.11
Stock Transfer Agreements
. The Company shall have power to enter into and perform any agreement with any number of
stockholders of any one or more classes or series of stock of the Company to restrict the transfer of shares of stock of the Company of any one or more classes or series owned by such stockholders in any manner not prohibited by the DGCL.
8.12
Registered Stockholders
. The Company shall be entitled to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by applicable law.
8.13
Facsimile Signature
. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these
Bylaws, facsimile signatures of any officer or officers of the Company may be used whenever and as authorized by the Board of Directors or a committee thereof.
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8.14
Conflicts With Certificate of Incorporation
. In the event of any conflict between the
provisions of the Company’s certificate of incorporation and these Bylaws, the provisions of the certificate of incorporation shall govern.
ARTICLE IX
RIGHT OF
FIRST REFUSAL
9.1
Right of First Refusal
. No stockholder shall sell, assign, pledge or otherwise transfer (a
“
transfer
”) any of the shares of common stock of the Company or any right or interest therein, whether voluntarily, involuntarily, by operation of law, by gift or otherwise, except by a transfer which meets the requirements
hereinafter set forth in this Article IX:
(a) If the stockholder desires to transfer any shares of common stock, the stockholder shall
first give written notice thereof to the Company. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration and all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the Company or its assigns shall have the option to purchase all or, with the
consent of the stockholder, any portion of the shares specified in the notice at the price and upon the terms set forth in such notice. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the
full price for the shares, and that is not otherwise exempted from the provisions of this Article IX, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. If the
Company elects to purchase any of the shares, it shall give written notice to the transferring stockholder of its election, and the closing of the Company’s purchase of such shares shall be made as provided below.
(c) If the Company or its assigns elects to acquire any of the shares of the transferring stockholder as specified in such transferring
stockholder’s notice, the Secretary of the Company shall so notify the transferring stockholder (including notice as to the number of shares to be acquired) and settlement thereof shall be made in cash within fifteen (15) days after the
Secretary delivers such notice to the transferring stockholder; provided, however, that if the terms of payment set forth in the transferring stockholder’s notice were other than cash or evidences of indebtedness against delivery, then the
Company or its assigns shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If the transferring stockholder and the Company (or its assigns) cannot agree on such cash value within twenty
(20) days after the Company’s receipt of the transferring stockholder’s notice, the valuation shall be made by an appraiser of recognized standing selected by the transferring stockholder and the Company, or, if they cannot agree on
an appraiser within thirty (30) days after the Company’s receipt of the transferring stockholder’s notice, each shall select an appraiser of recognized standing and the two appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such cash value. The cost of such appraisal shall be shared equally by the transferring stockholder and the Company (or its assigns). The closing shall then be held within fifteen (15) days
after such cash valuation has been determined.
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(d) If the Company or its assigns does not elect to acquire all of the shares specified in the
transferring stockholder’s notice, such transferring stockholder may, within the sixty (60) day period following the expiration of the option rights granted to the Company and its assigns herein, transfer the shares specified in such
transferring stockholder’s notice which were not acquired by the Company on terms and conditions (including the purchase price) no more favorable to the proposed transferee than those specified in such transferring stockholder’s notice.
All shares so sold by such transferring stockholder shall continue to be subject to the provisions of this Article IX in the same manner as before such transfer.
(e) Notwithstanding anything to the contrary contained herein, the following transactions shall be exempt from the provisions of this Article
IX:
(i) A stockholder’s transfer of any or all shares held either during such stockholder’s lifetime or on death
by will or intestacy (A) to such stockholder’s immediate family, (B) to any custodian or trustee for the account or the benefit of such stockholder or such stockholder’s immediate family, or (C) to any limited partnership or
limited liability company with respect to which the ownership interests are wholly owned by the stockholder, members of such stockholder’s immediate family or any trust for the account or benefit of such stockholder or such stockholder’s
immediate family. “Immediate family” as used herein shall mean child, stepchild, grandchild, parent, stepparent, grandparent, spouse, domestic partner, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law, including adoptive relationships.
(ii) A stockholder’s bona fide pledge or mortgage of any shares with
a commercial lending institution that creates a mere security interest, provided that any subsequent transfer of such shares by such institution shall be subject to this Article IX.
(iii) A stockholder’s transfer of any or all of such stockholder’s shares to the Company.
(iv) A stockholder’s transfer of any or all of such stockholder’s shares to a person who, at the time of such
transfer, is an officer or director of the Company.
(v) A corporate stockholder’s transfer of any or all of its
shares to any or all of its stockholders.
(vi) A transfer by a stockholder that is a limited or general partnership or
limited liability company of any or all of its shares to any or all of its partners or former partners, or members of former members (as the case may be).
In any such case, the transferee shall receive and hold such stock subject to the provisions of this Article IX, and there shall be no further transfer of
such stock except in accord with this Article IX.
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9.2
Amendment and Waiver; Termination
.
(a) The provisions of this Article IX may be waived with respect to any transfer either by the Company, upon duly authorized action of the
Board of Directors, or by the stockholders, upon the written consent of the owners of a majority of the voting power of the Company (excluding the votes represented by those shares to be transferred by the transferring stockholder).
(b) The provisions of this Article IX may be amended or repealed either by a duly authorized action of the Board of Directors or by the
stockholders upon the written consent of the owners of a majority of the voting power of the Company, but subject to any additional requirements of the certificate of incorporation.
(c) The provisions of this Article IX shall terminate immediately prior to the date of the closing of a firm commitment underwritten public
offering of common stock of the Company pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended.
9.3
Void Transfers
. Any transfer, or purported transfer, of shares of the Company shall be null and void unless the terms, conditions
and provisions of this Article IX are strictly observed and followed.
9.4
Assignment of Rights
. The Company may assign its rights
hereunder in whole or in part to any director, officer, employee, stockholder or other person or entity.
9.5
Legends
. The
certificates representing shares of stock of the Company subject to this Article IX shall bear on their face the following legend so long as this Article IX remains in effect:
“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S), AS
PROVIDED IN THE BYLAWS OF THE COMPANY.”
ARTICLE X
AMENDMENTS
These Bylaws
may be adopted, amended or repealed by the stockholders or, to the extent such power is conferred on the Board of Directors in the Company’s certificate of incorporation, by the Board of Directors. The fact that such power has been so conferred
upon the Board of Directors shall not divest the stockholders of the power, nor limit their power, to adopt, amend or repeal these Bylaws.
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CERTIFICATE OF SECRETARY
The undersigned hereby certifies that the undersigned is the duly elected, qualified, and acting Secretary or Assistant Secretary of Techpoint
Reincorporation Sub, Inc., a Delaware corporation, and that the foregoing Bylaws were adopted as the Bylaws of the Company on June 30, 2017, by the person appointed in the certificate of incorporation to act as the Incorporator of the Company.
Executed on July 6, 2017.
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/s/ Yukiko Tegarden
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Yukiko Tegarden, Secretary
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Exhibit 3.2(b)
AMENDED AND RESTATED
B
Y L A W S
OF
TECHPOINT, INC.
(a
Delaware corporation)
TABLE OF CONTENTS
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Page
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ARTICLE 1 Offices
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1
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1.1
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Registered Office
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1
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1.2
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Other Offices
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1
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ARTICLE 2 Meeting of Stockholders
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1
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2.1
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Place of Meeting
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1
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2.2
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Annual Meeting
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1
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2.3
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Special Meetings
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2
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2.4
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Notice of Meetings
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3
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2.5
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List of Stockholders
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3
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2.6
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Organization and Conduct of Business
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3
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2.7
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Quorum
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3
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2.8
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Adjournments
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4
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2.9
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Voting Rights
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4
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2.10
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Majority Vote
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4
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2.11
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Record Date for Stockholder Notice and Voting
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4
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2.12
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Proxies
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4
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2.13
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Inspectors of Election
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5
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ARTICLE 3 Directors
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5
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3.1
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Number, Election, Tenure and Qualifications
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5
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3.2
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Enlargement and Vacancies
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6
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3.3
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Resignation and Removal
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7
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3.4
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Powers
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7
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3.5
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Chairman of the Board
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7
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3.6
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Place of Meetings
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7
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3.7
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Regular Meetings
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7
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3.8
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Special Meetings
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7
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3.9
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Quorum, Action at Meeting, Adjournments
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8
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3.10
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Action Without Meeting
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8
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3.11
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Telephone Meetings
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8
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3.12
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Committees
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8
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3.13
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Fees and Compensation of Directors
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8
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ARTICLE 4 Officers
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9
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4.1
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Officers Designated
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9
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4.2
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Election
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9
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4.3
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Tenure
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9
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4.4
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The Chief Executive Officer
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9
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4.5
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The President
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9
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4.6
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The Vice President
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10
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4.7
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The Secretary
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10
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TABLE OF CONTENTS
(continued)
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Page
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4.8
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The Assistant Secretary
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10
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4.9
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The Chief Financial Officer
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10
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4.10
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The Treasurer and Assistant Treasurers
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10
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4.11
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Bond
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11
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4.12
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Delegation of Authority
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11
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ARTICLE 5 Notices
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11
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5.1
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Delivery
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11
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5.2
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Waiver of Notice
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11
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ARTICLE 6 Indemnification and Insurance
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11
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6.1
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Indemnification of Officers and Directors
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11
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6.2
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Indemnification of Others
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12
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6.3
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Advance Payment
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13
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6.4
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Right of Indemnitee to Bring Suit
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13
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6.5
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Non-Exclusivity
and Survival of Rights;
Amendments
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13
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6.6
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Insurance
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14
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6.7
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Reliance
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14
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6.8
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Severability
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14
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ARTICLE 7 Capital Stock
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14
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7.1
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Certificates for Shares
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14
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7.2
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Signatures on Certificates
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15
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7.3
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Transfer of Stock
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15
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7.4
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Registered Stockholders
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15
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7.5
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Lost, Stolen or Destroyed Certificates
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15
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ARTICLE 8 General Provisions
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16
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8.1
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Dividends
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16
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8.2
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Checks
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16
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8.3
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Corporate Seal
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16
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8.4
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Execution of Corporate Contracts and Instruments
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16
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8.5
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Representation of Shares of Other Corporations
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16
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ARTICLE 9 Amendments
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-ii-
AMENDED AND RESTATED
B Y L A W S
OF
TECHPOINT, INC.
(a Delaware corporation)
ARTICLE 1
Offices
1.1
Registered Office
. The registered office of the corporation shall be set forth in the certificate of incorporation of the
corporation.
1.2
Other Offices
. The corporation may also have offices at such other places, either within or without the State of
Delaware, as the board of directors of the corporation (the “
Board
of Directors
”) may from time to time designate, or the business of the corporation may require.
ARTICLE 2
Meeting of
Stockholders
2.1
Place of Meeting
. Meetings of stockholders may be held at such place, either within or without the State of
Delaware, as may be designated by or in the manner provided in these bylaws, or, if not so designated, at the principal executive offices of the corporation. The Board of Directors may, in its sole discretion, (a) determine that a meeting of
stockholders shall not be held at any place, but may instead be held solely, or (b) permit participation by stockholders at such meeting, by means of remote communication as authorized by Section 211(a)(2) of the Delaware General
Corporation Law (the “
DGCL
”).
2.2
Annual Meeting
. Annual meetings of stockholders shall be held each year
at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. At each such annual meeting, the stockholders shall elect the members of the Board. The stockholders shall also
transact such other business as may properly be brought before the meeting.
To be properly brought before the annual meeting, business
must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before the meeting by a stockholder of record. A motion related to business proposed to be brought before any stockholders’ meeting may be made by any stockholder entitled to vote if the business proposed is
otherwise proper to be brought before the meeting. However, any such stockholder may propose business to be brought before a meeting only if such stockholder has given timely notice to the Secretary of the corporation in proper written form of the
stockholder’s intent to propose such business. To be timely, the stockholder’s notice must be delivered by a nationally recognized courier service or
mailed by first class United States mail, postage or delivery charges prepaid, and received at the principal executive offices of the corporation addressed to the attention of the Secretary of
the corporation not more than one hundred twenty (120) days nor less than ninety (90) days in advance of the anniversary of the date of the corporation’s proxy statement provided in connection with the previous year’s annual
meeting of stockholders;
provided, however
, that in the event that no annual meeting was held in the previous year or the annual meeting is called for a date that is more than thirty (30) days before or after the anniversary date of the
previous year’s annual meeting,
notice by the stockholder must be received by the Secretary of the corporation not later than the close of business on the later of (x) the ninetieth (90th) day prior to such annual meeting and
(y) the tenth (10th) day following the day on which public announcement of the date of such meeting is first made.
For the purposes of these bylaws, “
public announcement
” shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission. In no event shall the public announcement of an
adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. A stockholder’s notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting, the text of the proposal or business (including the text of any resolutions proposed for
consideration and in the event that such business includes a proposal to amend the bylaws of the corporation, the language of the proposed amendment), and the reasons for conducting such business at the annual meeting; (ii) the name and record
address of the stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class, series and number of shares of the corporation that are owned beneficially and of record by the
stockholder and such beneficial owner; (iv) any material interest of the stockholder in such business; and (v) any other information that is required to be provided by the stockholder pursuant to Section 14 of the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder (collectively, the “
1934 Act
”) in such stockholder’s capacity as a proponent of a stockholder proposal.
Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section;
provided
,
however
, that nothing in this Section shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting.
The Chairman of the Board (or such other person presiding at the meeting in accordance with these bylaws) shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section, and if he or she should so determine, he or she shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
2.3
Special Meetings
. Special meetings of the stockholders may be
called for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, by the Secretary only at the request of the Chairman of the Board, the Chief Executive Officer, or by a resolution duly adopted by the
affirmative vote of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting shall be limited to matters relating to the purpose or purposes stated in
the notice of meeting.
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2.4
Notice of Meetings
. Except as otherwise provided by law or these bylaws, written
notice of each meeting of stockholders, annual or special, stating the place, if any, date and time of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at
such meeting, and, in the case of a special meeting, the purpose or purposes for which such special meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting.
2.5
List of Stockholders
. The officer in charge of the stock ledger of the corporation or the
transfer agent shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting, (a) on
a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the
corporation. If the meeting is to be held at a place, then 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. If the meeting is to be
held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to gain access to
such list shall be provided with the notice of the meeting.
2.6
Organization and Conduct of Business
. The Chairman of the Board
or, in his or her absence, the Chief Executive Officer or President of the corporation or, in their absence, such person as the Board of Directors may have designated or, in the absence of such a person, such person as may be chosen by the holders
of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the corporation, the secretary of the
meeting shall be such person as the chairman of the meeting appoints.
The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her in order.
2.7
Quorum
. Except where otherwise provided by law or the certificate of incorporation of the corporation or these bylaws, the holders
of a majority of the voting power of the capital stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders.
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2.8
Adjournments
. If a quorum is not present or represented at any meeting of
stockholders, a majority of the stockholders present in person or represented by proxy at the meeting and entitled to vote, though less than a quorum, or by any officer entitled to preside at such meeting, shall be entitled to adjourn such meeting
from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. When a meeting is adjourned to another place, date or time, notice need not be given of the adjourned meeting if the place,
date and time thereof are announced at the meeting at which the adjournment is taken;
provided, however
, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed,
or if a new record date is fixed for the adjourned meeting, written notice of the place, if any, date, time and means of remote communications, if any, of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any
business may be transacted that might have been transacted at the original meeting.
2.9
Voting Rights
. Unless otherwise provided
in the certificate of incorporation of the corporation, each stockholder shall at every meeting of the stockholders be entitled to one vote for each share of the capital stock having voting power held by such stockholder.
2.10
Majority Vote
. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the capital
stock and entitled to vote present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of an applicable statute or of the certificate of incorporation of
the corporation or of these bylaws, a different vote is required in which case such express provision shall govern and control the decision of such question.
2.11
Record Date for Stockholder Notice and Voting
. For purposes of determining 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 right in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty
(60) days before any other action to which the record date relates. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however
,
that the Board of Directors may fix a new record date for the adjourned meeting. If the Board of Directors does not so fix a record date, 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 business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. 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 to such purpose.
2.12
Proxies
. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such
stockholder 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. All proxies must be filed with the Secretary of the corporation at the beginning of each meeting in
order to be counted in any vote at the meeting. Subject to the limitation set forth in the last clause of the first sentence of this Section 2.12, a duly executed proxy that does not state that it is irrevocable shall continue in full force and
effect unless (a) revoked by the person
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executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or attendance at the
meeting and voting in person by, the person executing the proxy, or (b) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted.
2.13
Inspectors of Election
. The corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of
election to act at the meeting and make a written report thereof. The corporation may designate one or more persons to act 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 person presiding at the meeting shall appoint one or more inspectors to act at the meeting. 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.
ARTICLE 3
Directors
3.1
Number,
Election, Tenure and Qualifications
. The number of directors that shall constitute the entire Board of Directors shall be between four (4) and seven (7), fixed from time to time by resolution adopted by a majority of the directors of the
corporation then in office. No decrease in the number of authorized directors shall have the effect of removing any director before that director’s term of office expires.
At each annual meeting of the stockholders, directors shall be elected, except as otherwise provided in Section 3.2, and each director so
elected shall hold office until (i) the Company’s next annual meeting, (ii) such director’s successor is duly elected and qualified, or (iii) until such director’s earlier resignation, removal, death or incapacity.
Subject to the rights of holders of any class or series of stock having a preference over the common stock as to dividends or upon
liquidation, nominations of persons for election to the Board of Directors must be (a) made by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) made by any stockholder of record of the
corporation entitled to vote for the election of directors at the applicable meeting who complies with the notice procedures set forth in this Section 3.1. Directors need not be stockholders. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder’s notice shall be delivered by a nationally recognized courier service or mailed by first
class United States mail, postage or delivery charges prepaid, and received at the principal executive offices of the corporation addressed to the attention of the Secretary of the corporation (i) in the case of an annual meeting of
stockholders, not more than one hundred twenty (120) days nor less than ninety (90) days in advance of the anniversary of the date of the corporation’s proxy statement provided in connection with the previous year’s annual
meeting of stockholders;
provided, however
, that in the event that no annual meeting was held in the previous year or the annual meeting is called for a date more than thirty (30) days before or after the anniversary date of the previous
year’s annual meeting, notice by the stockholder must be received by the
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Secretary of the corporation not later than the close of business on the later of (A) the ninetieth (90th) day prior to such annual meeting and (B) the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made, and (ii) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made. Such stockholder’s notice to the Secretary shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or
re-election
as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the
person, (iii) the class, series and number of shares of capital stock of the corporation that are owned beneficially by the person, (iv) any other information relating to the person that is required to be disclosed in solicitations for
proxies for election of directors pursuant to Section 14 of the 1934 Act and the rules and regulations promulgated thereunder and (v) the nominee’s written consent to serve, if elected, and (b) as to the stockholder giving the
notice, (i) the name and record address of the stockholder, (ii) the class, series and number of shares of capital stock of the corporation that are owned beneficially by the stockholder, and (iii) a description of all arrangements or
understandings between such stockholder and each person the stockholder proposes for election or
re-election
as a director pursuant to which such proposed nomination is being made. The corporation may require
any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures set forth herein.
In connection with any annual meeting of
the stockholders (or, if and as applicable, any special meeting of the stockholders), the Chairman of the Board (or such other person presiding at such meeting in accordance with these bylaws) shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the foregoing procedure, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.
3.2
Enlargement and Vacancies
. Except as otherwise provided by the certificate of incorporation, subject to the rights of the holders
of any series of preferred stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled solely by a majority vote of the directors then in office, although less than a quorum, or by a sole remaining director. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. Directors chosen pursuant to any of the foregoing provisions shall hold office until (i) the next annual meeting, or (ii) until such director’s successor is duly elected and
qualified or until such director’s earlier resignation or removal. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, or by the certificate of incorporation or the bylaws of the
corporation, may exercise the powers of the full Board of Directors until the vacancy is filled.
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3.3
Resignation and Removal
. Any director may resign at any time upon written notice to
the corporation at its principal place of business addressed to the attention of the Chief Executive Officer, the Secretary, the Chairman of the Board or the Chairman of the Nominating and Corporate Governance Committee of the Board of Directors,
who shall in turn notify the full Board of Directors (although failure to provide such notification to the full Board of Directors shall not impact the effectiveness of such resignation). Such resignation shall be effective upon receipt of such
notice by one of the individuals designated above unless the notice specifies such resignation to be effective at some other time or upon the happening of some other event. Any director or the entire Board of Directors may be removed by the holders
of a majority of the voting power of the capital stock issued and outstanding then entitled to vote at an election of directors.
3.4
Powers
. The business of the corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the
certificate of incorporation of the corporation or by these bylaws directed or required to be exercised or done by the stockholders.
3.5
Chairman of the Board
. The directors shall elect a Chairman of the Board and may elect a Vice Chair of the Board, each to hold such office until their successor is elected and qualified or until their earlier resignation or removal. In the
absence or disability of the Chairman of the Board, the Vice Chair of the Board, if one has been elected, or another director designated by the Board of Directors, shall perform the duties and exercise the powers of the Chairman of the Board. The
Chairman of the Board of the corporation shall if present preside at all meetings of the stockholders and the Board of Directors and shall have such other duties as may be vested in the Chairman of the Board by the Board of Directors. The Vice Chair
of the Board of the corporation shall have such duties as may be vested in the Vice Chair of the Board by the Board of Directors.
3.6
Place of Meetings
. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware.
3.7
Regular Meetings
. Regular meetings of the Board of Directors may be held without notice at such time and place as may be determined
from time to time by the Board of Directors;
provided, however
, that any director who is absent when such a determination is made shall be given prompt notice of such determination.
3.8
Special Meetings
. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive
Officer, or by the written request of a majority of the directors then in office.
Notice of the time and place, if any, of special meetings shall be delivered personally or by telephone to each director, or sent by first-class mail or
commercial delivery service, facsimile transmission, or by electronic mail or other electronic means, charges prepaid, sent to such director’s business or home address as they appear upon the records of the corporation. In case such notice is
mailed, it shall be deposited in the United States mail at least four (4) days prior to the time of holding of the meeting. In case such notice is delivered personally or by telephone or by commercial delivery service, facsimile transmission,
or electronic mail or other electronic means, it shall be so delivered at least twenty-four (24) hours prior to the time of the holding of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
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3.9
Quorum, Action at Meeting, Adjournments
. At all meetings of the Board of Directors, a
majority of directors then in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by law, as it presently exists or may hereafter be amended, or by the bylaws of the corporation. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the directors present thereat
may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
3.10
Action Without Meeting
. Unless otherwise restricted by the certificate of incorporation of the corporation 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 of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with
the minutes of proceedings of the Board of Directors or committee.
3.11
Telephone Meetings
. Unless otherwise restricted by the
certificate of incorporation of the corporation or these bylaws, any member of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or of any committee, as the case may be, by means of conference
telephone or by any form of communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.12
Committees
. The Board of Directors may, by resolution, designate one or more committees, each committee to consist of one or more
of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not the member or members present constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all of the lawfully delegated 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. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and make such reports to the Board of Directors as the Board of Directors may request or the
charter of such committee may then require. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these bylaws for the conduct of its business by the Board of Directors.
3.13
Fees and Compensation of Directors
. The Board of Directors shall have the authority to fix the compensation of directors.
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ARTICLE 4
Officers
4.1
Officers
Designated
. The officers of the corporation shall be chosen by the Board of Directors and shall be a Chief Executive Officer, a President, a Secretary and a Chief Financial Officer. The Board of Directors may also choose a Treasurer, one or more
Vice Presidents, and one or more assistant Secretaries or assistant Treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation of the corporation or these bylaws otherwise provide.
4.2
Election
. The Board of Directors shall choose a Chief Executive Officer, a President, a Secretary and a Chief Financial Officer.
Other officers may be appointed by the Board of Directors or may be appointed by the Chief Executive Officer pursuant to a delegation of authority from the Board of Directors.
4.3
Tenure
. Each officer of the corporation shall hold office until such officer’s successor is appointed and qualified, unless a
different term is specified in the vote choosing or appointing such officer, or until such officer’s earlier death, resignation, removal or incapacity. Any officer appointed by the Board of Directors or by the Chief Executive Officer may be
removed with or without cause at any time by the affirmative vote of a majority of the Board of Directors or a committee duly authorized to do so. Any vacancy occurring in any office of the corporation may be filled by the Board of Directors, at its
discretion. Any officer may resign by delivering such officer’s written resignation to the corporation at its principal place of business to the attention of the Chief Executive Officer or the Secretary. Such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the happening of some other event.
4.4
The Chief Executive
Officer
. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, in the absence of the Chairman of the Board, the Chief Executive Officer shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He or she shall
execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the corporation.
4.5
The President
. The President shall, in
the event there is no Chief Executive Officer or in the absence of the Chief Executive Officer or in the event of his or her disability, perform the duties of the Chief Executive Officer, and when so acting, shall have the powers of and be subject
to all the restrictions upon the Chief Executive Officer. The President shall perform such other duties and have such other powers as may from time to time be prescribed for such person by the Board of Directors, the Chief Executive Officer or these
bylaws.
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4.6
The Vice President
. The Vice President (or in the event there be more than one, the
Vice Presidents in the order designated by the directors, or in the absence of any designation, in the order of their election), shall, in the absence of the President or in the event of his or her disability or refusal to act, perform the duties of
the President, and when so acting, shall have the powers of and be subject to all the restrictions upon the President. The Vice President(s) shall perform such other duties and have such other powers as may from time to time be prescribed for them
by the Board of Directors, the Chief Executive Officer, the President or these bylaws.
4.7
The Secretary
. The Secretary shall
attend all meetings of the Board of Directors and the stockholders and record all votes and the proceedings of the meetings in a book to be kept for that purpose and shall perform like duties for the standing committees, when required. The Secretary
shall give, or cause to be given, notice of all meetings of stockholders and special meetings of the Board of Directors, and shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board
or the Chief Executive Officer, under whose supervision he or she shall act. The Secretary shall sign such instruments on behalf of the corporation as the Secretary may be authorized to sign by the Board of Directors or by law and shall countersign,
attest and affix the corporate seal to all certificates and instruments where such countersigning or such sealing and attesting are necessary to their true and proper execution. The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation.
4.8
The Assistant Secretary
. The Assistant Secretary, or if there be more than one, any Assistant Secretaries in the order designated
by the Board of Directors (or in the absence of any designation, in the order of their election) shall assist the Secretary in the performance of his or her duties and, in the absence of the Secretary or in the event of his or her inability or
refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors.
4.9
The Chief Financial Officer
. The Chief Financial Officer shall be the principal financial officer in charge of the general
accounting books, accounting and cost records and forms. The Chief Financial Officer may also serve as the principal accounting officer and shall perform such other duties and have other powers as may from time to time be prescribed by the Board of
Directors or the Chief Executive Officer.
4.10
The Treasurer and Assistant Treasurers
. The Treasurer (if one is appointed) shall
have such duties as may be specified by the Chief Financial Officer to assist the Chief Financial Officer in the performance of his or her duties and to perform such other duties and have other powers as may from time to time be prescribed by the
Board of Directors or the Chief Executive Officer. It shall be the duty of any Assistant Treasurers to assist the Treasurer in the performance of his or her duties and to perform such other duties and have other powers as may from time to time be
prescribed by the Board of Directors or the Chief Executive Officer.
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4.11
Bond
. If required by the Board of Directors, any officer shall give the corporation a
bond in such sum and with such surety or sureties and upon such terms and conditions as shall be satisfactory to the Board of Directors, including without limitation a bond for the faithful performance of the duties of such officer’s office and
for the restoration to the corporation of all books, papers, vouchers, money and other property of whatever kind in such officer’s possession or under such officer’s control and belonging to the corporation.
4.12
Delegation of Authority
. The Board of Directors may from time to time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision hereof.
ARTICLE 5
Notices
5.1
Delivery
. Whenever, under the provisions of law, or of the certificate of incorporation of the corporation or these bylaws, written notice is required to be given to any director or stockholder, such notice may be given by mail, addressed to
such director or stockholder, at such person’s address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States
mail or delivered
by
to a nationally recognized courier service. Unless written notice by mail is required by law, written notice may also be given by commercial delivery service, facsimile transmission, electronic means or similar
means addressed to such director or stockholder at such person’s address as it appears on the records of the corporation, in which case such notice shall be deemed to be given when delivered into the control of the persons charged with
effecting such transmission, the transmission charge to be paid by the corporation or the person sending such notice and not by the addressee. Oral notice or other
in-hand
delivery, in person or by telephone,
shall be deemed given at the time it is actually given.
5.2
Waiver of Notice
. Whenever any notice is required to be given under
the provisions of law or of the certificate of incorporation of the corporation or of these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission 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 or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.
ARTICLE 6
Indemnification and
Insurance
6.1
Indemnification of Officers and Directors
. Each person who was or is made a party or is threatened to be made a
party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “
proceeding
”), by reason of
the fact that he or she
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or a person of whom he or she is the legal representative is or was a director or officer of the corporation (or any predecessor), or is or was serving at the request of the corporation (or any
predecessor) as a director, officer, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust, employee benefit plan sponsored or maintained by the corporation, or other enterprise (or any
predecessors of such entities) (hereinafter an “
Indemnitee
”), 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, including,
but not limited to, Section 102(b)(7) of the DGCL (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to
provide prior to such amendment), or by other applicable law as then in effect, against all expense, liability and loss (including attorneys’ fees and related disbursements, judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act of 1974, as amended from time to time, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such Indemnitee in connection therewith. Each person who is or was serving
as a director, officer, employee or agent of a subsidiary of the corporation shall be deemed to be serving, or have served, at the request of the corporation. The right to indemnification conferred in this Section 6.1 shall be a contract right.
Any indemnification (but not advancement of expenses) under this Article 6 (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, as the same exists or
hereafter may 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 said law permitted the corporation to provide prior to such amendment).
Such determination shall be made with respect to a person who is a director or officer at the time of such determination (a) by a majority vote of the directors who are not or were not parties to the proceeding in respect of which
indemnification is being sought by Indemnitee (the “
Disinterested Directors
”), even though less than a quorum, (b) by a committee of Disinterested Directors 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 the Disinterested Directors so direct, by independent legal counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee, or (d) by the stockholders.
6.2
Indemnification of Others
. This Article 6 does 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 those persons identified in Section 6.1 when and as authorized by the Board or by the action of a committee of the Board
or designated officers of the corporation established by or designated in resolutions approved by the Board;
provided, however
, that the payment of expenses incurred by such a person in advance of the final disposition of the proceeding shall
be made only upon receipt by the corporation of a written undertaking by such person to repay all amounts so advanced if it shall ultimately be determined that such person is not entitled to be indemnified under this Article 6 or otherwise.
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6.3
Advance Payment
. The right to indemnification under this Article 6 shall include the
right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the corporation within thirty (30) days after the receipt by the corporation of a
statement or statements from the claimant requesting such advance or advances from time to time;
provided, however
, that if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall
be made only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under
Section 6.1 or otherwise.
Notwithstanding the foregoing, unless such right is acquired other than pursuant to this Article 6, no
advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation, in which event this paragraph shall not apply) in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (a) by the Board of Directors by a majority vote of the Disinterested Directors, even though less than a quorum, or (b) by a
committee of Disinterested Directors designated by majority vote of the Disinterested Directors, even though less than a quorum, or (c) if there are no Disinterested Directors or the Disinterested Directors so direct, by independent legal
counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such
person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
6.4
Right of Indemnitee to Bring Suit
. If a claim for indemnification (following final disposition of such proceeding) or advancement
of expenses under this Article 6 is not paid in full by the corporation within sixty (60) days after a written claim has been received by the corporation, except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the Indemnitee may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the
corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit to the fullest extent permitted by law. In any suit brought
by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this Article or otherwise shall be on the corporation.
6.5
Non-Exclusivity
and Survival of Rights; Amendments
. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article 6
shall not be deemed exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation of the corporation, bylaws, agreement, vote of stockholders or Disinterested Directors
or otherwise, and shall continue as to a person who has ceased to be a director, officer, employee or agent of the corporation and shall inure to the benefit of the heirs, executors and
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administrators of such a person. Any repeal or modification of the provisions of this Article 6 shall not in any way diminish or adversely affect the rights of any director, officer, employee or
agent of the corporation hereunder in respect of any occurrence or matter arising prior to any such repeal or modification.
6.6
Insurance
. The corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was 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, employee benefit plan or other enterprise against any expense, liability or loss asserted against such person and incurred by such person in any such
capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such expenses, liability or loss under the DGCL.
6.7
Reliance
. Persons who after the date of the adoption of this provision become or remain directors or officers of the corporation
shall be conclusively presumed to have relied on the rights to indemnity, advance of expenses and other rights contained in this Article 6 in entering into or continuing such service. The rights to indemnification and to the advance of expenses
conferred in this Article 6 shall apply to claims made against an Indemnitee arising out of acts or omissions that occurred or occur both prior and subsequent to the adoption hereof.
6.8
Severability
. If any word, clause, provision or provisions of this Article 6 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 Article 6 (including, without limitation, each portion of any section or paragraph of this Article 6 containing any such provision held
to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article 6
(including, without limitation, each such portion of any section or paragraph of this Article 6 containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
ARTICLE 7
Capital Stock
7.1
Certificates for Shares
. The shares of the corporation shall be (i) represented by certificates or (ii) uncertificated and evidenced by a book-entry system maintained by or through the corporation’s transfer agent or registrar.
Certificates shall be signed by, or in the name of the corporation by, the Chairman of the Board, the Chief Executive Officer, the President or a Vice President and by the Chief Financial Officer, the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the corporation. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the
consideration to be paid therefor, and the amount paid thereon shall be specified.
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Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation
shall send or cause to be sent to the registered owner thereof a written notice containing the information required by the DGCL or a statement that the corporation will furnish without charge to each stockholder who so requests stating the powers,
designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
7.2
Signatures on Certificates
. Any or all of the signatures on a 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 were such officer, transfer agent or registrar at the date of issue.
7.3
Transfer of Stock
. Upon surrender to the
corporation or the transfer agent of the corporation of a certificate of shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, and proper evidence of compliance of other conditions to rightful
transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions and proper evidence of
compliance of other conditions to rightful transfer from the registered owner of uncertificated shares, such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the
person entitled thereto and the transaction shall be recorded upon the books of the corporation.
7.4
Registered Stockholders
. The
corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books
as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Delaware.
7.5
Lost, Stolen or Destroyed Certificates
. The corporation may direct that a new certificate or
certificates be issued to replace any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed and on such terms and conditions as the corporation may require. When authorizing the issue of a new certificate or certificates, the corporation may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of the lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require, to indemnify the corporation in such manner as it may require,
and/or to give the corporation a bond or other adequate security in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
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ARTICLE 8
General Provisions
8.1
Dividends
. Dividends upon the capital stock of the corporation, subject to any restrictions contained in the DGCL or the provisions of the certificate of incorporation of the corporation, if any, may be declared by the Board of Directors at
any regular or special meeting or by unanimous written consent. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the certificate of incorporation of the corporation.
8.2
Checks
. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
8.3
Corporate Seal
. The Board of Directors may, by
resolution, adopt a corporate seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the word “Delaware.” The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced. The seal may be altered from time to time by the Board of Directors.
8.4
Execution of
Corporate Contracts and Instruments
. The Board of Directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on
behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
8.5
Representation of Shares of Other Corporations
. The Chief Executive Officer, the President or any Vice President, the Chief
Financial Officer or the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary of the corporation is authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all shares of any
corporation or corporations or similar ownership interests of other business entities standing in the name of the corporation. The authority herein granted to said officers to vote or represent on behalf of the corporation any and all shares or
similar ownership interests held by the corporation in any other corporation or corporations or other business entities may be exercised either by such officers in person or by any other person authorized so to do by proxy or power of attorney duly
executed by said officers.
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ARTICLE 9
Amendments
These bylaws
may be altered, amended or repealed or new bylaws may be adopted by the stockholders or by the Board of Directors pursuant to the applicable provisions of the certificate of incorporation of the corporation at (a) any regular meeting of the
stockholders or of the Board of Directors or (b) any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws is contained in the notice of such special meeting.
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CERTIFICATE OF SECRETARY
I, the undersigned, hereby certify:
(i) That I am a duly elected, acting and qualified Secretary of Techpoint, Inc., a Delaware corporation; and
(ii) That the foregoing Bylaws, comprising ___ pages, constitute the Bylaws of such corporation as duly adopted by the board of directors of
such corporation on ____________ ____, 2017, which Bylaws became effective ____________ ____, 2017.
IN WITNESS WHEREOF, I have hereunto
subscribed my name as of the ____th day of ____________, 2017.
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/s/
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_____________, Secretary
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Exhibit 4.2
TECHPOINT, INC.
SECOND
AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
Dated as of April 30, 2014
TABLE OF CONTENTS
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Page
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1.
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Registration Rights
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1
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1.1
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Definitions
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1
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1.2
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Request for Registration
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3
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1.3
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Company Registration
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4
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1.4
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Form
S-3
Registration
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5
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1.5
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Obligations of the Company
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6
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1.6
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Information from Holder
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8
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1.7
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Expenses of Registration
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8
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1.8
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Delay of Registration
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8
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1.9
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Indemnification
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9
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1.10
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Reports Under Securities Exchange Act of 1934
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11
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1.11
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Assignment of Registration Rights
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11
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1.12
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Limitations on Subsequent Registration Rights
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12
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1.13
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“Market
Stand-Off”
Agreement
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12
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1.14
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Termination of Registration Rights
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13
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2.
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Covenants of the Company
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13
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2.1
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Delivery of Financial Statements
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13
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2.2
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Inspection
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14
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2.3
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Right of First Offer
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14
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2.4
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Proprietary Information and Inventions Agreements
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16
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2.5
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No Investment Company
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16
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2.6
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Termination of Certain Covenants
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16
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3.
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Election of Directors
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16
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3.1
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Board Representation
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16
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3.2
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Appointment of Directors
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17
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3.3
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Removal
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17
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3.3
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Observer Rights
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17
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4.
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Miscellaneous
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18
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4.1
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Additional Series B Investors
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18
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4.2
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Successors and Assigns
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18
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4.3
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Governing Law; Venue
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18
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4.4
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Counterparts
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18
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4.5
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Titles and Subtitles
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18
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4.6
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Notices
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18
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4.7
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Expenses
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19
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4.8
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Amendments and Waivers
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19
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-i-
TABLE OF CONTENTS
(continued)
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Page
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4.9
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Severability
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19
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4.10
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Aggregation of Stock
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19
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4.11
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Entire Agreement
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20
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4.12
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Waiver of Right of First Offer
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20
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SCHEDULE A Schedule of Investors
-ii-
TECHPOINT, INC.
SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “
Agreement
”) is made as of April 30, 2014
by and among Techpoint, Inc., a California corporation (the “
Company
”), Fumihiro Kozato (the “
Founder
”) and the investors listed on
Schedule A
hereto (each an “
Investor
”
and collectively the “
Investors
”).
RECITALS
A. Certain of the Investors (the “
Prior Investors
”) hold shares of Series Seed Preferred Stock of the Company (the
“
Series Seed Preferred Stock
”) or Series A Preferred Stock of the Company (the “
Series A Preferred Stock
”), are parties to that certain First Amended and Restated Investors’ Rights Agreement dated
as of October 31, 2012 by and among the Company, the Founder and such Prior Investors (the “
Prior Agreement
’) and are the holders of at least a majority of the shares of the Series Seed Preferred Stock and Series A
Preferred Stock subject to or enjoying the rights under the Prior Agreement.
B. Each of the Investors and the Company are parties to that
certain Series B Preferred Stock Purchase Agreement dated as of the date hereof (the “
Series B Purchase Agreement
”) relating to the issue and sale of shares of Series B Preferred Stock of the Company (the “
Series B
Preferred Stock
,” and, together with the Series Seed Preferred Stock and the Series A Preferred Stock, the “
Preferred Stock
”). The Company may sell and issue additional shares of Series B Preferred Stock (the
“
Additional Series B Shares
”) to certain Investors and other investors (the “
Additional Series B Investors
”) pursuant to the Series B Purchase Agreement.
C. The obligations of the Company and certain of the Investors under the Series B Purchase Agreement are conditioned, among other things, upon
the execution and delivery of this Agreement by the Investors, the Prior Investors, the Founder and the Company, and the Prior Investors, the Founder and the Company desire to amend and restate the Prior Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual premises and covenants set forth herein, the Company and the Prior Investors and the Founder
hereby agree to amend and restate the Prior Agreement as set forth herein, and the parties hereto agree as follows:
1.
Registration
Rights
.
The Company covenants and agrees as follows:
1.1
Definitions
.
For
purposes of this Section 1:
(a) The term “
Act
” means the Securities Act of 1933, as amended.
1
(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 “
Founder’s Shares
” means the 1,888,888 shares of Common Stock (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations (collectively, “
Recapitalizations
”)) originally issued to the Founder.
(d) The term “
Holder
” means any person owning or having the right to acquire Registrable Securities or any assignee
thereof in accordance with Section 1.11 hereof; provided, however, that neither the Founder nor any assignees of Founder’s Shares shall be deemed a “Holder” for purposes of Sections 1.2, 1.4, 1.12 and 4.8.
(e) The term “
Initial Public Offering
” means the first underwritten public offering of securities of the Company
pursuant to an effective registration statement under the Act (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction).
(f) The term “
1934 Act
” means the Securities Exchange Act of 1934, as amended.
(g) The term “
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.
(h) The term “
Registrable Securities
” means (i) the Common Stock issuable or issued upon conversion of the
Company’s Series Seed Preferred Stock, Series A Preferred Stock and Series B Preferred Stock, (ii) the Founder’s Shares; provided, however, that such Founder’s Shares shall not be deemed Registrable Securities and the holder
thereof shall not be deemed a Holder for the purposes of Sections 1.2, 1.4, 1.12 and 4.8, 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) or (ii) above, excluding in all cases, however, any Registrable Securities sold by a person (x) in a transaction
in which his, her or its rights under this Section 1 are not assigned, (y) pursuant to a registration statement under the Act that has been declared effective and such Registrable Securities have been disposed of pursuant to such effective
registration statement, or (z) in a transaction in which such Registrable Securities are sold pursuant to Rule 144 (or any similar provision then in force) under the Act.
(i) The number of shares of “
Registrable Securities then outstanding
” shall be determined by the number of shares of
Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities.
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(j) The term “
SEC
” shall mean the Securities and Exchange Commission.
(k) The term “
Qualified Public Offering
” shall mean the first underwritten public offering of securities of the
Company pursuant to an effective registration statement under the Act (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC
Rule 145 transaction) with net proceeds to the Company of at least twenty-five million dollars ($25,000,000).
1.2
Request for
Registration
.
(a) Subject to the conditions of this Section 1.2, if the Company shall receive, at any time after six
(6) months after the effective date of the Initial Public Offering, a written request from the Holders of a majority of the Registrable Securities (the “
Initiating Holders
”) that the Company file a registration statement
under the Act covering the registration of at least twenty percent (20%) of the then outstanding Registrable Securities, then the Company shall, within twenty (20) days of the receipt thereof, give written notice of such request to all Holders,
and subject to the limitations of this Section 1.2, use commercially reasonable efforts to effect, as soon as practicable, the registration under the Act of all Registrable Securities that the Holders request to be registered in a written
request received by the Company within twenty (20) days of the mailing of the Company’s notice pursuant to this Section 1.2(a).
(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 this 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 enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Company 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 to the Holders of such Registrable Securities on a pro rata basis (as nearly as practicable) based on the number of Registrable Securities held by all such Holders (including the Initiating Holders), provided that no
Registrable Securities shall be excluded unless and until all other issued and outstanding securities of the Company have been excluded. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the
registration.
3
(c) In addition, the Company shall not be required to effect a registration pursuant to this
Section 1.2:
(i) after the Company has effected two (2) registrations pursuant to this Section 1.2, and such registrations
have been declared or ordered effective;
(ii) If the Company has effected a registration pursuant to this Section 1.2 within the
preceding twelve (12) months, and such registration has been declared or ordered effective;
(iii) during the period starting with
the date sixty (60) days prior to the Company’s good faith estimate of the date of the filing of, and ending on a date one hundred eighty (180) days following the effective date of, a Company-initiated registration subject to
Section 1.3, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective;
(iv) if the Initiating Holders propose to dispose of Registrable Securities that may be registered on Form
S-3
pursuant to Section 1.4;
(v) if the Company shall furnish to Holders requesting a
registration 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 shareholders for such registration 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 (120) days after receipt of
the request of the Initiating Holders; or
(vi) 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.
1.3
Company Registration.
(a) If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering 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 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 (20) days after mailing of such notice by the Company, the Company shall, subject to the provisions of
Section 1.5(e), use commercially reasonable efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered.
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(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.
1.4
Form
S-3
Registration.
In case the Company shall receive from Holders of at least a majority of the Registrable Securities then outstanding a
written request or requests that the Company effect a registration on Form
S-3
and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or
Holders, 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 commercially reasonable 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 (15) 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:
(i) if Form
S-3
is not available for such offering by the Holders;
(ii) if the Holders, together with the holders
of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or commissions)
of less than $2,000,000;
(iii) 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 shareholders for such Form
S-3
registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form
S-3
registration statement for a period of not more than one hundred twenty
(120) days after receipt of the request of the Holder or Holders under this Section 1.4;
(iv) if the Company has, within the
six (6) month period preceding the date of such request, already effected one registration on Form
S-3
for the Holders pursuant to this Section 1.4; or
(v) in any particular jurisdiction in which the Company would be required to qualify to do business, where not otherwise required, or to
execute a general consent to service of process in effecting such registration, qualification or compliance.
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(c) Subject to the foregoing, the Company shall use commercially reasonable efforts to file a
registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4
shall not be counted as requests for registration effected pursuant to Section 1.2 or Section 1.3.
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 commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement
effective for a period of up to ninety (90) days or, if earlier, until the distribution contemplated in the Registration Statement has been completed;
(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 each Holder (i) a draft copy of the registration statement, and (ii) such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as it may reasonably request in order to facilitate the disposition of Registrable Securities owned by it;
(d) use commercially reasonable 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, where not
otherwise required, 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 by 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 of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. In connection with any offering involving an underwriting of
shares of the Company’s capital stock, the Company shall not be required 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 the Company and enter into an underwriting agreement in customary form with an underwriter or underwriters selected by the Company. If the total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole
6
discretion is compatible with the success of the offering, then subject to Section 1.2 above, 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 shareholders according to the total
amount of securities entitled to be included therein owned by each selling shareholder or in such other proportions as shall mutually be agreed to by such selling shareholders, but in no event shall the amount of securities of the selling Holders
(other than shares of Common Stock held by the Founder) included in the offering be reduced below twenty percent (20%) of the total amount of securities included in such offering, unless such offering is the Initial Public Offering of the
Company’s securities, in which case the selling shareholders may be excluded if the underwriters make the determination described above. For purposes of the preceding parenthetical concerning apportionment, for any selling shareholder that is a
Holder of Registrable Securities and that is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of
any of the foregoing persons shall be deemed to be a single “selling shareholder,” and any pro rata reduction with respect to such “selling shareholder” shall be based upon the aggregate amount of Registrable Securities owned by
all entities and individuals included in such “selling shareholder,” as defined in this sentence;
(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, of (i) the issuance of any stop order by the SEC in respect of such registration statement,
or (ii) 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 hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed;
(h) provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such registration; and
(i) Use commercially reasonable 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,
(i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory
to a majority in interest of the Holders requesting registration, addressed to the underwriters and to the Holders requesting registration of Registrable Securities.
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1.6
Information from Holder
.
(a) 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 reasonably
required to effect the registration of such Holder’s Registrable Securities.
(b) The Company shall have no obligation with respect
to any registration requested pursuant to Section 1.2 if, due to the operation of subsection 1.6(a), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not
equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company’s obligation to initiate such registration as specified in subsection 1.2(a).
1.7
Expenses of Registration
.
(a) All expenses (other than underwriting discounts and commissions) incurred in connection with registrations, filings or qualifications
pursuant to Sections 1.2 and 1.3 including, without limitation, all registration, filing and qualification fees (including “blue sky” fees), printers’ and accounting fees, fees and disbursements of counsel for the Company (including
fees and disbursements of counsel for the Company in its capacity as counsel to the selling Holders hereunder; if Company counsel does not make itself available for this purpose, the Company will pay the reasonable fees and disbursements of one
counsel for the selling Holders not to exceed fifteen thousand dollars ($15,000) 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 1.3 if the registration request is subsequently withdrawn at the request of the 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 registered in the withdrawn registration), unless, in the case of a 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.
(b) All expenses incurred in connection with a
registration requested pursuant to Section 1.4, including, without limitation, all registration, filing and qualification fees (including “blue sky” fees), printers’ and accounting fees, fees and disbursements of counsel for the
Company and the fees and disbursements of counsel for the selling Holder or Holders, shall be borne pro rata by the Holder or Holders participating in the registration.
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.
8
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, 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 any state securities laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a
“
Violation
”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the
Company of the 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 for any
legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; 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 if such settlement is effected without the consent of the Company, nor shall the Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with information furnished expressly for use in connection with such registration by any such Holder; provided further,
however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Holder or underwriter, or any person controlling such Holder or underwriter, from whom the person asserting any such
losses, claims, damages or liabilities purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of
such Holder or underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so amended or supplemented) would have cured the
defect giving rise to such loss, claim, damage or liability.
(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 shareholder selling securities in such registration statement and any controlling person of any such underwriter or other shareholder, 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 any state securities laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with information
9
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) 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;
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 if such settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this Section 1.9 of
actual knowledge 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 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 to the extent of such prejudice, but the omission to so 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 and the relative benefits received by 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 that no person guilty of fraud shall be entitled to contribution. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative
intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The relative benefits received by the indemnifying party and the indemnified party shall be determined by reference to the net proceeds and
underwriting discounts and commissions from the offering received by each such party.
(e) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
10
(f) 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 ninety (90) days after the effective date of the Initial Public Offering;
(b) 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
(c) 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 (90) days after the effective date of the Initial
Public Offering), 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, member, retired member or assignee of such securities that (i) is a subsidiary, affiliate, parent, member, partner, limited partner, retired partner or shareholder of a Holder, (ii) is a
Holder’s immediate family member (spouse or child) or trust for the benefit of an individual Holder, (iii) after such assignment or transfer, holds at least fifteen percent (15%) of the shares of Series Seed Preferred Stock (subject to
appropriate adjustment for Recapitalizations), or (iv) after such assignment or transfer, holds at least fifteen percent (15%) of the shares of Series A Preferred Stock (subject to appropriate adjustment for Recapitalizations)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 a copy of which writing is provided to the Company at the time of transfer to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions
of
11
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. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the partnership; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single
attorney-in-fact
for the purpose of exercising any rights, receiving notices or taking any action under this Section 1.
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 of the
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 (a) to include such securities in any registration filed
under Section 1.3 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of
the Registrable Securities of the Holders that are included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in
Section 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2.
1.13
“Market
Stand-Off”
Agreement.
Each Holder hereby agrees that it will not, directly or indirectly, without the prior written consent of the Company and the managing
underwriter, during the period commencing on the date of the final prospectus relating to any public offering by the Company and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty
(180) 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. The foregoing provisions of this Section 1.13 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 and directors and greater than five percent (5%) shareholders of the Company enter into similar agreements. The underwriters in connection with any public offering by the Company 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; further, each Holder hereby agrees to enter into written agreement with such underwriters containing terms
substantially equivalent to the terms of this Section 1.13, and each
12
Holder hereby agrees that such underwriters shall be entitled to require each such Holder to enter into such a
written agreement. Notwithstanding the foregoing, nothing in this Section 1.13 shall prevent a Holder from making a transfer of any Common Stock that was listed on a national stock exchange, actively traded
over-the-counter
or traded on the Nasdaq National Market at the time it was acquired by the Holder or was acquired by such Holder pursuant to Rule 144A of the Act, including any shares acquired in any public
offering by the Company.
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 three (3) years following the consummation of
a Qualified Public Offering 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 ninety
(90) day period without registration in compliance with Rule 144 of the Act.
2.
Covenants of the Company.
2.1
Delivery of Financial Statements
. The Company shall deliver to each Investor holding at least 400,000 (appropriately adjusted for
any Recapitalizations) shares of Registrable Securities:
(a) as soon as practicable, but in any event within ninety (90) days after
the end of each fiscal year of the Company, an unaudited balance sheet of the Company as of the end of such year, an unaudited statement of operations and a statement of cash flows for such year, such
year-end
financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (“
GAAP
”); provided that if the Company has audited records of any of the foregoing, the Company shall provide
those in lieu of the unaudited versions;
(b) as soon as practicable, but in any event within forty-five (45) days after the end of
each of the first three (3) quarters of each fiscal year of the Company, an unaudited balance sheet as of the end of such fiscal quarter, unaudited statement of operations for such fiscal quarter and an unaudited statement of cash flows as of
the end of such fiscal quarter; provided that if the Company has audited records of any of the foregoing, the Company shall provide those in lieu of the unaudited versions; and
(c) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as such Investor or
any assignee of such Investor may from time to time reasonably request, provided, however, that the Company shall not be obligated under this Section 2.1 to provide information that it deems in good faith to be a trade secret or similar
confidential information, and provided further that the Company may require the Investor to execute a confidentiality and nondisclosure agreement prior to disclosure of any such information.
13
2.2
Inspection
.
The Company shall permit each Investor holding at least 400,000 (appropriately adjusted for any Recapitalizations) shares of Registrable
Securities, at such Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable
times as may be reasonably requested by the 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, and provided further that the Company may require the Investor to execute a confidentiality and nondisclosure agreement prior to any such visit and inspection.
2.3
Right of First Offer
.
Subject to the terms and conditions specified in this Section 2.3, the Company hereby grants to each Investor holding at least 400,000
(appropriately adjusted for any Recapitalizations) shares of Registrable Securities (an
“
Eligible Investor
”)
a right of first offer with respect to future sales by the Company of its Shares (as hereinafter
defined). For purposes of this Section 2.3, Eligible Investor includes any general partners and affiliates of an Eligible Investor. An Eligible Investor shall be entitled to apportion the right of first offer hereby granted it among itself and
its partners and affiliates in such proportions as it deems appropriate, so long as such apportionment does not cause the loss of the exemption under Section 4(2) of the Act or any similar exemption under applicable state securities laws in
connection with such sale of Shares by the Company.
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 (the
“
Shares
”),
the Company shall first make an offering of such Shares to each Eligible Investor in accordance with the following
provisions:
(a) The Company shall deliver a notice in accordance with Section 4.6 (the
“
Notice
”)
to the Eligible Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within twenty (20) calendar days after receipt of the Notice, the Eligible Investor
may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares that equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the
Preferred Stock then held, by such Eligible Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of all outstanding convertible and exercisable securities).
(c) If all Shares that Eligible Investors are entitled to obtain pursuant to Section 2.3(b) are not elected to be obtained as provided
in Section 2.3(b) hereof, the Company may, during the one hundred eighty (180) day period following the expiration of the period provided in Section 2.3(b) hereof, offer the remaining unsubscribed portion of such
14
Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within sixty (60) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Eligible Investors in accordance herewith.
(d) The right of first offer in this Section 2.3 shall not be applicable to:
(i) the issuance or sale of Additional Series B Shares to Additional Series B Investors in accordance with the Series B Purchase Agreement;
(ii) the issuance of shares of securities pursuant to a recapitalization, split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
“
Common Stock Equivalents
”)
without payment of any consideration by such holder for the additional shares of Common Stock or the Common
Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof);
(iii) the issuance of
shares of Common Stock or options therefor to employees, consultants, officers, directors, strategic partners or vendors (if in transactions with primarily
non-financing
purposes) of the Company, or any
subsidiary of the Company, directly or pursuant to a stock option plan or restricted stock purchase plan approved by the Board of Directors of the Company;
(iv) the issuance of shares of Common Stock (A) in a bona fide, firmly underwritten public offering under the Act before which or in
connection with which all outstanding shares of Preferred Stock will be automatically converted to Common Stock, or (B) upon exercise of warrants or rights granted to underwriters in connection with such a public offering;
(v) the issuance of shares of Common Stock pursuant to the conversion or exercise of convertible or exercisable securities outstanding as of
the date hereof or subsequently issued pursuant to this Section 2.3; or
(vi) the issuance or sale of stock, warrants or other
securities or rights to persons or entities with which the Company has business relationships provided such issuances are for other than primarily equity financing purposes and provided that at the time of any such issuance, the aggregate of such
issuance and similar issuances in the preceding twelve month period do not exceed five percent (5%) of the then outstanding Common Stock of the Company (assuming full conversion and exercise of all convertible and exercisable securities), unless
approved by the Board of Directors.
In addition to the foregoing, the right of first offer in this Section 2.3 shall not be applicable with respect
to any Eligible Investor and any subsequent securities issuance, if (i) at the time of such subsequent securities issuance, the Eligible Investor is not an “accredited investor,” as that term is then defined in Rule 501(a) under the
Act, and (ii) such subsequent securities issuance is otherwise being offered only to accredited investors.
15
(e) The right of first offer set forth in this Section 2.3 may not be assigned or
transferred, except, other than with respect to a competitor of the Company, as reasonably determined by the Company, that (i) such right is assignable by each Eligible Investor to any wholly-owned subsidiary or parent of, or to any corporation
or entity that is, within the meaning of the Act, controlling, controlled by or under common control with, any such Eligible Investor, and (ii) such right is assignable to a transferee or assignee who holds after such transfer at least fifteen
percent (15%) shares of Registrable Securities (subject to appropriate adjustment for any Recapitalization).
2.4
Proprietary
Information and Inventions Agreements.
The Company shall require all employees and consultants to enter into the Company’s
standard form of proprietary information and inventions agreement.
2.5
No Investment Company
.
The Company shall not become an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as amended. In the event the Company breaches the foregoing, the Company shall forthwith notify the Investors and shall take immediate corrective action to remedy such breach.
2.6
Termination of Certain Covenants
.
The covenants set forth in this Section 2 shall terminate and be of no further force or effect upon the consummation of the Initial
Public Offering or at such time as the Company is required to file reports pursuant to Section 13 or 15(d) of the 1934 Act. This Agreement shall terminate and be of no further force or effect upon the consummation of a transaction or series of
related transactions which are deemed to be a liquidation, dissolution or winding up of the Company pursuant to the Company’s Second Amended and Restated Articles of Incorporation, as such Second Amended and Restated Articles of Incorporation
may be amended from time to time.
3.
Election of Directors.
3.1
Board Representation
. At each annual meeting of the shareholders of the Company, or at any meeting of the shareholders of the
Company at which members of the Board of Directors of the Company are to be elected, or whenever members of the Board of Directors are to be elected by written consent, each Investor and each other party to this Agreement, as a holder of capital
stock of the Company, agrees on behalf of itself and any transferee or assignee of any such shares of capital stock, to vote or act with respect to all of such shares of capital stock and any other securities of the Company acquired by such party in
the future (and any securities of the Company issued with respect to, upon conversion of, or in exchange or substitution for such securities) (the “
Relevant Shares
”) so as to elect members of the Board of Directors as
follows:
16
(a) to serve as the one (1) member of the Board of Directors elected by the holders of
Series A Preferred Stock voting as a separate class in accordance with the Company’s Third Amended and Restated Articles of Incorporation, as may be amended (the “
Restated Articles
”), a nominee designated by DENSO
International America, Inc. (“
DENSO
”), to be initially Koji Mori (the “
DENSO Designee
”), provided, however, that if DENSO at any time declines or fails to designate such a nominee, the DENSO Designee
shall be selected by the holders of a majority of the outstanding shares of Series A Preferred Stock;
(b) to serve as the one
(1) member of the Board of Directors elected by the holders of Series B Preferred Stock voting as a separate class in accordance with the Restated Articles, a nominee designated by holders of a majority of the outstanding shares of Series B
Preferred Stock, to be initially
Fun-Kai
Liu (the “
Series B Designee
”); and
(c) to serve as the two (2) members of the Board of Directors elected by the holders of the Common Stock voting as a separate class in
accordance with the Restated Articles, two nominees designated by holders of a majority of the outstanding Common Stock (one of which is to be the Chief Executive Officer of the Company), to be initially Fumihiro Kozato (the “
Common
Designees
”).
3.2
Appointment of Directors
. In the event of the resignation, death, or disqualification of the DENSO
Designee, the Series B Designee or either of the Common Designees, as the case may be, DENSO, the holders of Series B Preferred Stock or the holders of Common Stock, respectively, shall promptly nominate a new director, and, after written notice of
the nomination has been given, each Investor and other party to this Agreement shall vote its shares of capital stock of the Company, or, as applicable, give written consent with respect to such shares, to elect such nominee to the Board of
Directors.
3.3
Removal
. DENSO, the holders of Series B Preferred Stock or the holders of Common Stock, as the case may be, may
elect to remove its or their designated director(s) at any time and from time to time, with or without cause, in their sole discretion, and after written notice to each of the parties hereto of such election and the new nominee to replace such
director, each Investor and other party to this Agreement shall promptly vote its shares of capital stock of the Company, or, as applicable, give written consent with respect to such shares, to remove such designated director and to elect such
nominee to the Board of Directors.
3.4
Observer Rights
. As long as the holders of Series B Preferred Stock (together the
“Series B Investors”
) own not less than two million (2,000,000) shares of Series B Preferred Stock in the aggregate (as adjusted for any Recapitalizations), the Company shall invite two representatives of the Series B
Investors to attend all meetings of the Board of Directors in a nonvoting observer capacity, provided that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to
such information or attendance at such meeting that the Company reasonably believes, or Company’s counsel reasonably believes (i) could adversely affect the attorney-client privilege between the Company and its counsel, (ii) would
create a conflict of interest between the Company and the representative, or (iii) would result in disclosure of trade secrets to such representative, and provided further that such representative shall agree to hold in confidence and trust and
act in a fiduciary manner with respect to all information so provided and to use such information only for the purposes relating to the Series B Investors’ investment in the Company.
17
4.
Miscellaneous
.
4.1
Additional Series B Investors
.
Upon the sale of Additional Series B Shares to Additional Series B Investors in accordance with the Series B Purchase Agreement, the Company,
without prior action on the part of any Investor, shall require each Additional Series B Investor to execute and deliver this Agreement. Each such Additional Series B Investor, upon execution and delivery of this Agreement by the Company and such
Additional Series B Investor, shall be deemed an Investor hereunder.
4.2
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.
4.3
Governing Law; Venue
.
This Agreement is to be construed in accordance with and governed by the internal laws of the State of California without giving effect to any
choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. All disputes and controversies arising out of or in connection with
this Agreement shall be resolved exclusively by the state and federal courts located in Santa Clara County in the State of California, and each party hereto agrees to submit to the jurisdiction of said courts and agrees that venue shall lie
exclusively with such courts.
4.4
Counterparts
.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
4.5
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.
4.6
Notices
.
Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be
in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the other party; (b) when sent by
18
facsimile to the number set forth below if sent between 8:00 a.m. and 5:00 p.m. recipient’s local time on a
business day, or on the next business day if sent by facsimile to the number set forth below if sent other than between 8:00 a.m. and 5:00 p.m. recipient’s local time on a business day; (c) when sent, if sent by electronic mail during
normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, in each case provided that the sending party receives no notice of
non-delivery
from the delivery service provider; (d) three business days after deposit in the U.S. mail with first class or certified mail receipt requested postage prepaid and addressed to the other
party at the address set forth below; or (e) the next business day after deposit with a national overnight delivery service, postage prepaid, addressed to the parties as set forth below with next business day delivery guaranteed, provided that
the sending party receives a confirmation of delivery from the delivery service provider. Each person making a communication hereunder by facsimile shall promptly confirm by telephone to the person to whom such communication was addressed each
communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A party may change or supplement the addresses given above, or designate additional addresses, for
purposes of this Section 4.6 by giving the other party written notice of the new address in the manner set forth above.
4.7
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 attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
4.8
Amendments and Waivers
.
Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall
be binding upon each holder of any Registrable Securities, each future holder of all such Registrable Securities and the Company.
4.9
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.
4.10
Aggregation of Stock
.
All shares of Registrable Securities held or acquired by entities advised by the same investment adviser and affiliated entities or persons
shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
19
4.11
Entire Agreement
.
This Agreement and the documents referred to herein constitute the entire agreement among the parties with respect to the subject matter
hereof and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein.
4.12
Waiver of Right of First Offer
.
Solely for purposes of the transactions contemplated by the Series B Purchase Agreement, the right of first offer set forth in Section 3
of the Prior Agreement is hereby waived in its entirety, except to the extent of the Prior Investors’ purchases, if any, of Series B Preferred Stock pursuant to the Series B Purchase Agreement.
* * *
20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first
above written.
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COMPANY:
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TECHPOINT, INC.
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By:
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./s/ Fumihiro Kozato
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Fumihiro Kozato, its Chief Executive Officer
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Address:
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Techpoint, Inc.
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1270 Oakmead Parkway, Ste. 215,
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Sunnyvale, CA 94085
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Facsimile:
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FOUNDER:
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/s/ Fumihiro Kozato
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Fumihiro Kozato
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Address:
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Facsimile:
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SIGNATURE PAGE TO THE
SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
AMENDMENT TO
SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
This Amendment to Second Amended and Restated Investors’ Rights Agreement dated as of September
, 2017
(this “
Amendment
”), to the Second Amended and Restated Investors’ Rights Agreement dated as of April 30, 2014, (the “
Agreement
”) is entered into between Techpoint, Inc., a Delaware corporation (the
“
Company
”), and the Investors listed on
Schedule A
therein (each a “
Investor,
” and collectively the “
Investors
”).
WHEREAS, the Company and the Investors previously entered into the Agreement;
WHEREAS, the Company and the Investors desire to amend the Agreement as set forth herein.
NOW, THEREFORE, in consideration of the promises and other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1.
Amendments
. The Agreement is hereby amended as follows:
(a) Section 3.5 of the Agreement is hereby appended to the Agreement as follows:
“
Termination of Board Election Rights
. The provisions set forth in this Section 3 shall terminate and be of no further force
or effect upon the consummation of the Initial Public Offering or at such time as the Company is required to file reports pursuant to Section 13 or 15(d) of the 1934 Act.”
2.
Miscellaneous
.
(a)
Except as otherwise modified and amended by this Amendment, all other terms and provisions of the Agreement shall remain in full force and effect. Defined terms used herein but not otherwise defined shall have the same meaning as set forth in the
Agreement.
(b) This Amendment may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument.
(c) This Amendment shall be governed by, and construed in accordance
with, the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties have duly executed this Amendment to Second Amended and Restated
Investors’ Rights Agreement as of the date set forth above.
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Techpoint, Inc.
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Investor
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By:
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Name:
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Title:
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T
ECHPOINT
, I
NC
.
A
MENDMENT
TO
S
ECOND
A&R I
NVESTORS
’ R
IGHTS
A
GREEMENT
Exhibit 4.3
[Translation of Japanese original text and For Reference purposes only]
Techpoint, Inc.
Listed
Foreign Stock Trust Beneficiary Interest
Beneficiary Certificate Issuance Trust Agreement
and Agreement regarding Issuer
31 August, 2017
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Issuer:
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Techpoint, Inc.
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Settlor:
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Mizuho Securities Co., Ltd.
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Trustee:
|
|
Mitsubishi UFJ Trust and Banking Corporation
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Trustee:
|
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The Master Trust Bank of Japan, Ltd.
|
English Translation/For Reference Purpose Only
Table of Contents
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CHAPTER 1
|
|
GENERAL PROVISIONS
|
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1
|
|
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|
|
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|
A
RTICLE
1.
|
|
(P
URPOSE
OF
T
RUST
)
|
|
|
1
|
|
|
A
RTICLE
2.
|
|
(D
EFINITIONS
)
|
|
|
1
|
|
|
A
RTICLE
3.
|
|
(R
EPRESENTATION
AND
W
ARRANTY
OF
S
ETTLORS
)
|
|
|
5
|
|
|
A
RTICLE
4.
|
|
(R
EPRESENTATION
AND
W
ARRANTY
OF
T
RUSTEES
)
|
|
|
6
|
|
|
A
RTICLE
5.
|
|
(R
EPRESENTATION
AND
W
ARRANTY
OF
I
SSUER
)
|
|
|
7
|
|
|
|
|
|
|
CHAPTER 2
|
|
CREATION OF TRUST, ENTRUSTED ASSETS
|
|
|
8
|
|
|
|
|
|
|
A
RTICLE
6.
|
|
(C
REATION
OF
T
RUST
)
|
|
|
8
|
|
|
A
RTICLE
7.
|
|
(A
DDITIONAL
E
NTRUSTMENT
)
|
|
|
9
|
|
|
A
RTICLE
8.
|
|
(E
NTRUSTED
A
SSETS
)
|
|
|
9
|
|
|
A
RTICLE
9.
|
|
(S
EGREGATED
M
ANAGEMENT
OF
E
NTRUSTED
A
SSETS
)
|
|
|
9
|
|
|
|
|
|
|
CHAPTER 3
|
|
TRUST ADMINISTRATION
|
|
|
10
|
|
|
|
|
|
|
A
RTICLE
10.
|
|
(T
RUST
P
ERIOD
)
|
|
|
10
|
|
|
A
RTICLE
11.
|
|
(M
ANAGEMENT
OF
T
RUST
A
SSETS
)
|
|
|
10
|
|
|
A
RTICLE
12.
|
|
(C
ONSIGNMENT
OF
T
RUST
A
DMINISTRATION
)
|
|
|
10
|
|
|
A
RTICLE
13.
|
|
(C
USTODIAN
)
|
|
|
10
|
|
|
A
RTICLE
14.
|
|
(S
ELF
D
EALING
AND
O
THER
)
|
|
|
11
|
|
|
A
RTICLE
15.
|
|
(C
OMPETITIVE
T
RANSACTION
)
|
|
|
11
|
|
|
A
RTICLE
16.
|
|
(H
ANDLING
OF
L
ITIGATIONS
AND
O
THER
)
|
|
|
11
|
|
|
A
RTICLE
17.
|
|
(C
OMPENSATION
OF
L
OSSES
)
|
|
|
11
|
|
|
A
RTICLE
18.
|
|
(C
ONVERSION
AND
D
ISTRIBUTION
OF
F
OREIGN
C
URRENCY
)
|
|
|
11
|
|
|
A
RTICLE
19.
|
|
(F
IXING
OF
R
ECORD
D
ATE
FOR
D
ETERMINATION
OF
R
IGHTS
)
|
|
|
12
|
|
|
A
RTICLE
20.
|
|
(C
ASH
D
IVIDENDS
, E
TC
.)
|
|
|
13
|
|
|
A
RTICLE
21.
|
|
(M
ETHOD
OF
D
IVIDEND
P
AYMENT
)
|
|
|
13
|
|
|
A
RTICLE
22.
|
|
(S
TOCK
D
IVIDEND
, S
TOCK
S
PLITTING
AND
F
REE
S
HARE
A
WARDS
)
|
|
|
14
|
|
|
A
RTICLE
23.
|
|
(O
THER
R
IGHTS
)
|
|
|
14
|
|
|
A
RTICLE
24.
|
|
(D
ISPOSITION
OF
F
RACTIONAL
S
HARE
)
|
|
|
15
|
|
|
A
RTICLE
25.
|
|
(E
XEMPTION
FOR
THE
T
RUSTEES
FROM
O
BLIGATION
CONCERNING
D
ISTRIBUTION
OF
R
IGHTS
)
|
|
|
15
|
|
|
A
RTICLE
26.
|
|
(O
BLIGATION
OF
I
SSUER
TO
S
ERVE
N
OTICE
OF
D
ISCLOSURE
)
|
|
|
16
|
|
|
A
RTICLE
27.
|
|
(A
CCOUNTING
OF
T
RUST
)
|
|
|
16
|
|
|
A
RTICLE
28.
|
|
(C
ALCULATION
D
ATE
AND
A
CCOUNT
S
TATEMENT
)
|
|
|
16
|
|
|
A
RTICLE
29.
|
|
(R
EPORT
ON
S
TATUS
OF
E
NTRUSTED
A
SSETS
)
|
|
|
16
|
|
|
A
RTICLE
30.
|
|
(T
AXATION
)
|
|
|
17
|
|
|
|
|
|
|
CHAPTER 4
|
|
SETTLORS
|
|
|
17
|
|
|
|
|
|
|
A
RTICLE
31.
|
|
(S
ETTLORS
)
|
|
|
17
|
|
|
A
RTICLE
32.
|
|
(R
IGHTS
OF
THE
S
ETTLORS
)
|
|
|
17
|
|
|
A
RTICLE
33.
|
|
(T
RANSFER
OF
S
TATUS
OF
S
ETTLORS
)
|
|
|
18
|
|
|
|
|
|
|
CHAPTER 5
|
|
TRUSTEES
|
|
|
18
|
|
|
|
|
|
|
A
RTICLE
34.
|
|
(J
OINT
T
RUSTEES
)
|
|
|
18
|
|
|
A
RTICLE
35.
|
|
(R
ESPONSIBILITY
OF
J
OINT
T
RUSTEES
)
|
|
|
19
|
|
|
A
RTICLE
36.
|
|
(R
EPORT
ON
H
ANDLING
OF
T
RUST
A
DMINISTRATIONS
)
|
|
|
19
|
|
|
A
RTICLE
37.
|
|
(C
ONCURRENT
T
ERMINATION
OF
T
RUSTEES
’ D
UTIES
)
|
|
|
19
|
|
|
A
RTICLE
38.
|
|
(S
INGULARITY
OF
THE
T
RUSTEES
)
|
|
|
19
|
|
|
|
|
|
|
CHAPTER 6
|
|
BENEFICIARIES
|
|
|
20
|
|
|
|
|
|
|
A
RTICLE
39.
|
|
(B
ENEFICIARIES
)
|
|
|
20
|
|
|
A
RTICLE
40.
|
|
(E
XECUTION
OF
R
IGHTS
OF
THE
B
ENEFICIARIES
)
|
|
|
20
|
|
|
A
RTICLE
41.
|
|
(N
OTIFICATION
TO
THE
B
ENEFICIARIES
)
|
|
|
20
|
|
|
A
RTICLE
42.
|
|
(D
ECISION
-
MAKING
OF
THE
B
ENEFICIARIES
)
|
|
|
20
|
|
|
A
RTICLE
43.
|
|
(E
XERCISE
OF
V
OTING
R
IGHTS
PERTAINING
TO
THE
E
NTRUSTED
S
HARES
)
|
|
|
21
|
|
|
A
RTICLE
44.
|
|
(I
NDICATION
OF
I
NTENTIONS
R
EGARDING
E
NTRUSTED
S
HARES
)
|
|
|
23
|
|
|
|
|
|
|
CHAPTER 7
|
|
CERTIFICATE OF BENEFICIARY INTEREST
|
|
|
24
|
|
2
English Translation/For Reference Purpose Only
|
|
|
|
|
|
|
|
|
A
RTICLE
45
|
|
(N
ON
-I
SSUANCE
OF
B
ENEFICIARY
C
ERTIFICATE
, E
TC
.)
|
|
|
24
|
|
|
A
RTICLE
46
|
|
(T
RANSFER
OF
B
ENEFICIAL
I
NTERESTS
)
|
|
|
24
|
|
|
A
RTICLE
47
|
|
(V
ALIDITY
OF
T
RANSFER
OF
B
ENEFICIAL
I
NTERESTS
)
|
|
|
25
|
|
|
A
RTICLE
48
|
|
(E
XERCISE
OF
R
IGHTS
BY
B
ENEFICIARIES
)
|
|
|
25
|
|
|
A
RTICLE
49.
|
|
(R
EQUEST
FOR
PURCHASE
OF
B
ENEFICIARY
I
NTERESTS
)
|
|
|
25
|
|
|
A
RTICLE
50.
|
|
(B
ENEFICIARY
I
NTEREST
R
EGISTRY
)
|
|
|
25
|
|
|
A
RTICLE
51.
|
|
(M
ATTERS
TO
BE
E
NTERED
IN
THE
B
ENEFICIARY
I
NTEREST
R
EGISTRY
)
|
|
|
25
|
|
|
A
RTICLE
52.
|
|
(M
AINTENANCE
AND
I
NSPECTION
, E
TC
.
OF
THE
B
ENEFICIARY
I
NTEREST
R
EGISTRY
)
|
|
|
26
|
|
|
A
RTICLE
53.
|
|
(B
OOK
-E
NTRY
B
ENEFICIAL
I
NTERESTS
)
|
|
|
26
|
|
|
A
RTICLE
54.
|
|
(R
ESTRICTION
ON
R
EQUEST
OF
D
ISCLOSURE
)
|
|
|
26
|
|
|
A
RTICLE
55.
|
|
(A
CQUISITION
OF
B
ENEFICIARY
I
NTEREST
BY
I
SSUER
ETC
.)
|
|
|
26
|
|
|
|
|
|
|
CHAPTER 8
|
|
CHANGE IN AGREEMENT
|
|
|
27
|
|
|
|
|
|
|
A
RTICLE
56.
|
|
(C
HANGE
IN
A
GREEMENT
)
|
|
|
27
|
|
|
A
RTICLE
57.
|
|
(R
EQUEST
TO
A
CQUIRE
B
ENEFICIARY
I
NTEREST
)
|
|
|
27
|
|
|
|
|
|
|
CHAPTER 9
|
|
LISTING
|
|
|
28
|
|
|
|
|
|
|
A
RTICLE
58.
|
|
(L
ISTING
ON
F
INANCIAL
I
NSTRUMENTS
E
XCHANGE
)
|
|
|
28
|
|
|
A
RTICLE
59.
|
|
(C
OMPLIANCE
WITH
R
EGULATIONS
, E
TC
.
OF
F
INANCIAL
I
NSTRUMENTS
E
XCHANGE
)
|
|
|
28
|
|
|
A
RTICLE
60.
|
|
(L
ISTING
OF
B
ENEFICIARY
I
NTEREST
OF
D
IFFERENT
T
YPES
OF
S
HARES
)
|
|
|
28
|
|
|
|
|
|
|
CHAPTER 10
|
|
TRUST FEE, HANDLING FEE AND TRUST EXPENSES
|
|
|
28
|
|
|
|
|
|
|
A
RTICLE
61.
|
|
(T
RUST
F
EE
AND
H
ANDLING
F
EE
)
|
|
|
28
|
|
|
A
RTICLE
62.
|
|
(T
RUST
E
XPENSES
)
|
|
|
29
|
|
|
|
|
|
|
CHAPTER 11
|
|
EXCHANGE
|
|
|
29
|
|
|
|
|
|
|
A
RTICLE
63.
|
|
(R
EQUEST
FOR
E
XCHANGE
)
|
|
|
29
|
|
|
A
RTICLE
64.
|
|
(P
ROHIBITION
OF
R
ECEIVING
C
ASH
BY
P
ARTIAL
C
ANCELLATION
OF
T
RUST
)
|
|
|
30
|
|
|
|
|
|
|
CHAPTER 12
|
|
TERMINATION OF TRUST
|
|
|
31
|
|
|
|
|
|
|
A
RTICLE
65.
|
|
(T
ERMINATION
OF
T
RUST
)
|
|
|
31
|
|
|
A
RTICLE
66.
|
|
(E
VENTS
OF
T
ERMINATION
OF
T
RUST
)
|
|
|
31
|
|
|
A
RTICLE
67.
|
|
(N
OTICE
OF
E
VENTS
OF
T
ERMINATION
)
|
|
|
31
|
|
|
A
RTICLE
68.
|
|
(L
IQUIDATION
OF
T
RUST
)
|
|
|
32
|
|
|
A
RTICLE
69.
|
|
(D
ISTRIBUTION
OF
R
ESIDUAL
A
SSETS
)
|
|
|
32
|
|
|
A
RTICLE
70.
|
|
(F
INAL
C
ALCULATION
)
|
|
|
33
|
|
|
|
|
|
|
CHAPTER 13
|
|
RESIGNATION AND DISMISSAL OF TRUSTEES
|
|
|
33
|
|
|
|
|
|
|
A
RTICLE
71.
|
|
(R
ESIGNATION
OF
T
RUSTEE
)
|
|
|
33
|
|
|
A
RTICLE
72.
|
|
(D
ISMISSAL
OF
T
RUSTEE
)
|
|
|
33
|
|
|
|
|
|
|
CHAPTER 14
|
|
LOSS OF STATUS OF SETTLOR
|
|
|
33
|
|
|
|
|
|
|
A
RTICLE
73.
|
|
(L
OSS
OF
S
TATUS
OF
S
ETTLOR
)
|
|
|
33
|
|
|
|
|
|
|
CHAPTER 15
|
|
MISCELLANEOUS
|
|
|
34
|
|
|
|
|
|
|
A
RTICLE
74.
|
|
(I
NSPECTION
, E
TC
.
OF
B
OOKS
BY
I
NTERESTED
P
ARTIES
SET
FORTH
IN
THE
T
RUST
L
AW
)
|
|
|
34
|
|
|
A
RTICLE
75.
|
|
(T
AX
P
ROCEDURES
)
|
|
|
34
|
|
|
A
RTICLE
76.
|
|
(N
OTIFICATION
OF
S
EAL
)
|
|
|
34
|
|
|
A
RTICLE
77.
|
|
(I
NFORMATION
CONCERNING
T
AXATION
)
|
|
|
34
|
|
|
A
RTICLE
78.
|
|
(M
ATTERS
TO
BE
N
OTIFIED
)
|
|
|
34
|
|
|
A
RTICLE
79.
|
|
(P
UBLIC
N
OTICE
)
|
|
|
34
|
|
|
A
RTICLE
80.
|
|
(C
OOPERATION
R
EGULATIONS
OF
I
SSUER
)
|
|
|
34
|
|
|
A
RTICLE
81.
|
|
(E
XONERATION
OF
THE
T
RUSTEES
)
|
|
|
34
|
|
|
A
RTICLE
82.
|
|
(E
XONERATION
OF
T
RUSTEES
, I
SSUER
AND
S
ETTLORS
)
|
|
|
35
|
|
|
A
RTICLE
83.
|
|
(N
O
F
URTHER
L
IABILITY
OF
S
ETTLORS
)
|
|
|
35
|
|
|
A
RTICLE
84.
|
|
(I
NDEMNIFICATION
TO
S
ETTLORS
)
|
|
|
36
|
|
|
A
RTICLE
85.
|
|
(I
NDEMNIFICATION
OF
T
RUSTEES
AND
I
SSUER
)
|
|
|
36
|
|
|
A
RTICLE
86.
|
|
(N
OTIFICATION
BETWEEN
THE
P
ARTIES
)
|
|
|
37
|
|
|
A
RTICLE
87.
|
|
(R
ELATIONSHIP
WITH
THE
L
AWS
)
|
|
|
37
|
|
|
A
RTICLE
88.
|
|
(S
EVERABILITY
)
|
|
|
37
|
|
|
A
RTICLE
89.
|
|
(G
OVERNING
L
AW
; J
URISDICTION
)
|
|
|
37
|
|
3
English Translation/For Reference Purpose Only
|
|
|
|
|
|
|
|
|
A
RTICLE
90.
|
|
(O
RIGINAL
)
|
|
|
37
|
|
|
A
RTICLE
91.
|
|
(S
TANDING
P
ROXY
)
|
|
|
37
|
|
|
|
|
|
|
ARTICLE 1
|
|
(PARTICIPATION TO THE AGREEMENT)
|
|
|
42
|
|
|
|
|
|
|
ARTICLE 2
|
|
(MATTERS TO BE DISCUSSED)
|
|
|
42
|
|
|
|
|
|
|
ARTICLE 3
|
|
(GOVERNING LAW/JURISDICTION)
|
|
|
42
|
|
|
|
|
|
|
ARTICLE 4
|
|
(LANGUAGE)
|
|
|
42
|
|
4
English Translation/For Reference Purpose Only
Techpoint, Inc. Listed Foreign Stock Trust Beneficiary Interest
Beneficiary Certificate Issuance Trust Agreement and Agreement regarding Issuer
This Beneficiary Certificate Issuance Trust Agreement (this Beneficiary Certificate Issuance Trust Agreement and Agreement regarding Issuer are hereinafter
collectively referred to as the “Agreement”) is entered into as of 31 August, 2017 by and among Mizuho Securities Co., Ltd. (the “Initial Settlor”), Mitsubishi UFJ Trust and Banking Corporation (“MUTB”) and The
Master Trust Bank of Japan, Ltd. (“MTBJ”, and together with MUTB, the “Trustees”) subject to the provisions set forth below, and Techpoint, Inc. (the “Issuer”) hereby consents to the provisions set forth below.
Preface
The Issuer contemplates to make a
public offering in Japan of the Beneficiary Interest (the “Offering”), and list the Beneficiary Interest on the Tokyo Stock Exchange (Defined in Article 2). It is contemplated that, pursuant to this Agreement and the subscription agreement
(the “Subscription Agreement”) to be entered on or around 19, September, 2017 between the Issuer and the Initial Settlor, the Issuer shall issue shares of common stock of the Issuer to the Initial Settlor and the Initial Settlor shall in
turn create a trust issuing certificate of beneficiary interest, in which the Entrusted Assets are comprised of such shares, by entrusting such shares to the Trustees, and make the Offering.
Chapter 1 General Provisions
Article 1. (Purpose of Trust)
The purpose of the Trust shall be for the Trustees to manage and dispose of the Shares in the Issuer as entrusted assets in order to issue
Securities Trust Beneficiary Certificates to be listed and traded on a Financial Instruments Exchange as intended by the Issuer.
Article
2. (Definitions)
Unless otherwise separately indicated, the following terms shall have the meanings set forth below
in this Agreement:
|
(1)
|
“Settlor” shall mean Mizuho Securities Co., Ltd. as the Initial Settlor and any entity participated as a settlor in accordance with Article 31, Paragraph 2 this Agreement, individually and collectively.
|
|
(2)
|
“Settlor’s Exchange Fee” shall have the meaning as set forth in Article 63, Paragraph 13 hereof.
|
|
(3)
|
“Business Day” shall mean any day other than holidays of Tokyo Stock Exchange.
|
|
(4)
|
“MTBJ” shall mean the party defined in the opening paragraph of this Agreement.
|
|
(5)
|
“MUTB” shall mean the party defined in the opening paragraph of this Agreement.
|
|
(6)
|
“Yen” or “JPY” shall mean the lawful currency of Japan.
|
|
(7)
|
“Meeting Date, Etc.” shall have the meaning provided in Article 43, Paragraph 1.
|
|
(8)
|
“Custodian” shall mean the company appointed by the Trustee to take custody of Entrusted Shares and Other Securities under the laws of the U.S.
|
|
(9)
|
“Stock Dividend” shall mean, to the extent permitted by the Laws of the U.S., with regard to the Shares in the Issuer, any dividend distributed by delivery of Shares in the Issuer.
|
|
(10)
|
“Bonus Shares” shall mean fully paid shares which are issued by a company to all its existing shareholders by way of capitalization of profits or reserves.
|
|
(11)
|
“Relevant Authorities” shall mean Japanese and foreign administrative authorities which have the authority to supervise this Agreement and the relevant transactions contemplated herein.
|
|
(12)
|
“Instruction Procedures for Exercise of Voting Rights, Etc.” shall have the meaning as set forth in Article 43, Paragraph 1 hereof.
|
|
(13)
|
“Instruction Documents for Exercise of Voting Rights, Etc.” shall have the meaning as set forth in Article 43, Paragraph 3, Item 1 hereof.
|
1
English Translation/For Reference Purpose Only
|
(14)
|
“Voting Rights, Etc.” shall have the meaning provided in Article 43, Paragraph 3.
|
|
(15)
|
“Bank Business Day” shall mean any day other than the days specified as bank holidays or the days on which banks are authorized to close in Japan pursuant to the Banking Law.
|
|
(16)
|
“Banking Act” shall mean the Banking Act (Act No. 59 of 1981, as amended).
|
|
(17)
|
“Financial Instruments Firm” shall mean the Financial Instruments Firm as defined in Article 2, Paragraph 9 of the Financial Instruments and Exchange Act.
|
|
(18)
|
“Financial Instruments Exchange” shall mean the Financial Instruments Exchange as defined in Article 2, Paragraph 16 of the Financial Instruments and Exchange Act.
|
|
(19)
|
“Financial Instruments and Exchange Act” shall mean the Financial Instruments and Exchange Act (Law No. 25 of 1948, as amended).
|
|
(20)
|
“Calculation Period” shall have the meaning as provided in Article 28, Paragraph 2.
|
|
(21)
|
“Calculation Date” shall have the meaning as set forth in Article 28, Paragraph 1 hereof.
|
|
(22)
|
“Trust Business Provision Law” shall mean the Act on Engagement in Trust Business Activities by Financial Institutions (Law No. 43 of 1943, as amended).
|
|
(23)
|
“Ordinance for Enforcement of Trust Business Provision Law” shall mean the Ordinance for Enforcement of the Act on Engagement in Trust Business Activities by Financial Institutions (Law No. 16 of 1982, as
amended).
|
|
(24)
|
“Enforcement Ordinance of Trust Business Provision Law” shall mean the Regulations for Enforcement Ordinance of Act on Engagement in Trust Business Activities by Financial Institutions (Law No. 31 of
1993, as amended).
|
|
(25)
|
“Cash Dividends, Etc.” shall mean dividends paid in cash and other distributions in cash on the Shares in the Issuer.
|
|
(26)
|
“Record Date for Determination of Rights” shall have the meaning as provided in Article 19, Paragraph 1.
|
|
(27)
|
“Application for Exchange” shall have the meaning as set forth in Article 63, Paragraph 1.
|
|
(28)
|
“Trustees’ Own Assets” shall mean any and all assets belonging to the Trustees, which do not constitute the entrusted assets.
|
|
(29)
|
“Court” shall mean Japanese and foreign courts which have jurisdiction over this Agreement and the relevant transactions contemplated herein.
|
|
(30)
|
“Instruction Procedures” shall have the meaning as set forth in Article 44, Paragraph 2 hereof.
|
|
(31)
|
“Residual Assets Delivery Fee” shall have the meaning as set forth in Article 69, Paragraph 3 hereof.
|
|
(32)
|
“Designated Exchange Distributor” shall mean a Financial Instruments Business Operator which has been designated in advance by the Trustees as the person to respond to a Request for Exchange under Article 63,
Paragraph 1 hereof.
|
|
(33)
|
“Material Change in Trust” shall have the meaning as set forth in the introductory clause of Article 56, Paragraph 1 hereof.
|
|
(34)
|
“Beneficiary Interest” shall mean a Beneficiary Interest as defined in Article 2, Paragraph 7 of the Trust Act.
|
|
(35)
|
“Beneficiary Interest Registry” shall mean the Beneficiary Interest Registry as defined in Article 186 of the Trust Act.
|
|
(36)
|
“Beneficiary Interest Vesting Rate” shall mean the rate as specified in Exhibit 3.
|
|
(37)
|
“Beneficiary Claim” shall mean the Beneficiary Claim as defined in Article 2, Paragraph 7 of the Trust Act.
|
|
(38)
|
“Beneficiary” shall mean a beneficiary as defined in Article 2, Paragraph 6 of the Trust Act and specified in Article 39 of this Agreement.
|
|
(39)
|
“Resolution Procedures by the Beneficiaries” shall have the meaning as provided in Article 42, Paragraph 1.
|
|
(40)
|
“Resolution Date of Beneficiaries” shall have the meaning as set forth in Article 42, Paragraph 5, Item 1 hereof.
|
|
(41)
|
“Beneficiaries’ Exchange Fee” shall have the meaning as set forth in Article 63, Paragraph 5, Item 1 hereof.
|
|
(42)
|
“Beneficiaries, Etc.” shall mean the Beneficiaries, Etc. as defined in Article 184, Paragraph 1 of the Trust Act.
|
|
(43)
|
“Certificate of Beneficiary Interest” shall mean a Certificate of Beneficiary Interest as defined in Article 185, Paragraph 1 of the Trust Act.
|
2
English Translation/For Reference Purpose Only
|
(44)
|
“Trust Issuing Certificate of Beneficiary Interest” shall mean the trust issuing certificate of beneficiary interest as stipulated in Article 185, Paragraph 3 of the Trust Act.
|
|
(45)
|
“Entrusted Shares” shall mean the Shares in the Issuer which constitute the Entrusted Assets.
|
|
(46)
|
“Entrusted Shares and Other Securities” shall mean the securities issued by the Issuer (including the Shares in the Issuer) which constitute the Entrusted Assets.
|
|
(47)
|
“Trustees” shall mean the party defined in the opening paragraph of this Agreement.
|
|
(48)
|
“Pricing Date” means the date on which the price and other terms of the Certificate of Beneficiary Interest to be issued are determined.
|
|
(49)
|
“JASDEC” shall mean Japan Securities Depository Center Inc. (or its succeeding corporation) that has earned the designation under Article 3, Paragraph 1 of the Book-Entry Transfer Law and is engaged in the
Transfer Services.
|
|
(50)
|
“Listing Regulations, Etc.” means the Business Regulations and Securities Listing Regulations, Enforcement Regulations on Securities Listing Regulations, Guidelines concerning Listing Examinations, and other
regulations which are applied at listing of the Beneficiary Interest under this Agreement on the Tokyo Stock Exchange.
|
|
(51)
|
“Consumption Taxes” shall have the meaning as set forth in Article 6, Paragraph 1 hereof.
|
|
(52)
|
“Trust Period” shall mean the trust period as set forth in Article 10, Paragraph 1 hereof.
|
|
(53)
|
“Trust Business Act” shall mean the Trust Business Act (Law No. 154 of 2004, as amended), including where the same Law applies
mutatis mutandis
to financial institutions that provide trust business
pursuant to Article 2, Paragraph 1 of the Trust Business Provision Law.
|
|
(54)
|
“Trust Assets” shall mean the Trust Assets as defined in Article 2, Paragraph 3 of the Trust Act.
|
|
(55)
|
“Entrusted Assets Status Report” shall mean the report on the status of the entrusted assets and relevant matters for each Calculation Period which shall be prepared by the Trustees and sent to the
Beneficiaries pursuant to Article 27 of the Trust Business Act and Article 19, Paragraph 1 of the Regulations for Enforcement of the Trust Business Provision Law.
|
|
(56)
|
“Trust Termination Date” shall mean the date on which the Trust is terminated pursuant to Article 66.
|
|
(57)
|
“Trust Creation Date” shall mean the date on which the Shares in the Issuer is entrusted (including the date of any Additional Entrustment as provided in Article 7).
|
|
(58)
|
“Trust Creation Fee” shall have the meaning as set forth in Article 6, Paragraph 1 hereof.
|
|
(59)
|
“Trust Expenses” shall mean any and all expenses that are necessary for the transaction of the trust business, including but not limited to taxes and the expenses required for the delivery of the Entrusted
Assets; provided, however, that Trust Expenses shall not include any Litigation Expense.
|
|
(60)
|
“Trust Act” shall mean the Trust Act (Law No. 108 of 2006, as amended).
|
|
(61)
|
“Trust Fee” shall mean the fee receivable by the Trustees as a consideration for the transaction of the trust business as specified in Article 61, Paragraph 1.
|
|
(62)
|
“Exception Days for Requests” shall have the meaning as set forth in Article 57, Paragraph 1 hereof.
|
|
(63)
|
“Governmental Agency” shall mean Japanese and foreign governmental agencies which have jurisdiction over this Agreement and the relevant transactions contemplated herein.
|
|
(64)
|
“Litigation Expense” shall mean any expenses required for legal procedures, etc. and include attorneys’ fees.
|
|
(65)
|
“Damages” shall mean damages, loss, expenses, liabilities and others (including, but not limited to those incurred by demands or claims of third parties or any other results).
|
|
(66)
|
“Type I Financial Instruments Business” shall mean the Type I Financial Instruments Business as defined in Article 28, Paragraph 1 of the Financial Instruments and Exchange Act.
|
|
(67)
|
“Immediate Upper-Level Institution” shall mean the Immediate Upper-Level Institution as defined in Article 2, Paragraph 6 of the Book-Entry Transfer Law.
|
|
(68)
|
“Additional Trust Creation Fee” shall have the meaning as set forth in Article 7, Paragraph 3 hereof.
|
|
(69)
|
“Additional Trust Creation Procedures” shall have the meaning as set forth in the main paragraph of Article 7, Paragraph 5 hereof.
|
|
(70)
|
“Delivery Deadline” shall have the meaning provided in Article 43, Paragraph 3, Item 3 .
|
|
(71)
|
“Exchange” shall mean the termination of all or a part of the Trust by a Beneficiary with respect to the Beneficial Interests of such Beneficiary and the receipt of delivery of the Entrusted Shares from the
Trustees.
|
3
English Translation/For Reference Purpose Only
|
(72)
|
“Request for Exchange” shall have the meaning as set forth in Article 63, Paragraph 1 hereof.
|
|
(73)
|
“Exchange Procedure” shall have the meaning as set forth in the introductory clause of Article 63, Paragraph 5 hereof.
|
|
(74)
|
“Tokyo Stock Exchange” shall mean Tokyo Stock Exchange Group, Inc., Tokyo Stock Exchange Regulation and their successor corporations.
|
|
(75)
|
“Bankruptcy Proceedings” shall mean bankruptcy proceedings and civil rehabilitation proceedings and similar proceedings (including those to be established in the future and irrespective of whether applicable
in Japan or any foreign country).
|
|
(76)
|
“Initial Settlor” shall mean the party defined in the opening paragraph of this Agreement.
|
|
(77)
|
“Initial Beneficiary” shall mean the Initial Beneficiary as set forth in Article 31, Paragraph 1 hereof.
|
|
(78)
|
“The Initial Trust Creation Date” shall mean 27 September, 2017.
|
|
(79)
|
“Blank Vote” shall mean a vote for the sole purpose of constituting a quorum, and if it is prohibited to cast a Blank Vote under the relevant system, half of the relevant voting rights shall be cast in favor
and the other half against. In such a case, if any residual voting right emerges due to the number of voting rights being odd, such residual voting right shall not be exercised even for the purpose of constituting a quorum.
|
|
(80)
|
“Voting Right Exercise Deadline” shall have the meaning as set forth in Article 42, Paragraph 5, Item 3 hereof.
|
|
(81)
|
“Voting Right Exercise Document” shall have the meaning as set forth in Article 42, Paragraph 5, Item 3 hereof.
|
|
(82)
|
“Issuer” shall mean the party defined in the opening paragraph of this Agreement.
|
|
(83)
|
“Shares in the Issuer” shall mean the shares in the Issuer as specified in Exhibit 1.
|
|
(84)
|
“Certificate of Payment” shall mean the certificate of payment and the receipt of dividends as prescribed by Japan Post Bank Company, Limited as well as other certificates or instruments by which the amount
stated thereon can be settled at a clearinghouse, or by which the holder thereof can receive the payment of the amount stated thereon at the main office or any branch of Japan Post Bank Company, Limited.
|
|
(85)
|
“Act on Prevention of Transfer of Criminal Proceeds” means the Act on Prevention of Transfer of Criminal Proceeds (Law No. 22 of 2007, as amended.)
|
|
(86)
|
“Antisocial Force” shall mean a person who belongs to an organized crime group, a company related to an organized crime group or other group of persons which may promote collective or habitual violate or
illegal acts or a person who has transactions with such persons, a person who belongs to a group which was subject to the Act on the Control of Organizations Which Have Committed Acts of Indiscriminate Mass Murder (Law No. 147 of 1999, as
amended) or a person who has transactions with such group, or a person who belongs to any similar groups.
|
|
(87)
|
“Book-entry Transfer Institutions” shall mean the Book-entry Transfer Institutions as defined in Article 2, Paragraph 2 of the Book-entry Transfer Act.
|
|
(88)
|
“Book-entry Transfer Institutions, etc.” shall mean the Book-entry Transfer Institutions, etc. as defined in Article 2, Paragraph 5 of the Book-entry Transfer Act.
|
|
(89)
|
“Book-entry Transfer Account Register” shall mean the Book-entry Transfer Account as defined in Chapter
6-2,
Section 2 of the Book-entry Transfer Act.
|
|
(90)
|
“Transferred Beneficiary Interest” shall mean the Transferred Beneficiary Interest as defined in Article
127-2,
Paragraph 1 of the Book-Entry Transfer Law.
|
|
(91)
|
“Dividend Transfer Date” shall have the meaning as set forth in Article 21, Paragraph 5.
|
|
(92)
|
“Book-Entry Transfer Law” shall mean the Act on Book-Entry Transfer of Corporate Bonds and Shares (Law No. 75 of 2001, as amended).
|
|
(93)
|
“Right to Claim Payment of the Amount Equivalent to Dividend” shall have the meaning as set forth in Article 21, Paragraph 5.
|
|
(94)
|
“Dividend Exchange Expiry Date” shall have the meaning as set forth in Article 21, Paragraph 4.
|
|
(95)
|
“Corporation Tax Act” shall mean the Corporation Tax Act (Law No.34 of 1965, as amended).
|
|
(96)
|
“Order for Enforcement of the Corporation Tax Act” shall mean the Order for Enforcement of the Corporation Tax Act (Cabinet Order No.97 of 1965, as amended).
|
|
(97)
|
“Legal Procedures” shall mean litigations and other court procedures, arbitration procedures, reconciliation procedures, administrative procedures or alternative dispute resolution procedures with respect to
the Entrusted Assets or the Beneficiary Interest.
|
4
English Translation/For Reference Purpose Only
|
(98)
|
“This Agreement” shall have the meaning as set forth in the opening paragraph of this Agreement.
|
|
(99)
|
“Laws” shall mean, except as otherwise specified in this Agreement, laws, orders, cabinet orders, ministerial orders, regulations or circulars, administrative or supervisory guidelines, administrative
guidance, other guidelines, or judgments, decisions, orders or awards of arbitration of any Court, and any regulations, decisions, instructions, etc. of any other public bodies ,of any Financial Instruments Exchange or of any transfer agencies in
Japan (including rules and regulations of self-regulatory bodies) which apply to this Agreement or transactions under this Agreement or to the Settlors, the Trustees, the Beneficiaries, the Issuer or any other parties.
|
|
(100)
|
“Date of this Agreement” shall mean 31 August, 2017.
|
|
(101)
|
“Beneficial Interest” shall mean the beneficial interest of the Trust.
|
|
(102)
|
“Trust” shall mean the trust created under this Agreement.
|
|
(103)
|
“Entrusted Assets” shall mean the entrusted assets held under the Trust.
|
|
(104)
|
“Subscription Agreement” shall mean the subscription agreement defined in the Preface of this Agreement.
|
|
(105)
|
“Offering” has the meaning defined in the Preface.
|
|
(106)
|
“Securities Trust Beneficiary Certificate” shall mean the Securities Trust Beneficiary Certificate as defined in Article
2-3,
Item 3 of the Order for Enforcement of the
Financial Instruments and Exchange Act (Law No. 321 of 1965, as amended).
|
|
(107)
|
“Interested Parties” shall mean persons or entities that have close shareholding or personal relationships with a financial institution that conducts Trust Business as specified in Article 29, Paragraph 2,
Item 1 of the Trust Business Act (including where the term “trust company” is deemed to be replaced pursuant to Article 22, Paragraph 2 of the same Law), and Article 10 of the order for Enforcement of the Act on Engagement in Trust
Business by a Financial Institution.
|
|
(108)
|
“Interested Parties, Etc.” shall have the meaning as defined in Article 14, Paragraph 2.
|
Article
3. (Representation and Warranty of Settlors)
|
1.
|
Each Settlor severally represents and warrants to the Trustees and the Issuer that the following are true and accurate as of the Date of this Agreement and each Trust Creation Date on which a trust is created hereunder
by such Settlor (hereinafter the same shall apply from this Article to Article 6).
|
|
|
(1)
|
Such Settlor is duly incorporated and an existing joint-stock company
(kabushiki kaisha)
under the laws of Japan and has the full power and right required in order to enter into this Agreement and perform its
obligations under this Agreement.
|
|
|
(2)
|
Execution of this Agreement and performance of its obligations under this Agreement are within the scope of the corporate purpose of such Settlor, and such Settlor has implemented any and all procedures required by the
Laws and such Settlor’s internal rules in connection with such execution and performance.
|
|
|
(3)
|
Such Settlor is permitted to conduct Type I Financial Instruments Business.
|
|
|
(4)
|
Upon execution by all parties hereto, this Agreement constitutes a legitimate, effective and legally binding obligation of such Settlor, enforceable in accordance with the provisions hereof under the laws of Japan.
|
|
|
(5)
|
Execution of this Agreement and performance of its obligations under this Agreement do not infringe or violate the Laws, Articles of Incorporation, business manual or any other internal rules of such Settlor.
|
|
|
(6)
|
Such Settlor is a qualified institutional investor (as prescribed in Article 2, Paragraph 3, Item 1 of the Financial Instruments and Exchange Act) and before conclusion of this Agreement, has represented to the Trustees
that the explanation pursuant to Article 25 of the Trust Business Act is not required.
|
|
|
(7)
|
There is no fact that such Settlor is the Antisocial Force.
|
|
|
(8)
|
There are no pending Legal Procedures, nor any threat thereof to the knowledge of the Settlor, which may materially affect the financial or managerial status or economic condition of the Settlor, the Settlor’s
execution of this Agreement, the performance by the Settlor of its obligations under this Agreement and the implementation of the transactions contemplated under this Agreement.
|
|
|
(9)
|
The Settlor is not subject to excessive liabilities, suspension of payment or insolvency, nor is lacking any
funds. There is no fact that any Bankruptcy Procedures were filed against the
|
5
English Translation/For Reference Purpose Only
|
|
Settlor and there is no cause of such filing. The Settlor has not passed a resolution to dissolve nor has received any dissolution order, and there is no threat thereof to the knowledge of the
Settlor. In addition, the Settlor shall not be threatened to become subject to suspension of payment or lack of funds or insolvency by the execution of this Agreement or the performance of its obligations under this Agreement, and no fact shall
arise that may cause the filing of the Bankruptcy Procedures regarding the Settlor.
|
|
|
(10)
|
The creation of the Trust, the entrustment of the Shares in the Issuer and other transactions contemplated hereunder and under this Agreement are conducted under legitimate purpose, and shall not cause harm against the
creditors of the Settlor, and the Settlor does not acknowledge or intend to harm such creditors or have any other illegal intentions.
|
|
|
(11)
|
The Settlor intends to assign to the Trustees the ownership (including any and all authorities of disposal) concerning the Shares in the Issuer and truly entrust and transfer the same in accordance with Article 6 or 7
hereof.
|
|
2.
|
Each of the Settlors represents and warrants to the Trustees and the Issuer that as of the Date of this Agreement and each Trust Creation Date, the following matters are true and accurate concerning the Shares in the
Issuer entrusted to the Trust by such Settlor.
|
|
|
(1)
|
To such Settlor’s knowledge, such Shares in the Issuer belong to such Settlor only and only such Settlor has ownership of such Shares in the Issuer (if such Shares in the Issuer is jointly underwritten with firm
commitment by the syndicate for underwriting including the Settlor and the Settlor entrusts such Shares in the Issuer in accordance with this Agreement, this Paragraph shall be applied as if only the Settlor underwrites such Shares in the Issuer).
In addition, to such Settlor’s knowledge, there is no condition that suggests that such Shares in the Issuer belong to a person other than such Settlor or a person other than such Settlor has ownership of such Shares in the Issuer; provided,
however, the parties involved in this Agreement recognize that the Settlor is not registered as its shareholder in the list of the shareholders of the Issuer, and representations and warranties set force in this Agreement excludes the limitation as
to proprietary right related to the Shares in the Issuer based on such fact.
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(2)
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To such Settlor’s knowledge, such Shares in the Issuer are not subject to prior lien, security interest or any other encumbrances or limitations including anything similar thereto under the U.S. laws. In addition,
to such Settlor’s knowledge, there is no condition that suggests that such Shares in the Issuer are subject to prior lien, security interest or any other encumbrances or limitations including anything similar thereto under the U.S. laws.
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(3)
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There exist no agreements to which such Settlor is a party which limit transfer or other disposal of such Shares in the Issuer by such Settlor.
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3.
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If it is found that the representations and warranties made by a Settlor under the preceding two (2) Paragraphs are false or inaccurate as of the Date of this Agreement or each Trust Creation Date on which a trust
is created hereunder by such Settlor and the Trustees (including for the accounts of Trustees’ Own Assets and the Entrusted Assets) incur Damages on or after the Date of this Agreement or the Trust Creation Date for this reason, such Settlor
shall immediately compensate for such Damages. If the representations and warranties made by a Settlor under this Article are found to be incorrect or inaccurate, such Settlor shall promptly notify the Trustees in writing thereof; provided, however,
that the liability of such Settlor for violation of the representations and warranties will not be waived or reduced by such notice.
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Article 4. (Representation and Warranty of Trustees)
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1.
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Each Trustee severally represents and warrants to the Issuer and the Settlors that the following are true and accurate as of the Date of this Agreement and each Trust Creation Date.
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(1)
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Such Trustee is duly incorporated and existing as a joint-stock company
(kabushiki kaisha)
under the laws of Japan, it has the full power and right to possess its own property, and it has the full power and right
required in order to conduct the business currently engaged in by it and to enter into this Agreement and perform its obligations under this Agreement.
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(2)
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Execution of this Agreement and performance of its obligations under this Agreement as well as implementation of the transactions contemplated in this Agreement are within the scope of the corporate purpose of such
Trustee, and such Trustee has implemented any and all procedures required by the Laws and such Trustee’s internal rules in connection with such execution and implementation of this Agreement.
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English Translation/For Reference Purpose Only
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(3)
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Such Trustee is a bank as provided in Article 2, Paragraph 1 of the Banking Law, and is licensed under Article 1, Paragraph 1 of the Trust Business Provision Law, and is licensed to lawfully conduct the Trust Businesses
conducted by trust companies under the Trust Business Provision Law.
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(4)
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Upon execution by all parties hereto, this Agreement constitutes legitimate, effective and legally binding obligations of such Trustee, enforceable in accordance with the provisions hereof under the laws of Japan.
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(5)
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Execution of this Agreement and performance of its obligations under this Agreement as well as implementation of the transactions contemplated in this Agreement do not infringe or violate applicable Laws, Articles of
Incorporation of such Trustee, or any other internal rules of such Trustee.
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(6)
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There is no fact that such Trustee is an Antisocial Force.
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(7)
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Upon entrustment of the Shares in the Issuer, to the extent that the matters set out in each item of Article 3, the matters set forth in each item of Article 3 and the matters set forth in each item of Article 5,
respectively, are true and correct, if the Shares in the Issuer is entrusted by the Settlor pursuant to Article 6, Paragraph 1 and the Trustees confirm the completion of the procedures for the transfer of the Shares in the Issuer, the Beneficiary
Interest will be duly and validly issued. In addition, the Trustees haven’t set prior liens, security interest, or any other encumbrances or limitations on the Beneficial Interest.
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(8)
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There are no pending Legal Procedures, nor any threat thereof to the knowledge of the relevant Trustee, which may materially affect the financial or managerial status or economic condition of the relevant Trustee, the
execution of this Agreement, the performance by the relevant Trustee of its obligations under this Agreement.
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(9)
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The relevant Trustee is not subject to excessive liabilities, suspension of payment or insolvency, nor is lacking any funds. There is no fact that any Bankruptcy Procedures were filed against the relevant Trustee and
there is no cause of such filing. The relevant Trustee has not passed a resolution to dissolve nor has received any dissolution order, and there is no threat thereof to the knowledge of the relevant Trustee. In addition, the relevant Trustee shall
not be threatened to become subject to suspension of payment or lack of funds or insolvency by the execution of this Agreement or the performance of its obligations under this Agreement, and no fact shall arise that may cause the filing of the
Bankruptcy Procedures regarding the relevant Trustee.
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2.
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If it is found that the representations and warranties made by a Trustee under the preceding Paragraph are false or inaccurate as of the Date of this Agreement or each Trust Creation Date, and the Settlors, the
Beneficiary or the Issuer incurs Damages on or after the Date of this Agreement or such Trust Creation Date for this reason, such Trustee shall immediately compensate such Damages. If the representations and warranties made by a Trustee under this
Article are found to be incorrect or inaccurate, such Trustee shall promptly notify the Settlors, the Beneficiary and the Issuer in writing thereof; provided, however, that the liability of such Trustee for violation of the representations and
warranties will not be waived or reduced by such notice.
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3.
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In accordance with the main objective of the trust, each Trustee shall conduct duties and other actions concerning the Trust with sincerity for the Beneficiary with the care of a good manager.
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Article 5. (Representation and Warranty of Issuer)
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1.
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The Issuer represents and warrants to the Trustees and the Settlors that the following are true and accurate as of the Date of this Agreement and each Trust Creation Date (provided, however, in connection with Item (5),
each Trust Creation Date); provided, however, it is premise that the Settlor doesn’t perform transfer or other disposition of the Shares in the Issuer except the transfer of the Shares in the Issuer to the Trustees to create Beneficiary
Certificate Issuance Trust set force in this Agreement as to the following items from (7)-(9).
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(1)
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The Issuer is a duly incorporated and existing company under the laws of the State of Delaware in the U.S., it has the full power and right to possess its own property, and it has the full power and right required in
order to conduct the business currently engaged in and to enter into this Agreement and perform its obligations under this Agreement.
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(2)
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Execution of this Agreement and performance of its obligations under this Agreement as well as implementation of
the transactions contemplated in this Agreement are within the scope of the
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corporate purpose of the Issuer, and the Issuer has implemented any and all procedures required by the Laws (including the Laws of the U.S.) and its internal rules in connection with such
execution and implementation of this Agreement and the transactions contemplated herein.
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(3)
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Upon execution by all parties hereto, this Agreement constitutes legitimate, effective and legally binding obligations of the Issuer, enforceable against the Issuer in accordance with the provisions hereof.
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(4)
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There is no fact that the Issuer is an Antisocial Force.
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(5)
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The Shares in the Issuer entrusted to the Trust are fully paid up and were duly authorized and lawfully and validly issued and validly existing under the laws of the U.S.
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(6)
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The transfer of the Shares by the Settlors to the Trustees does not contravene the applicable the U.S. law and the Issuer’s constitutive documents (such as Articles of Incorporation).
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(7)
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Such Shares in the Issuer belong to such Settlor only and only such Settlor has ownership of such Shares in the Issuer
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(8)
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If the Settlor acquires Shares in the Issuer which are entrusted to the Trust from a third party other than the Issuer, to Issuer’s knowledge (without having conducted any review or investigation), such Shares in
the Issuer are not subject to prior lien, security interest or any other encumbrances or limitations. If the Settlor acquires Shares in the Issuer which are entrusted to the Trust from the Issuer, such Shares in the Issuer are not subject to prior
lien, security interest or any other encumbrances or limitations.
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(9)
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There exist no agreements to which such Settlor is a party which limit transfer or other disposal of such Shares in the Issuer by such Settlor.
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2.
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If it is found that the representations and warranties made by the Issuer under the preceding Paragraph is false or inaccurate as of the Date of this Agreement or each Trust Creation Date, and the Trustees, the Settlors
or the Beneficiary incurs Damages on or after the Date of this Agreement or such Trust Creation Date for this reason, the Issuer shall immediately compensate for such Damages. If the representations and warranties made by the Issuer under this
Article are found to be incorrect or inaccurate, the Issuer shall promptly notify the Trustees in writing thereof; provided, however, that the liability of the Issuer for violation of the representations and warranties will not be waived or reduced
by such notice.
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Chapter 2 Creation of Trust,
Entrusted Assets
Article 6. (Creation of Trust)
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1.
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The Initial Settlor shall entrust the Trustees with the Shares in the Issuer, the number of which will be determined on the Pricing Date, on the Initial Trust Creation Date and the Trustees shall accept such entrustment
of shares. The Initial Settlor shall transfer the Shares in the Issuer from the Initial Settlor’s account to the account to be separately notified by the Trustees to the Initial Settlor. The Trustees shall, after confirming the completion of
the procedures for the transfer of the Shares in the Issuer pursuant to this Paragraph, issue to the Initial Beneficiary the Beneficiary Interest, the unit number of which shall be calculated by multiplying the number of Shares in the Issuer and
Beneficial Interest Vesting Rate, , and the Initial Beneficiary shall acquire the same. Upon doing so, the Trustees shall charge the Initial Settlor the commission charges up to the amount equivalent to the fee to be separately determined between
the Settler and the Trustees (the “Trust Creation Fee”) and any consumption tax and local consumption tax (hereinafter “Consumption Taxes”) accrued thereon. The Trustees notify the Issuer of the acceptance of such entrustment.
The Initial Settlor shall notify the Trustees of the above number of the Shares in the Issuer determined on the Pricing Date immediately after it is determined (within the Pricing Date, at the latest).
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2.
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The Trustees shall not accept such entrustment of the Shares in the Issuer if the trust as of each Trust Creation Date is in breach of the Laws (including the Laws of the U.S.), if the Trustees receive a notice from the
Issuer, government agency or any other agencies that the trust is not permitted under the Laws of the U.S. or any other regulations, or if the Trustees reasonably determine that any of the representations and warranties under Article 3 and Article 5
by the Settlors or the Issuer are untrue or inaccurate.
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English Translation/For Reference Purpose Only
Article 7. (Additional Entrustment)
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1.
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The Settlors may additionally entrust Shares in the Issuer pursuant to the following Paragraphs, and, subject to the following Paragraphs below, the Trustees shall accept such additional entrustment. For the procedure
of the additional entrustment set in this Paragraph, Article 6, Paragraph 1 shall be applied mutatis mutandis.
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2.
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The Settlors may not entrust any assets other than Shares in the Issuer.
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3.
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Upon the additional entrustment under the preceding Paragraph 1, the Trustees shall charge each Settlor the amount equivalent to the fee to be separately determined between the Settlor and the Trustees (hereinafter
“Additional Trust Creation Fee”) and any Consumption Taxes accrued thereon.
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4.
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The Trustees shall not accept the additional entrustment in Paragraph 1 if the additional entrustment infringes any Laws, if the Trustees receive a notice from the Issuer, any government agency or any other agencies
that the additional entrustment is not permitted under any Laws (including the Laws of the U.S.), or if the Trustees reasonably determine that any of the representations and warranties under Article 3 and Article 5 by the Settlors or the Issuer are
untrue or inaccurate.
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5.
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Notwithstanding Paragraph 1, if any of the events listed in the following Items occurs or where the Trustees deem it necessary or helpful, the Trustees may cease the acceptance of additional entrustment as set forth in
Paragraph 1 or suspend or cancel necessary procedures to be taken by the Trustees (hereinafter “Additional Trust Creation Procedures”) after the acceptance of the application for the additional entrustment:
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(1)
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If the Trustees reasonably determine that it is certain that the Settlor will not pay an amount equivalent to the Additional Trust Creation Fee and an amount equivalent to the Consumption Taxes pertaining to it pursuant
to Paragraph 3;
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(2)
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If the Additional Trust Creation Procedures cannot be conducted due to cessation of transactions of the Beneficial Interests on the Tokyo Stock Exchange, liquidation or stop of the settlement functions or in any other
unavoidable circumstances;
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(3)
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When the Trustees determine that there would be difficulties in conducting the Additional Trust Creation Procedures due to circumstances where the Custodian has difficulties in taking custody of the Entrusted Shares or
any other unavoidable reasons;
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(4)
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When the record date which the Issuer set in the U.S. for the rights concerning the Shares in the Issuer set in Article 19, Paragraph 1, Item1 and the Record Date for Determination of Rights for the Beneficial Interest
set forth in Article 19, Paragraph 1 with regard to such record date are not identical; or
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(5)
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Other than the above, when the Trustees decide that the acceptance of the application for additional entrustment or implementation of the Additional Trust Creation Procedures would cause difficulties in the management
of the Trust.
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6.
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When the Trustees are required to conduct customer identification checks under the Law for Prevention of Transfer of Criminal Proceeds in relation to the persons who will newly become the Beneficiaries due to additional
entrustment or otherwise, the Settlors shall carry out such customer identification checks on behalf of the Trustees.
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Article
8. (Trust Assets)
Entrusted Assets shall be comprised of the assets entrusted pursuant to Article 6 and Article 7,
and assets arising from such assets. Entrusted Assets shall only include the Entrusted Shares and dividends, interest and other benefits received in relation to the Entrusted Shares (such benefits shall include sales proceeds of the Shares in the
Issuer (including any fractions less than one share) arising from share split, Stock Dividend or Bonus Shares of the Entrusted Shares and sales proceeds of securities or other assets which were distributed to the Entrusted Shares) and the moneys
temporarily held as part of the Trust Asset for the delivery of moneys during the Trust Period under Article 20, the delivery of the residual assets under Article 69, the payment of the Trust Fee, charges or the Trust Expenses or the Consumption
Taxes thereon. The Entrusted Shares which constitutes the Entrusted Assets shall be the same type of securities (as defined in Article
1-2,
Item 2 of the Cabinet Office Ordinance on Disclosure of Corporate
Affairs (Ordinance of the Ministry of Finance No. 5, 1973 including any amendments thereafter (Law No. 5 of 1973, as amended)).
Article
9. (Segregated Management of Trust Assets)
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1.
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The Trustees shall manage the Entrusted Assets separately from the Trustee’s Own Assets and other entrusted
assets in accordance with the Trust Act and Trust Business Act. For the Entrusted Shares
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English Translation/For Reference Purpose Only
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and Other Securities, the Trustees shall have the Custodian appointed pursuant to Article 12 and Article 13 to manage the Entrusted Shares and Other Securities separately from the securities
belonging to the Trustees’ Own Assets which are separately managed by the Custodian for the Trustees (if any).
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2.
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Notwithstanding the preceding Paragraph, the Trustees may, at their discretion and within a scope which does not interfere with achievement of the purpose of the Trust, invest the moneys belonging to the Entrusted
Assets in savings account and others with other entrusted assets which have the same type of investment policy. Profit or loss arising from the entrusted assets invested together with other assets shall belong to the entrusted assets of each trust
according to the amount of investment and the number of days of investment. Such investment shall be limited to cases where the Trustees reasonably deem that investment by means of having it belonged to the Trustees’ bank account pursuant to
Article 14, Paragraph 1 would be difficult.
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Chapter
3 Trust Administration
Article 10. (Trust Period)
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1.
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The Trust Period of the Trust shall commence on the Initial Trust Creation Date and terminate on Trust Termination Date
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2.
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Notwithstanding the preceding Paragraph, the Trust shall continue to exist until the completion of the liquidation of the Trust.
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Article 11. (Management of Trust Assets)
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1.
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The Trustees shall not make investments of the Entrusted Assets.
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2.
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The Trustees shall manage the moneys held as the Entrusted Assets in accordance with Article 9, and Article 14, Paragraph 1 hereof.
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Article 12. (Consignment of Trust Administration)
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1.
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The Trustees may consign the operations listed in Article 22, Paragraph 3 of the Trust Business Act to a third party (including interested parties, and hereinafter the same shall apply in this Article) when it deems it
appropriate to do so.
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2.
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Other than the foregoing Paragraph, the Trustees may consign part of its trust administration duties to third parties which satisfy the standards as set out in the following items.
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(1)
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In consideration of the credit capability of such third party, there are no doubts concerning continuous execution of the consigned operations
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(2)
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In consideration of the performance of such consigned operations by the third party, the third party has the ability to handle the consigned operations unfailingly.
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(3)
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The third party has a system to separately manage the assets belonging to the entrusted assets and its own assets and other assets.
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(4)
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The third party has a system to appropriately execute the operations concerning internal control.
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3.
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When the Trustees are to make the consignment in the foregoing two (2) Paragraphs to an interested party, such consignment shall be made under conditions which the Trustees deems reasonably appropriate, to the
extent it does not violate the Trust Act, the Trust Business Actor any other applicable laws or regulations.
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Article
13. (Custodian)
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1.
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For custody operations of the Entrusted Shares and Other, the Trustees shall after consultation with the Issuer appoint a Custodian in the U.S. in accordance with the Laws (including the Laws of the U.S.) and Article 12
and consign such operations to such Custodian.
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2.
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The Trustees shall after consultation with the Issuer promptly appoint a new Custodian if the current Custodian post becomes vacant due to resignation or other reasons.
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3.
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The Trustees shall after consultation with the Issuer promptly appoint a new Custodian if they determine that the current Custodian is inappropriate to consign the custody operations of the shares.
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4.
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Notwithstanding Paragraph 1 above, if there are securities constituting a part of the Entrusted
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English Translation/For Reference Purpose Only
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Shares or Other Securities which cannot be kept by the Custodian, in accordance with the Laws (including the Laws of the U.S.) and Paragraph 1, the Trustees may after consultation with the Issuer
consign the custody operations of such securities to a person other than the Custodian appointed in accordance with Paragraph 1.
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Article
14. (Self Dealing and Others)
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1.
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When it falls under the case where it will not cause any inconveniences in terms of protection of the Beneficiary which is set forth in Article 23, Paragraph 3 of the Ordinance for Enforcement of Trust Business
Provision Law, unless there are special circumstances, the Trustees shall have the moneys of the Entrusted Assets in the Trustees’ bank account. In such a case, the interest accrued from the Entrusted Assets by using the ordinary deposit rate
of the Trustees shall be included in the property of the Entrusted Assets by the Trustees.
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2.
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When it falls under the case where it will not cause any inconveniences in terms of protection of the Beneficiary, which is set forth in Article 23, Paragraph 3 of the Ordinance for Enforcement of Trust Business
Provision Law applies, the Trustees, with the Trustees (including the other entrusted assets entrusted by the Trustee) or Interested Parties of the Trustees or the persons whom the Trustees consigns the Trust Administration with as pursuant to
Article 12 and Article 13 (hereinafter collectively “Interested Parties, Etc.”), may conduct, for the benefit of the Entrusted Assets, the transactions pertaining to the conversion into yen currency set forth in Article 18, Paragraph 1,
sale of Shares in the Issuer set forth in Article 22, Paragraph 2 and 5 and Article 24, Paragraph 1, and sale of assets set forth in Article 23, Paragraph 4. Such transactions shall be conducted in accordance with appropriate prices such as prices
on the exchanges (including indicative prices and others), interest on ordinary deposits and other fair conditions.
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3.
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In the case of the preceding two (2) Paragraphs, the report by the Trustees set forth in the Article 29 hereof shall substitute the notice in Article 31, Paragraph 3 of the Trust Act as long as it satisfies the
requests stipulated in the Article 29, Paragraph 3 of the Trust Business Act (including the case in provided in the proviso of such Paragraph).
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4.
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In principle, the conversion of foreign currency received from the Trust to yen currency shall be conducted by the Trustees in accordance with Article 18.
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5.
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The Trustees may act as the Custodian stipulated in the Article 13..
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Article
15. (Competitive Transaction)
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1.
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In calculation of the Trustees (including the other entrusted assets entrusted to the Trustees) or Interested Parties of the Trustees, the Trustees may conduct the transactions similar to the transactions provided in
Articles 18, 22, 23 and 24, to the extent that they are not intended to harm the interest of the Beneficiaries.
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2.
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In the case of the preceding Paragraph, the Trustees shall not provide the notice set forth in Article 32, Paragraph 3 of the Trust Act.
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Article 16. (Handling of Litigations and Others)
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1.
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If the Trustees intend to initiate the Legal Procedures against a person or persons other than the Issuer, the Trustees shall provide prior notice to the Issuer.
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2.
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The Trustees, when they initiate the Legal Procedures regarding the Entrusted Assets pursuant to the request from the Beneficiary, may request such Beneficiary (limited to Beneficiaries who individually agreed with the
Trustees) to pay the Litigation Expense, etc.
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Article 17. (Compensation of Losses)
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1.
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In this Trust, the Beneficiaries or the Entrusted Assets may incur losses in value due to reasons such as credit standing of the Issuer.
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2.
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The Trustees shall not compensate for any losses or the principal nor supplement any interest with respect to the Trust which violates Article 24, Paragraph 1, Item 4 of the Trust Business Act.
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Article 18. (Conversion and Distribution of Foreign Currency)
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1.
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If the Trustees receive any dividends or other distributions relating to the Entrusted Shares and Other
Securities in any foreign currency or any proceeds from the sales of securities or other assets relating to the Entrusted Shares and Other Securities in any foreign currency, the Trustees
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English Translation/For Reference Purpose Only
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shall convert them into yen in any manner they may deem appropriate (including by way of converting the foreign currency received by the Trustees into a different foreign currency by themselves
or via a third party firstly and then converting it into yen) and distribute them among the Beneficiaries in accordance with Article 21.
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2.
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The conversion rate for any conversion to yen mentioned in the previous Paragraph shall be telegraphic transfer buying rate (TTB rate) defined by the Trustees as of the next Bank Business Day after the day on which the
Trustees confirm the receipt of the Cash Dividends, Etc, provided, however, that a different conversion rate which the Trustees reasonably determine to be appropriate may be used in the event of extreme exchange fluctuation or confusion, or if the
Trustees conduct the conversion more than once as provided in the parentheses of the preceding Paragraph or other similar circumstances.
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3.
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The Trustees shall make the conversion into yen and the distribution described in Paragraph 1 immediately after acknowledging the receipt of the foreign currency in accordance with the terms and conditions of this
Agreement, provided, however, that if it takes time to complete the acknowledgement of the receipt of the foreign currency, if it is difficult to convert the foreign currency into yen due to cessation or confusion, etc. of relevant foreign exchange
markets or if it is necessary to withhold tax or other expenses payable to a governmental authority, the conversion into yen and the distribution may be delayed. The Trustees are not obliged to pay any interest with respect to the currency for such
a period.
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4.
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If such conversion to yen and distribution to all or certain Beneficiaries described in Paragraph 1 can be effected only with the approval, license of or any other procedures such as filing to any governmental authority
or other agency, the Trustees shall have authority to apply for such approval or license or take any other procedures such as filing, provided, however, that they are not obliged to take such procedures.
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5.
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If the Trustees determine that the conversion into yen and the distribution described in Paragraph 1 are not practicable (including where the converted currency cannot be obtained within the necessary period) or lawful,
if the application of approval or license, or filing or other procedures described in the preceding Paragraph is denied or not accepted by the relevant governmental authority or agency, or if the amount of costs to be paid for obtainment of the
approval or license, or for the filing described in the preceding Paragraph is not appropriate, the Trustees may, at their discretions, determine not to make the conversion into yen or the distribution.
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6.
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The Trustees shall provide notice to the Beneficiaries in the case described in the preceding Paragraph.
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Article 19. (Fixing of Record Date for Determination of Rights)
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1.
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The Trustees in consultation with the Issuer shall fix the date (“Record Date for Determination of Rights”) for determining the Beneficiaries who shall be entitled to receive such right as set forth in each of
the following Items in such case as described in each of the following Items. Only the persons who shall be notified as the Beneficiaries as of such Record Date for Determinations of Rights from JASDEC shall be entitled to receive the rights set
forth in the following items:
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(1)
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If the Trustees receive notice from the Issuer of a record date in relation to the right to receive Cash Dividends, Etc., Stock Dividends, stock splits, Bonus Shares and other rights relating to the Entrusted Shares,
the right to receive or be granted these rights through the Trustees shall be granted.
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(2)
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If the Beneficiary Interest Vesting Rate is changed, the right with respect to the Shares in the Issuer in accordance with the Beneficiary Interest Vesting Rate after such a change shall be granted.
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(3)
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If the Trustees split the Beneficiary Interests, the Beneficiary Interest after such a split shall be granted.
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(4)
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If the Trustees consolidate the Beneficiary Interests, the Beneficiary Interest after such consolidation shall be granted.
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(5)
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If the Instruction Procedures for Exercise of Voting Rights, Etc. are performed, the right to instruct the Trustees in the Instruction Procedures for Exercise of Voting Rights, etc. shall be granted.
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(6)
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If the report is made as provided in Article 29, Paragraph 1, the right to receive such report shall be granted.
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English Translation/For Reference Purpose Only
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(7)
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Voting rights for Resolution Procedures by the Beneficiaries shall be granted, when such procedures are taken.
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(8)
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If the Instruction Procedures are conducted, the right to instruct the Trustees under the Instruction Procedures shall be granted.
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(9)
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If the residual assets as provided in Article 69, Paragraph 1 are granted, the right to receive such grant of residual assets shall be granted.
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(10)
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If the Trustees judges necessary in relation to any other matters in relation to the Entrusted Shares, the right in relation to such matters shall be granted.
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2.
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The Trustees in consultation with the Issuer shall make sure that the relevant record date of such right as described in the Item (1) of the preceding Paragraph relating to the Shares in the Issuer which is set by
the Issuer in the U.S. and the Record Date for Determination of Rights described in the preceding Paragraph with regard to such record date shall be the same date as a matter of principle, and if not the same date, the Trustees shall make reasonable
efforts to establish such Record Date for Determination of Rights as closely as possible to the record date of such right.
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Article
20. (Cash Dividends, Etc.)
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1.
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Upon making any Cash Dividends, Etc. on the Entrusted Shares, the Issuer shall notify the Trustees in writing of the amount, the record date which the Issuer set in the U.S. for the rights with regard to Article 19,
Paragraph 1, Item1 concerning the Shares in the Issuer and the date of conducting Cash Dividends, Etc. within a reasonable period.
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2.
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After receiving notification from the Custodian of the receipt of any Cash Dividends, Etc., concerning the preceding Paragraph, the Trustees shall convert the cash into yen in accordance with Article 18 immediately.
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3.
|
The Trustees shall calculate trust dividends for each unit of Beneficiary Interest in the following method. The trust dividends for each unit shall be calculated by dividing the remainder of the total
yen-converted
cash amount in the preceding Paragraph after deducting the fee relating to the payment of distributions up to the amount as provided in Exhibit 2 by the total unit number of Beneficiary Interests.
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4.
|
The Trustees shall distribute the amount of the balance remaining after deducting withholding income tax (including local tax), to the extent it is applicable, from the amount of trust dividends calculated in proportion
to the units of Beneficiary Interests held by each relevant Beneficiary on the basis of the price of the trust dividends for each unit of Beneficiary Interest described in the preceding Paragraph to each Beneficiary entitled to receive the Cash
Dividends, Etc. as of the Record Date for Determination of Rights. Any fractions fewer than 1 yen generated as a result of the calculation shall be rounded out, and deficits in money for dividends which will generate as a result of such rounding of
fractions shall be covered by reducing the Trust Fee.
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Article 21. (Method of Dividend Payment)
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1.
|
The Trustees shall pay the dividend provided in Article 20 by bank transfer, by Certificate of Payment or by any other manner which the Trustees designate, as selected by the Beneficiaries.
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2.
|
If the dividend payment is to be made by bank transfer, it shall be deemed that the Trustees have performed their dividend payment obligation provided in Article 20 when such transfer procedure to a bank account
designated by the Beneficiaries is completed.
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3.
|
If the payment is to be made by Certificate of Payment , the Beneficiaries shall receive payment of dividend by submitting the Certificate of Payment to a person separately designated by the Trustees (including, but not
limited to, the Trustees, other financial institutions, and post office). In such a case, it shall be deemed that the Trustees performed their dividend payment obligation provided in Article 20 when the Beneficiaries receive such payment.
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4.
|
If the dividend payment is to be received by Certificate of Payment, the Beneficiaries shall receive such payment by a date one (1) month from the date on which the dividend payment becomes possible in relation to
such dividend (“Dividend Exchange Expiry Date”).
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5.
|
On the Bank Business Day following the Dividend Exchange Expiry Date (“Dividend Transfer Date”), the
Trustees shall pay the amount of unpaid dividends by imputing the amount to the Trustees’ bank account which is the Trustees’ Own Assets. After the Dividend Transfer Date, the Beneficiaries shall have the right to claim payment of such
amount of the dividend against the Trustee’s Own Assets in the bank (such right shall not bear any interest, “Right to Claim Payment
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13
English Translation/For Reference Purpose Only
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of the Amount Equivalent to Dividend”). In such a case, the Trustees shall be deemed to have performed its dividend obligation provided in Article 20 when the Beneficiaries acquire such
Right to Claim Payment of the Amount Equivalent to Dividend.
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6.
|
If the Beneficiaries do not claim payment of the Right to Claim Payment of the Amount Equivalent to Dividend for ten (10) years from Dividend Transfer Date, the Right to Claim Payment of the Amount Equivalent to
Dividend shall be extinguished by prescription.
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Article 22. (Stock Dividend, Stock Split and Bonus Shares)
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1.
|
Upon allocating or conducting Stock Dividend, any stock split or any Bonus Shares as to the Entrusted Shares, the Issuer shall notify the Trustees in writing of its or their number, the record date which the Issuer set
in the U.S. for the rights with regard to Article 19, Paragraph 1, Item1 concerning the Shares in the Issuer and the relevant effective date of such Stock Dividend, Stock Split or Bonus Shares within a reasonable period.
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2.
|
The Trustees shall issue new Beneficiary Interests corresponding to the Shares in the Issuer acquired through the Stock Dividend, stock split or Bonus Shares, and allocate them in proportion to the unit number of
Beneficiary Interests to the Beneficiaries as of the Record Date for Determination of Rights for the Stock Dividend, stock split or Bonus Shares. Notwithstanding the foregoing, if it is reasonably deemed that such allocation should be difficult, the
Trustees deliver the units of the Entrusted Shares owned by the Beneficiary divided by the Beneficiary Interest Vesting Rate with regard to the Shares in the Issuer acquired through the Stock Dividend, any stock split or any Bonus Shares, or
allocate to the Beneficiaries the amount of proceeds from the disposal, conducted in its discretion, of the Entrusted Shares acquired by such Stock Dividend, stock split or Bonus Shares in an appropriate manner, together with any other monies (if
any).
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3.
|
Notwithstanding the preceding Paragraph, if there is no Beneficiary Interest to be issued or there is no Shares in the Issuer to be disposed or delivered to the Beneficiaries by changing Beneficiary Interest Vesting
Rate, the Trustees manage such Entrusted Shares as the Trust Asset without issuance of the Beneficiary Interest or disposal of the Shares in the Issuer or delivery of the Shares in the Issuer to the Beneficiaries set forth in the preceding
Paragraph.
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4.
|
If any withholding at source has been made in the U.S. as to the Stock Dividend, stock split or Bonus Shares described in Paragraph 1, the Issuer shall submit a certificate of the relevant payment to the Trustees
promptly.
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5.
|
If the Trustees judge that any withholding at source is likely to be made in Japan with regard to the Stock Dividend described in Paragraph 1 (including the case where such withholding at source is not made as a
result), the Trustees shall sell the Shares in the Issuer which were distributed by the Stock Dividend and distribute the sales proceeds to the Beneficiaries as at the Record Date for Determination of Rights for the Stock Dividend in accordance with
Article 20, Paragraphs 2 to 4.
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Article 23. (Other Rights)
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1.
|
If the Issuer wishes to make distributions of other assets (including share options) than those acquired by Cash Dividends, Etc., Stock Dividend, stock split and Bonus Shares on the Entrusted Shares, it shall notify the
Trustees in writing of the details (as to securities issued by any party other than the Issuer, including the name of the party and any other necessary information) and the amount of money or the amount of assets, the record date which the Issuer
set in the U.S. for the rights with regard to Article 19, Paragraph 1, Item1 concerning the Shares in the Issuer or number thereof, and the distribution date within a reasonable period.
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2.
|
When receiving the notification described in the preceding Paragraph, the Trustees shall discuss with the Issuer the legality under the Laws and feasibility of the delivery of the assets in relation to such distribution
to the Beneficiaries and, if all of the following conditions are satisfied (provided, however, in connection with Item (3) or (4), if either of these is satisfied), deliver the assets to the Beneficiaries by the method provided in the following
Paragraph. The Issuer shall give necessary cooperation upon such delivery.
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(1)
|
The Issuer gives notice as provided in the preceding Paragraph to the Trustees appropriately.
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(2)
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The Trustees determine that such delivery of the assets to the Beneficiary is reasonably feasible.
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(3)
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No approval or filing, etc. is requested by the Financial Instruments and Exchange Actor
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14
English Translation/For Reference Purpose Only
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other Laws (including the Laws of the U.S. or other countries, and hereinafter the same shall apply in this Article) for such delivery of the assets by the Trustees, and the Issuer or a legal
adviser thereof notifies the Trustees of the above in writing.
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(4)
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Any approval or filing, etc. under Financial Instruments and Exchange Actor other Laws for such distribution by the Trustees is made by the Issuer and enforced, and the Issuer or a legal adviser thereof notifies the
Trustees of the above in writing.
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(5)
|
The Trustees receive necessary documents provided in the Laws from the Issuer on a timely basis.
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3.
|
Upon delivering the assets, the Trustees shall fix the Record Date for Determination of Rights and deliver the assets to the Beneficiaries as of such Record Date for Determination of Rights to the extent permitted by
the Laws.
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4.
|
If any of the conditions listed in Paragraph 2 is not met and any of the following conditions is satisfied, the Trustees shall sell the assets at the place and on the terms that are determined to be available for sale
at their discretion and distribute proceeds from the sale to the Beneficiaries as of the Record Date for Determination of Rights for such assets in accordance with Article 20, Paragraphs 2 to 4.
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(1)
|
No approval or filing, etc. is necessary under the Financial Instruments and Exchange Actor other Laws for the sale of the assets by the Trustees, and the Issuer or a legal adviser thereof notifies the Trustees of the
above; or
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(2)
|
Any approval or filing, etc. under Financial Instruments and Exchange Act or other Laws necessary for the sale of the assets by the Trustees is made by the Issuer and enforced, and the Issuer or a legal adviser thereof
notifies the Trustees of the above.
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5.
|
If the Trustees cannot sell the assets as described in the preceding Paragraph, the Trustees shall waive their rights to receive the assets.
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Article 24. (Disposition of Fractional Share)
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1.
|
If (A) Trustees acquire any fractional Share in the Issuer due to the action described in the following items or (B) if the Beneficiary Interests corresponding to the Shares in the Issuer are newly issued and
allocated to each Beneficiary Interest in proportion to the unit number of Beneficiary Interests and fractional figures in the number of the Shares in the Issuer corresponding to the number of units of the Beneficial Interest emerge, the Trustees
shall sell such fractional Share in the Issuer to the extent necessary to clear the fractional Share in the Issuer or the fractional part at their discretion, and distribute to the Beneficiary proceeds from the sale, in proportion to the unit number
of Beneficiary Interests held by such Beneficiary in accordance with Article 20, Paragraphs 2 to 4.
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(1)
|
Any Stock Dividend, stock splitting or Bonus Shares as provided in Article 22, Paragraph 1
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2.
|
If the Trustees cannot sell the asset under the preceding Paragraph, the Trustees shall waive the fractional amount less than 1 unit of the Shares in the Issuer or the right to receive such fractional amount. Provided,
however, if it is practically difficult to waive such right, the Trustees may receive the fractional amount less than 1 unit of the Shares in the Issuer as the Trustee Fee.
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Article 25. (Exemption for the Trustees from Obligation concerning Distribution of Rights)
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1.
|
The Trustees shall not assume any responsibility concerning the following Items with respect to the trust administration set forth in Article 20 through the preceding Article as long as the Trustees perform the trust
administration in accordance with Article 4, Paragraph 3:
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(1)
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Any losses, etc. arising from the Trustees’ judgment on whether distribution of rights relating to the Entrusted Shares to all or certain Beneficiaries is lawful or practicable;
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(2)
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Contents of documents that the Trustees send to the Beneficiaries on behalf of the Issuer upon its request in relation to the distribution of the rights relating to the Entrusted Shares;
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(3)
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Trustee’s inability to sell the Entrusted Shares pursuant to preceding Article; and
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(4)
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Sales prices in respect of the sale provided for in the preceding Article.
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2.
|
If the Issuer, the Trustees or the Custodian are required to withhold at source any taxes or other governmental
charges with regard to the distributions of rights or assets relating to the Entrusted Shares and Other Securities, the amount of money distributed to the Beneficiaries shall be decreased by the amount equivalent to the withheld tax. If the Trustees
determine that there exist
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15
English Translation/For Reference Purpose Only
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taxes and other governmental charges to be withheld from distributions of the rights or assets, the Trustees shall dispose of all or part of the rights or assets in such amount as necessary for
paying the taxes and other governmental charges at their discretions.
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3.
|
The Beneficiary may not receive or enforce any rights or assets relating to the Entrusted Shares and Other Securities under the same conditions as those applicable to the direct holders of the Shares in the Issuer.
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Article 26. (Obligation of Issuer to Serve Notice of Disclosure)
If the Issuer provides or makes notice of any information to a relevant financial bureau under jurisdiction, the Tokyo Stock Exchange or JASDEC, or announces
publicly any information in accordance with the duty of disclosure set forth in the Financial Instruments and Exchange Act or other Laws, the duty of disclosure and notification under Listing Regulations, Etc. provided by the Tokyo Stock Exchange or
the duty of notification under the central depositary and regulations provided by JASDEC, the Issuer shall provide or notify the Trustees and the Settlor with or of the information regardless of contents of the information. The choice by the Issuer
of the language in delivering such information and notifications shall be duly in accordance with respective regulations and/or rules. If the Issuer make electronic disclosure either by Electronic Disclosure for Investor’s NETwork (Edinet) or
TDnet, the submission of the documents concerning such electronic disclosure to the Trustees and the Settlor may be omitted by notifying the Trustees and the Settlor of the fact that the Issuer has made the procedure of such electronic disclosure.
Article 27. (Accounting of Trust)
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1.
|
The Trustees shall perform the accounting in the Trust in consideration of generally accepted corporate accounting standards and other practices of corporate accounting.
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2.
|
The retained profit ratio provided in Article 2, Item 29 C (2) of the Corporation Tax Act in relation to the Trust shall not exceed the ratio provided in the Order for the Enforcement of Corporation Tax Act.
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Article 28. (Calculation Date and Account Statement)
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1.
|
The calculation date of the Trust (hereinafter “Calculation Date”) shall be 31 December of each year and the Trust Termination Date, and the Trust Termination Date shall be the last Calculation Date.
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2.
|
The Trustees shall prepare a balance sheet, profit and loss statement and other documents stipulated in laws on each Calculation Date, for each period commencing on the Initial Trust Creation Date or the next date of
the immediately preceding Calculation Date and ending on the relevant Calculation Date (the “Calculation Period”).
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Article
29. (Report on Status of Entrusted Assets)
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1.
|
The Trustees shall, in accordance with the provisions of the Trust Law and other Laws, report matters relating to the consignment of business and conditions of their transactions or those with the Interested Parties,
Etc. in addition to matters to be entered in the Entrusted Assets Status Report during each Calculation Period to the Beneficiaries without delay after the relevant Calculation Date.
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2.
|
The Trustees shall make the reports provided in the immediately preceding paragraph as a substitution of the reports provided in Article 37, Paragraph 3 of the Trust Act.
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3.
|
The Trustees shall provide the report set forth in Paragraph 1 by accurately disclosing the details by the method of disclosure determined by the Tokyo Stock Exchange, and unless otherwise requested by the
Beneficiaries, the Trustees shall not deliver the Trust Assets Status Report and the document under Article 29, Paragraph 3 of the Trust Business Act to the Beneficiaries.
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4.
|
Notwithstanding the preceding Paragraph, if the Trustees are required to deliver the Trust Assets Status Report or the document under Article 29, Paragraph 3 of the Trust Business Act in accordance with the Trust
Business Act and other Laws, each relevant document shall be delivered by sending the same to the name or trade name and address of the parties which JASDEC had notified as being the Beneficiaries as of the Record Date for Determination of Rights.
In such case, the Trustees may provide to Beneficiaries, of whom the Trustees obtained approval, by an electromagnetic method (meaning the method set forth in Article 26, Paragraph 2 of the Trust Business Act) instead of by delivering written
documents.
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16
English Translation/For Reference Purpose Only
Article 30. (Taxation)
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1.
|
If the Issuer requests the Trustees to provide information necessary for the Issuer or its agent to submit tax reports of the Issuer to an U.S. authority, the Trustees shall provide or have the Custodian provide the
information to the Issuer or its agent.
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2.
|
The Trustees (including their agents or the Custodian) or the Issuer (including its agent) shall submit a report as necessary to reduce or have themselves exempted from taxation on any distributions to and on the
Entrusted Shares and Other Securities and other dividends in accordance with taxation conventions or Laws applied to the Trustees as a shareholder of the Entrusted Shares.
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3.
|
The Trustees (or the Custodian) shall, under Issuer’s orders, to a practicable extent, perform or have Custodian perform administration services necessary to ensure the refund of withholding tax imposed on
distributions and other proceeds, reduction in accordance with taxation conventions or Laws with respect to the distributions to and on the Entrusted Shares and Other Securities or other dividends. However, the Trustees are not obliged to claim for
a refund of any withholding tax imposed on the distributions on the Entrusted Shares and Other Securities. In order to ensure the reduction in the withholding tax, the Beneficiaries shall prepare and submit certificates of their status as taxpayers
and residents and of ownerships of the Beneficiary Interests (if possible), prepare and submit guarantee certificates, and provide any other necessary information.
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4.
|
If the Issuer (or its agent) collects taxes or other government-related fees from distributions or pays other taxes (including documentary stamp tax, capital gain tax or other similar taxes) relating to the
distributions, the Issuer shall send or have its agent send taxes or other government-related fees to be withheld and their information, and certificates of the tax payment or other certificates of payments to governmental authorities to the
Trustees immediately. The Trustees shall make a report of the taxes withheld by them or the Custodian and the taxes withheld by the Issuer (if the information is provided from the Issuer to the Trustees) to the Beneficiaries. The Trustees and the
Custodian do not need to submit certificates of transfer of cash, having been withheld as taxes or other government-related fees, from the Issuer (or its agent) or tax payment by the Issuer to the Beneficiaries unless the Issuer submits the
certificates to the Trustees or the Custodian. The Trustees and the Custodian are not responsible for the Beneficiaries not being able to receive tax credits for foreign taxes paid under the Beneficiaries’ obligations of income taxes.
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5.
|
The Trustees are not obliged to provide information relating to the Issuer’s status of tax payment to the Beneficiaries unless otherwise provided in this Agreement. In addition, the Trustees are not responsible for
any taxes the Beneficiaries are obliged to pay.
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Chapter
4 Settlors
Article 31. (Settlors)
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1.
|
Mizuho Securities Co., Ltd. shall be the Initial Settlor and the Initial Beneficiary of the Trust.
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|
2.
|
After the creation of the Trust, persons who are lawfully engaged in the Type I Financial Instruments Business and whom the Trustees accept may be added as the Settlors by entrusting additionally pursuant to Article 7,
Paragraph 1.
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3.
|
The Trustees shall cause an entity which intends to participate as a Settlor in accordance with the foregoing Paragraph to enter into a memorandum on addition of Settlor with the Trustees substantially in the form
prescribed in Exhibit 4 to this Agreement. The entity which intends to participate as a Settlor shall enter into a memorandum on addition of Settlor and have its status, rights and obligations as a Settlor starting at the time of the additional
entrustment under Article 7, Paragraph 1 hereof with respect to such Trust.
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Article 32. (Rights of the Settlors)
|
1.
|
The Settlors shall not hold any rights nor be subject to any obligations of the Settlors set forth in the Trust Law, nor are they subject to any obligations, excluding ones provided in this Agreement.
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2.
|
The Settlor shall not give any instructions of management or disposal of the Entrusted Assets.
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3.
|
The Settlors accept that the issue of the document set forth in Article 26, Paragraph 1 of the Trust Business Act is not required. The Trustees shall promptly issue such document, if requested by the Settlors.
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17
English Translation/For Reference Purpose Only
Article 33. (Transfer of Status of Settlors)
With the written approval of the Trustees and the Issuer, the Settlor may transfer its status as Settlor, without being subject to any further ongoing
obligations.
Chapter 5 Trustees
Article 34. (Joint Trustees)
|
1.
|
MUTB and MTBJ shall, pursuant to the Trust Law, segregate duties, make decisions on and perform the trust administrations as stipulated in each of the following Paragraphs.
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|
2.
|
The trust administrations which MUTB shall take charge of, are administrations described in each of the following items and administrations related thereto:
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|
|
(1)
|
Exercise of rights of shareholders such as voting rights with respect to the Entrusted Assets;
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|
|
(2)
|
Payment of taxes, fees and miscellaneous expenses and calculation of the trust, and instruction to do so;
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|
|
(i)
|
Acceptance of the Trust Fee and commission charge from the Settlors or the Issuer;
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|
(ii)
|
Instruction to pay taxes on the Entrusted Assets and miscellaneous expenses necessary for treatment of trust administrations;
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|
(iii)
|
Instructions to MTBJ regarding handling of income and expenditure of the trust, accounting and calculation of the Entrusted Assets;
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|
(iv)
|
Calculation of income and expenditure of the trust and preparation of a report on the Entrusted Assets on each Calculation Date;
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|
|
(v)
|
Performance of final calculation and preparation of a report on the Entrusted Assets at the termination of the trust;
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|
|
(vi)
|
Submission of reports to the head of relevant taxation authority of the place of tax payment provided in Article
14-4,
Paragraph 9 of the Order for Enforcement of the Corporation
Tax Act.
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(3)
|
Performance of administrations related to preparation, management and provision of the Beneficiary Interest Registry, the list of Beneficiaries prepared based on the notification by JASDEC, and other account ledgers
incidental thereto;
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|
|
(4)
|
Performance of administrations necessary for the calculation and payment of the trust dividend (including tax administrations related to income taxes and local taxes);
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|
|
(5)
|
Performance of calculations to make allocations (including
rounding-off
calculations) based on the Stock Dividend, stock splitting and consolidation, Bonus Shares, distribution of
shares of subsidiaries on the Entrusted Shares, and calculations of part or all of the expenses for disposal by sale thereof;
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(6)
|
Exchange of the expenses for disposal by sale with respect to Stock Dividend, stock splitting and consolidation, Bonus Shares and distribution of shares of subsidiaries on the Entrusted Shares to yen currency and
distribution thereof among the Beneficiaries;
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|
|
(7)
|
Performance of administrations incidental to each of the preceding Items and other administrations necessary for conservation of rights of the Beneficiaries;
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|
|
(8)
|
In addition to trust administrations stipulated in each of the preceding Items, performance of administrations other than trust administrations allocated to MTBJ which are stipulated in each of the following Paragraph.
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|
3.
|
The trust administrations which MTBJ shall take charge of, are administrations described in each of the following Items and administrations related thereto.
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|
(1)
|
Delivery and receipt of the Entrusted Assets
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|
|
(i)
|
Receipt of the Entrusted Assets from the Settlor (including additional entrustment);
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|
|
(ii)
|
Delivery of the Entrusted Assets to the Beneficiaries associated with termination or cancellation of the Trust;
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18
English Translation/For Reference Purpose Only
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(iii)
|
Receipt or delivery of other Entrusted Assets with respect to the Trust;
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(2)
|
Disposal of the Entrusted Assets
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|
|
(i)
|
Sale of the Entrusted Assets;
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(ii)
|
Management of cash belonging to the Entrusted Assets to deposits;
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|
(iii)
|
Enforcement of other transactions relating to the Entrusted Assets stipulated in the Trust;
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|
(3)
|
Preservation and settlement of the Entrusted Assets
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|
|
(i)
|
Preservation and maintenance activities for the Entrusted Assets;
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(ii)
|
Delivery and receipt and settlement associated with sale of the Entrusted Assets;
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|
|
(iii)
|
Execution of preservation agreement with the Custodian and outsourcing the preservation when preserving the Entrusted Assets abroad;
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|
(iv)
|
Outsourcing of all or part of preservation of the Entrusted Assets and matters related to such preservation to a third party to the extent permitted herein;
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|
(4)
|
Payment of taxes, fees and miscellaneous expenses and calculation of the trust
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|
|
(i)
|
Receipt of the Trust Fee from the Entrusted Assets;
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|
(ii)
|
Payment of taxes on the Entrusted Assets and miscellaneous expenses necessary for handling of the trust administrations;
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|
(iii)
|
Accounting in case of additional entrustment and partial termination of the Trust or otherwise;
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|
(iv)
|
Handling of income and expenditure of the trust, and accounting and calculation of the Entrusted Assets;
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|
(v)
|
Assistance in calculation of income and expenditure of the trust and preparation of reports on the Entrusted Assets on each Calculation Date;
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(vi)
|
Assistance in final calculation and preparation of reports on the Entrusted Assets at the termination of the trust;
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(5)
|
Tax withholding administrations with respect to the Entrusted Assets
|
|
|
(i)
|
Tax procedures for securities as the Entrusted Assets.
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|
4.
|
Regardless of the provisions described in Article 80, Paragraph 7 of the Trust Act, the Beneficiaries shall indicate their intentions to MUTB.
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Article 35. (Responsibility of Joint Trustees)
If either MUTB or MTBJ violates its obligations as the Trustee, MUTB and MTBJ shall jointly and severally assume responsibility to the Beneficiaries.
Article 36. (Report on Handling of Trust Administrations)
Notwithstanding the segregation of duties provided in Article 34, MUTB shall be responsible for reporting on performance of the trust administrations belonging
to the segregation of duties of MTBJ. Provided, however, that MUTB may cause MTBJ to make such report.
Article 37. (Concurrent
Termination of Trustees’ Duties)
If the duties of either of the Trustees are terminated due to resignation in accordance with Article 71, dismissal
in accordance with Article 72 or any other reasons, the duties of the other Trustee shall also terminate simultaneously.
Article
38. (Singularity of the Trustees)
|
1.
|
So long as the Trust survives, the Issuer shall not accept the issuance of the Beneficiary Interest to persons who are not the Trustees of the Trust, when the Issuer issues Shares in the Issuer or the Securities Trust
Beneficiary Certificate which set the securities with equivalent characteristics with the shares issued by the Issuer as the Trust Assets in Japan for the purpose of listing on the Financial Instruments Exchange.
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|
2.
|
The preceding Paragraph shall not apply when it is determined to appoint new Trustees in accordance with Article 71 or 72.
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19
English Translation/For Reference Purpose Only
Chapter 6
Beneficiaries
Article 39. (Beneficiaries)
|
1.
|
Parties holding the Beneficial Interests shall be the Beneficiaries.
|
|
2.
|
By accepting and holding Beneficial Interests, Beneficiaries shall be deemed to have accepted and agreed to the provisions hereof.
|
|
3.
|
The Beneficiaries shall only have rights stipulated herein and rights of the Beneficiaries which cannot be restricted by the Laws, and shall not have rights other than such rights (including but not limited to claim of
dividend for the Entrusted Shares, claim of inspection of the list of shareholders and any and all other rights as a shareholder of the Entrusted Shares).
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Article 40. (Execution of Rights of the Beneficiaries)
With respect to the Trust, only the Beneficiaries who have been continuously holding the Beneficial Interests for not less than six (6) months may claim
injunction to stop any act of the Trustees under the provisions of Article 44, Paragraph 1 of the Trust Act.
Article
41. (Notification to the Beneficiaries)
|
1.
|
The Trustees shall send notice to the Beneficiaries specified in this Agreement and the Trust Act addressed to the name or corporate name and address of the Beneficiaries notified by JASDEC, except as otherwise
specified in Laws.
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|
2.
|
The Trustees shall not give notices to the Beneficiaries except those provided herein. Provided, however, that this shall not apply for matters for which obligation of notification to the Beneficiaries is provided under
the Trust Law and with which not notifying would violate the Laws.
|
Article 42. (Decision-making of the
Beneficiaries)
|
1.
|
The Beneficiaries shall make decisions in a manner provided herein (“Resolution Procedures by the Beneficiaries”) (except the case where the Instruction Procedures for Exercise of Voting Rights, Etc.
stipulated in Article 43, Paragraph 1 or the Instruction Procedures stipulated in Article 44, Paragraph 2 shall be performed).
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|
2.
|
The Resolution Procedures by the Beneficiaries may be performed any time as deemed necessary by the Trustees. Prior to initiating the Resolution Procedures by the Beneficiaries, within a reasonable period, the Trustees
shall provide written notice to the Issuer of Trustees’ intent to perform the Resolution Procedures by the Beneficiaries. Such notice shall include that the Resolution Procedures by the Beneficiaries will be performed and the estimated date
upon which the Trustees intend to take such action.
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|
3.
|
Any Beneficiary holding three-hundredths of the total number of units of the Beneficiary Interests may request the Trustees to perform the Resolution Procedures by the Beneficiaries by showing the Trustees the matters
which are the objectives of the Resolution Procedures by the Beneficiaries and the grounds for necessity of the Resolution Procedures by the Beneficiaries. Upon such request for the Resolution Procedures by the Beneficiaries, the Trustees shall
perform the Resolution Procedures by the Beneficiaries, subject to the provisions set forth in the preceding Paragraph.
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4.
|
The Trustees shall set the Record Date for Determination of Rights in relation to the Resolution Procedures by the Beneficiaries pursuant to Article 19, Paragraph 1, Item (7) and make a public notice of such Record
Date for Determination of Rights by two (2) weeks prior to such date.
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5.
|
When performing the Resolution Procedures by the Beneficiaries, the Trustees shall stipulate the following items.
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(i)
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Resolution date of the Resolution Procedures by the Beneficiaries (“Resolution Date of the Beneficiaries”);
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(ii)
|
If there are matters which are the objectives of the Resolution Procedures by the Beneficiaries, such matters; and
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(iii)
|
Submission deadline for the document prescribed by the Trustees for the exercise of voting rights by the Beneficiaries (“Voting Right Exercise Deadline”) (“Voting Right Exercise Document”).
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6.
|
In order to perform the Resolution Procedures by the Beneficiaries, the Trustees shall send the notification
addressed to the name or corporate name and address of the Beneficiaries notified by JASDEC under Paragraph 4 as the Beneficiaries on Record Date for Determination of Rights in
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20
English Translation/For Reference Purpose Only
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writing by two (2) weeks prior to the Resolution Date of the Beneficiaries. Trustees shall send a copy of such notice to the Issuer. Such notice shall include the items provided in each Item
of the preceding Paragraph and be accompanied with the Voting Right Exercise Document. Upon such notification, the Trustees may attach documents in which the matters to be referred to with respect to the exercise of voting rights are described.
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7.
|
In the course of the Resolution Procedures by the Beneficiaries, the Beneficiary shall have one voting right per Beneficiary Interest in its possession and exercise its voting right only by the Voting Right Exercise
Document. Provided, however, that when the Beneficiary Interest belongs to the Trust Assets of the trust with respect to such Beneficiary Interest, the Trustees shall not have the voting right for such Beneficiary Interest.
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8.
|
The resolution of the Resolution Procedures by Beneficiaries shall only come into effect with votes by at least a majority of the voting rights of the Beneficiaries having the voting rights and shall only be adopted by
at least a majority of the votes. Provided, however, that the provisions on trust deed with regard to the method of decision making for exemption from liability provided in Article 42 of the Trust Act shall be determined by the agreement of all
Beneficiaries. In addition, if neither affirmative vote nor opposition vote win a majority of the votes as a result of the resolution, the Trustees shall deem such resolution of the Resolution Procedures by Beneficiaries has not been performed.
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9.
|
Any Beneficiary may diversely exercise its voting rights by specifying that effect in the prescribed section in the Voting Right Exercise Document.
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10.
|
If approval or disapproval is not clearly indicated in the Voting Right Exercise Document for such proposal, such Beneficiary shall be deemed not to have voted either in favor of or against such proposal. In addition,
if the Beneficiary does not submit the Voting Right Exercise Document to the Trustees by the Voting Right Exercise Deadline, the Beneficiary shall be deemed not to have cast a vote either in favor of or against all of such proposals.
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11.
|
Resolutions of the Resolution Procedures by the Beneficiaries shall be effective to all Beneficiaries of the Trust.
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12.
|
The Trustees shall report to the Beneficiaries and the Issuer on the results of resolutions of the Resolution Procedures by the Beneficiaries (pursuant to the provision in paragraph 9, if it is deemed such resolution of
the Resolution Procedures by Beneficiaries has not been performed in accordance with the provision in Paragraph 8, that effect).
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13.
|
Notwithstanding any other provision of this Article, no Beneficiaries may request the Trustees to perform the Resolution Procedures by the Beneficiaries in respect of any matters which would impair the rights of, or
create any liabilities or obligations of, or otherwise adversely affect, any Settlor or all Settlors collectively, and the Trustees will not respond to any such request from any Beneficiaries (except the case where it will constitute a violation of
the Laws if the Trustee will not respond to such request from Beneficiaries).
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Article 43. (Exercise of Voting Rights
pertaining to the Entrusted Shares)
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1.
|
The Issuer shall, when implementing (i) solicitation of exercise of voting rights or (ii) solicitation of consents or proxies, in each case pertaining to the Entrusted Shares ((i) and (ii) being
collectively referred to as the “Instruction Procedures for Exercise of Voting Rights, Etc.”), notify the Trustees in writing of the date of the shareholders meeting or the deadline for consents for such Instruction Procedures for Exercise
of Voting Rights, Etc. (the “Meeting Date, Etc.”) within a reasonable period. For the avoidance of doubt, unless otherwise provided herein, the Issuer may not treat the Entrusted Shares differently from the other Shares in the Issuer in
relation to the Instruction Procedures for Exercise of Voting Rights, Etc.
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2.
|
The Trustees shall, when receiving the notice provided in the preceding Paragraph, fix the Record Date for Determination of Rights for the Instruction Procedures for Exercise of Voting Rights, Etc. in accordance with
Article 19, Paragraph 1, Item (5).
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3.
|
The Issuer shall, when notifying the Trustees of the Meeting Date, Etc. pursuant to Paragraph 1, notify the
Trustees in writing of the number of proposals or matters to be consented or delegated to a proxy to be proposed by the Issuer with regard to the Instruction Procedures for Exercise of Voting Rights, Etc. at least twenty-eight (28) days prior
to the Meeting Date, Etc., and deliver to the Trustees the documents in the required number of copies that are (i) a notice of the shareholders meeting (proposals shall be included in such notice) or a document containing
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21
English Translation/For Reference Purpose Only
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matters to be consented or delegated to a proxy, which are prepared for the shareholders by the Issuer, and (ii) if the Beneficiaries as at the Record Date for Determination of Rights will
be entitled, pursuant to the provisions of the Certificate of Incorporation of the Issuer or the provisions of the Entrusted Shares, to instruct the Trustees as to the voting rights or the consent or the proxy pertaining to the Entrusted Shares
represented by Beneficiary Interest (the “Voting Rights, Etc.”), a document which prescribes a summary of a pertinent part of such provisions, in Japanese at least
twenty-one
(21) days prior to
the Meeting Date, Etc. The Trustees shall prepare and deliver the documents listed below to the Beneficiaries as at the Record Date for Determination at the reasonable expense of the Issuer and subject to this being permitted under the Laws;
provided, however, that the Trustees shall have no obligation to perform services in connection with the Instruction Procedures for Exercise of Voting Rights, Etc. unless the Issuer conducts the acts set forth in the first sentence of this Paragraph
(including the case the Trustees reasonably determine that the documents delivered by the Issuer to the Trustees pursuant to this Paragraph are not sufficient to implement the Instruction Procedures for Exercise of Voting Rights, Etc.):
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(1)
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a notice of the shareholders meeting which is prepared for the Beneficiary by the Trustee and an instruction regarding exercise of voting rights or a document which is prepared for the Beneficiary by the Trustee
containing matters to be consented or delegated to a proxy and an instruction on consent or a proxy (the “Instruction Documents for Exercise of Voting Rights, Etc.”),
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(2)
|
a document explaining that the Beneficiaries as at the Record Date for Determination of Rights will be entitled to instruct the Trustee as to the Voting Right Etc., pursuant to the Laws, this Agreement, the Certificate
of Incorporation of the Issuer and the provisions of the Entrusted Shares, and
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(3)
|
a document briefly explaining the manner of instructions on such Voting Rights, Etc., including, without limitation, the deadline by which the Beneficiaries will be required to deliver the Instruction Documents for
Exercise of Voting Rights, Etc. to the Trustees (the “Delivery Deadline”)
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4.
|
The Delivery Deadline shall be five (5) business days prior to the Meeting Date, Etc. or later (the deadline will be separately determined by the Trustees), and the Beneficiaries shall submit the Instruction
Documents for Exercise of Voting Rights, Etc. in the manner prescribed by the Trustees (including electromagnetic methods). The Trustees shall count the number of the voting instructions on such Voting Rights, Etc. and submit the results to the
Issuer at least three (3) business days prior to the Meeting Date, Etc. or later (the deadline will be separately determined by the Trustees) (The Trustees shall not be obliged to adjust such results even in the case where the Entrusted Shares
will increase or decrease during a period elapsing from the Record Date for Determination of Rights with regard to the Instruction Procedures for Exercise of Voting Rights, Etc. to the Meeting Date, Etc.).
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5.
|
The Beneficiaries may give instructions on the Voting Rights, Etc. only in respect of an integral number of Beneficiary Interests.
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6.
|
The Trustees shall exercise the following Voting Rights, Etc. or instruct the Custodian to exercise such Voting Rights, Etc., as specified below; provided, however, that if the Trustees determine that such exercise
would violate the Laws (including laws of the U.S.), this Agreement, the Certificate of Incorporation of the Issuer and the provisions of the Entrusted Shares, the Trustees shall not conduct the exercise or give the instruction (the Trustees shall
have no obligation to research on the laws of the U.S., the Certificate of Incorporation of the Issuer and the provisions of the Entrusted Shares):
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(i)
|
As to the Entrusted Shares represented by the Beneficiary Interests in respect of which valid instructions on the Voting Rights, Etc. based on the Instruction Documents for Exercise of Voting Rights, Etc. have been
received by the Trustees from the Beneficiaries by the Delivery Deadline, the Trustees shall follow such instructions on the Voting Rights, Etc.
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(ii)
|
As to the Entrusted Shares represented by the Beneficiary Interests in respect of which instructions on the Voting Rights, Etc. based on the Instruction Documents for Exercise of Voting Rights, Etc. have not been
received by the Trustees from the Beneficiaries by the Delivery Deadline, the Trustees shall treat as provided in Paragraph 10.
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7.
|
Except when the Trustees and the Custodian follow the Instruction Documents for Exercise of
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22
English Translation/For Reference Purpose Only
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Voting Rights, Etc. received from the Beneficiaries by the Delivery Deadline, when provided in Paragraph 11, and when otherwise contemplated herein, the Trustees and the Custodian shall not
exercise the Voting Rights, Etc. in respect to the Entrusted Shares represented by the Beneficiary Interests at their own discretion, and shall not exercise the Voting Rights, Etc. for the purpose of constituting a quorum or for other purposes.
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8.
|
If the Trustees receive the Instruction Documents for Exercise of Voting Rights, Etc. from a Beneficiary by the Delivery Deadline and instructions are not specified in such Instruction Documents for Exercise of Voting
Rights, Etc., or such Instruction Documents for Exercise of Voting Rights, Etc. fail to give clear instructions, the Trustees shall deem it to be a Blank Vote (unless it is specified in the notice of the shareholders meeting or the document in which
matters to be consented or delegated to a proxy are listed, which is distributed to the Beneficiaries, and such notice fail to give clear instructions on how such instruction shall be handled by the Trustees).
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9.
|
Any Beneficiary may diversely exercise its Voting Rights, Etc. by specifying that effect in the prescribed section in the Instruction Documents for Exercise of Voting Rights, Etc.
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10.
|
If the Trustees perform procedures provided in Paragraph 2 and 3 and do not receive the Instruction Documents for Exercise of Voting Rights, Etc. from a Beneficiary on or before the Delivery Deadline, the Trustees shall
deem it to be a Blank Vote.
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11.
|
The Trustees shall, if so requested in writing by the Issuer, exercise Voting Rights, Etc. in respect of Entrusted Shares for the sole purpose of constituting a quorum at a meeting of shareholders. In such a case, the
Trustees shall cast Blank Votes with respect to the Voting Rights, Etc. for all Entrusted Shares in respect of which instructions are not obtained for the exercise of the Voting Rights, Etc. by the application of provisions of each of the preceding
Paragraphs.
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12.
|
Notwithstanding anything contained in this Agreement or Beneficiary Interest, the Trustees shall not have any obligation to take any action with respect to any shareholders meeting, or solicitation of consents or
proxies, of Beneficiary if the taking of such action would violate Japanese laws or the other Laws applicable to them.
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13.
|
The Issuer agrees to take any and all actions reasonably necessary to enable Beneficiaries to exercise the Voting Rights, Etc. accruing to the Entrusted Shares. In the case where the Trustees do not receive from the
Issuer, the opinions (which shall be prepared at the expense of the Issuer and shall be reasonably satisfactory to the Trustees) of Japanese counsel addressing any actions requested to be taken by the Trustees, the Trustees shall not be obliged to
take such actions requested to be taken.
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14.
|
There can be no assurance that Beneficiaries generally or any Beneficiary in particular will receive the notice described above with sufficient time to enable the Beneficiary to return instructions on the Voting Rights,
Etc. to the Trustees in a timely manner.
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15.
|
MUTB shall make available for inspection by Beneficiaries at its principal office any notices, reports and communications, including any proxy soliciting materials, received from the Issuer which are both
(a) received by the Trustees or the Custodian only in written form (excluding in electronic form) as the holder of the Entrusted Shares and Other Securities and (b) made generally available to the holders of the Shares or other securities
of the same class as those constituting Entrusted Shares and Other Securities by the Issuer. The Trustees shall also provide Beneficiaries with copies (in written or electronic form) of such notices, reports and communications when furnished by the
Issuer pursuant hereto.
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Article 44. (Indication of Intentions Regarding Entrusted Shares)
|
1.
|
If the Issuer requests that the Trustees indicate their intentions regarding the Entrusted Shares, insofar as it is timely practical and permitted by the Applicable Laws, the Trustees shall do so (including indicating
proportion of the number of votes in all of the rights to vote for each vote, in the case where the Beneficiaries exercise their vote differently for each matter that is subject to being voted on (including no vote)) after they confirmed the
intentions of the Beneficiaries via the Resolution Procedures by the Beneficiaries pursuant to Article 42 or the Instruction Procedures for Exercise of Voting Rights, Etc. pursuant to Article 43 hereof.
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|
2.
|
Notwithstanding Paragraph 1 of this Article, in the case set forth in Paragraph 1 of this Article, if it is
timely impractical or not permitted by the Applicable Laws to perform the Resolution Procedures by the Beneficiaries and the Instruction Procedures for Exercise of Voting Rights, Etc.
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23
English Translation/For Reference Purpose Only
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(including, but not limited to, the case where the Trustees are unable to perform the Resolution Procedures by the Beneficiaries in a timely manner to confirm the intentions of the Beneficiaries
on a specific date, which is the same date that the holders of the Shares in the Issuer are entitled to indicate their intentions), then the Trustees shall confirm the intentions of the Beneficiaries by the means as outlined below in this Paragraph
(the “Instruction Procedures”) instead of performing the Resolution Procedures by the Beneficiaries or the Instruction Procedures for Exercise of Voting Rights, Etc., and indicate the intentions of the Trustees to the Issuer in writing.
The Trustees shall indicate their intentions to the Issuer in a proportional manner in accordance with the results of the instructions for each matter that is subject to the instructions (including no instruction) (the “Proportion” in this
Article). However, if such proportional indication is not permitted by the Applicable Law, the Trustees shall indicate their intentions in accordance with the instructions of the majority of the Beneficiaries who have the right to instruct the
Trustees (the “Majority” in this Article). In accordance with this Paragraph and as long as it is practical: (i) if additional entrustment is made in accordance with Article 7 after the Record Date for Determination of Rights pursuant
to Article 19, Paragraph 1, Item 8, the Trustees shall indicate their intentions to the Issuer for the Beneficial Interests including the Beneficial Interests created by the additional entrustment; and (ii) if the Exchange is made after the
Record Date for Determination of Rights, the Trustees shall indicate their intentions to the Issuer for the Beneficial Interests excluding the Beneficial Interests redeemed by the Exchange. In both (i) and (ii), the Proportion and the Majority
remains unchanged; if the application of the unchanged Proportion to the Entrusted Shares in a division that has less than one unit (i.e., a numerical fraction), then the Trustees will have discretion to deal with it reasonably.
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(a)
|
The Trustees shall maintain materials which contain the matters the Issuer requests in order to indicate intentions in relation to the Entrusted Shares, a document to be used by the Beneficiaries to convey their
instructions to the Trustees (the “Instruction Document”), and the deadline for such instructions in MUTB;
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|
(b)
|
the Beneficiaries will instruct the Trustees by delivering the Instruction Document by the deadline where the instruction pursuant to the preceding item should be executed ; and
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|
(c)
|
Article 42, Paragraphs 7, 9, 10, 11 and 12 shall be applied
mutatis mutandis
to the Instruction Procedures in accordance with this Paragraph. Notwithstanding Article 42, Paragraph 12, if the Issuer discloses the
result of votes on the Entrusted Shares through the relevant Financial Instruments Exchanges, the Trustees do not need to report to the Beneficiaries on the results of the Instruction Procedures.
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3.
|
If there is no sufficient time for the Trustees to return the document relating to the indication of intention under the preceding Paragraph to the Issuer in a timely manner, the Trustees might not be able to confirm
the decisions made by the Beneficiaries under the preceding Paragraph.
|
Chapter
7 Beneficiary Interest
Article
45 (Non-Issuance
of Beneficiary Certificate, Etc.)
|
1.
|
The Trust shall be a trust having the provisions as set forth in Article 185, Paragraph 1 of the Trust Act.
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|
2.
|
Pursuant to Article
127-3,
Paragraph 1 of the Book-entry Transfer Act, the Trustees shall not issue any Certificate of Beneficiary Interest which represents the Beneficial
Interests. The Beneficiaries shall have equal rights in respect of the Trust depending on the number of units of Beneficial Interests held by them.
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3.
|
Beneficial Interests which differ in an important aspect from the content of rights of the Entrusted Shares shall not be issued.
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|
4.
|
If, in relation to the Beneficial Interests, any fraction less than one (1) is to be entered or recorded in the holding column and otherwise of the Book-entry Transfer Account Register, such entry or record shall
be made in accordance with the Book-entry Transfer Act and rules and regularities of the
Book-entry
Transfer Institutions.
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Article 46 (Transfer of Beneficial Interests)
Any transfer of Beneficial Interests shall be effected by the Beneficiary by making an application for transfer to the Book-entry Transfer Institutions, etc.
related to the Book-entry Transfer Account Register in which the Beneficial Interests to be transferred are entered or recorded.
24
English Translation/For Reference Purpose Only
Article 47 (Validity of Transfer of Beneficial Interests)
No transfer of the Beneficial Interests shall be valid unless such transfer is entered or recorded on the Book-entry Transfer Account Register.
Article 48 (Exercise of Rights by Beneficiaries)
|
1.
|
In order for the Beneficiary to exercise any Beneficial Interest (excluding the exercise of Beneficiary Claim), the Beneficiary shall be required to receive the document pursuant to the provision of the main clause of
Article
127-27,
Paragraph 3 of the Book-entry Transfer Act and present such document to the Trustees.
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|
2.
|
The Beneficiary may request that its Immediate Upper-level Institution delivers the document certifying the matters listed in each Item of Article
127-4,
Paragraph 3 of the
Book-entry Transfer Act (excluding the matters set forth by the main ministerial orders) concerning the relevant Beneficial Interests which are entered or recorded in such Beneficiary’s account in the Book-entry Transfer Account Register kept
by the relevant Immediate Upper-level Institution to such Beneficiary. Provided, however, that this shall not apply to a Beneficiary who has already received the document regarding the relevant Beneficial Interests under this Paragraph and has not
returned such document to such Immediate Upper-level Institution.
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|
3.
|
The Beneficiary who has received the document pursuant to the provision of the main clause in the preceding Paragraph may not apply for the transfer or the cancellation of the relevant Beneficial Interests which were
subject to certification in the document until the Beneficiary returns the relevant document to the Immediate Upper-Level Institution mentioned in the preceding Paragraph.
|
Article 49. (Request for purchase of Beneficiary Interests)
If a Beneficiary requests for purchase of the Beneficiary Interests set force in Article 57, the Trustees may request to apply for the transfer
on which the Trustees account shall be the transferee account in exchange for the charge of the relevant Beneficial Interests, with Immediate Upper-Level Institution of the Beneficiary.
Article 50. (Beneficiary Interest Registry)
The Trustees shall prepare the Beneficiary Interest Registry subsequent to the issuance of the Beneficial Interests without delay.
Article 51. (Matters to be Entered in the Beneficiary Interest Registry)
The fact that the provisions of the Book-entry Transfer Act shall apply to the Beneficial Interests, as well as the following matters shall be entered or
recorded in the Beneficiary Interest Registry:
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(1)
|
Contents of benefits and time for performance (if no time for performance, then such effect) of the Beneficiary Claim for each Beneficiary Interest, and other contents of Beneficiary Claim;
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|
(2)
|
If there are any restrictions on the transfer of Beneficiary Interests, such effect and the contents of such restrictions;
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(3)
|
If there are two or more Beneficiary Interests whose contents of Beneficiary Claim are the same, and if there are provisions on trust agreement of different contents with regard to the exercise of rights held as
Beneficiaries in respect of such Beneficiary Interests, the outline of such provisions;
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(4)
|
Number, issuance date and types (registered or bearer) of Certificates of Beneficiary Interest and number of bearer Certificates of Beneficiary Interest;
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|
(5)
|
Name or trade name and address of the Settlor (the Settlor shall not be obliged to notify the Beneficiaries of any change in the descriptions concerning the Settlor contained in the Beneficiary Interest Registry, on and
after the Trust Creation Date of the Shares in the Issuers related to its entrustment);
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(6)
|
Name or trade name and address of the Trustees;
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(7)
|
Matters concerning the supervisor of the trust;
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|
(8)
|
Matters concerning the agents for the Beneficiaries;
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25
English Translation/For Reference Purpose Only
|
(9)
|
If there is any provision to the effect that Certificate of Beneficiary Interest shall be
non-issuance
for Beneficiary Interest of certain contents in the trust agreement, the
contents of such provision;
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|
(10)
|
Matters concerning the administrator of the Beneficiary Interest Registry;
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|
(11)
|
If the Trust is a limited liability trust, its name and the location for performing the services; and
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(12)
|
Terms and conditions of the Trust.
|
Article 52. (Maintenance and Inspection, Etc. of
the Beneficiary Interest Registry)
|
1.
|
The Beneficiary Interest Registry shall be maintained in the principle office of MUTB.
|
|
2.
|
The Beneficiary and other Interested Parties provided in Article 190, Paragraph 2 of the Trust Act may request the Trustees for inspection or duplication of the Beneficiary Interest Registry listed in the said
Paragraph. In such a case, a person making such request shall be required to disclose the reason for such request.
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3.
|
The Trustees may not refuse the request described in the preceding Paragraph unless such request is considered to fall under each item of Article 190, Paragraph 3 of the Trust Act.
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|
4.
|
When the Issuer requests the Trustees for inspection or duplication of the Beneficiary Interest Registry and such request is lawful under the Laws of the U.S., the Trustees may admit such requests to the extent
permitted by the Laws.
|
Article
52-2. (Shared
use of personal data)
Share use of Personal Data)
The Trustee shall share personal
data of the Beneficiaries (limited to the information notified by the JASDEC) with the Issuer for the purposes below:
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(1)
|
To check the trend on the Beneficiaries; and
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|
(2)
|
To make reports to authorities or disclosure Etc., on the status of the Beneficiaries.
|
Article
53. (Transferred Beneficiary Interests)
|
1.
|
The Beneficial Interests shall be treated as Transferred Beneficiary Interests by JASDEC under the Book-entry Transfer Act, and the Trustees hereby agree with JASDEC that the Beneficial Interests shall be treated as
such.
|
|
2.
|
The attribution of the Beneficial Interests shall be determined in accordance with the description or records in the Book-entry Transfer Account Register pursuant to Article
127-2,
Paragraph 1 of the Book-entry Transfer Act.
|
Article 54. (Restriction
on Request of Disclosure)
The Beneficiary may not request the Trustees to disclose the name or trade name and address of other
Beneficiaries, the contents of Beneficiary Interest held by other Beneficiaries and other information concerning other Beneficiaries.
Article
55. (Acquisition of Beneficiary Interest by Issuer etc.)
|
1.
|
If the Issuer seeks to acquire Beneficial Interests by cash upon agreement with Beneficiaries, the Issuer shall submit a document with details of such acquisition including the following matters to the Trustees at least
within a reasonable period from the date of the proposed acquisition:
|
|
|
(1)
|
Number of the Beneficial Interests to be acquired;
|
|
|
(2)
|
Acquisition price of the Beneficial Interests;
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|
(3)
|
Term during which the Beneficial Interests can be acquired;
|
|
|
(4)
|
Method of acquisition; and
|
|
|
(5)
|
Representation and warranty of the fact that the acquisition of the Beneficial Interests by the Issuer is possible under the Laws and the practice.
|
|
2.
|
If the Issuer submits the document described in the preceding Paragraph to the Trustees, only when the Trustees deem that such acquisition of the Beneficial Interest by the Issuer is legally and practically feasible
(provided, however, the Trustees may rely on the representation and warranty by the Issuer of Item 5 of the preceding Paragraph, unless there is obvious fallacy for the trustees), the Trustees shall notify all Beneficiaries of the effect that the
Issuer seeks to acquire the Beneficial Interests and details of such acquisition. The Trustees shall also notify all Beneficiaries in writing without delay of procedures to be taken by the Beneficiaries when they accept such acquisition.
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26
English Translation/For Reference Purpose Only
|
3.
|
If the Beneficiary applies for the transfer of the Beneficial Interest, the Issuer shall accept the transfer of such applied Beneficial Interests. Provided, however, that when the total number of the Beneficial
Interests applied by the Beneficiaries exceed the number provided in Paragraph 1, Item 1, the Trustees shall select the Beneficial Interests to be acquired by the Issuer, by proportional distribution.
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|
4.
|
The Trustees may acquire Beneficial Interests and cancel it at their discretion in the event that (i) there is a discrepancy between the number of Beneficial Interests and the number of underlying Entrusted Shares
(but solely to the extent necessary to resolve such discrepancy), (ii) it is obvious that such acquisition does not harm the interest of the Issuer or the Beneficiaries, or (iii) in the event that doing so is otherwise necessary for the
continuation of the Trust.
|
Chapter 8 Change in
Agreement
Article 56. (Change in Agreement)
|
1.
|
The Trustees may at their discretion, change this Agreement after obtaining consents, which shall not be unreasonably withheld, of the Issuer and the Settlor when it does not fall under the change of trust as to items
set force in each Item of Article 103, Paragraph 1 of the Trust Act (the “Material Change in Trust”) or it is obvious that such change does not violate the purpose of the trust (excluding the case that the Trustee reasonably deem the
change does not comply with interests of the Beneficiaries). The Issuer shall disclose the contents of the changed Agreement at Tokyo Stock Exchange without delay after such change is made; provided, however, the Issuer will not give notification
stipulated in Article 149, Paragraph 2 of the Trust Act.
|
|
2.
|
Such change as described in the preceding Paragraph shall include changes to be made in cases where responsibility or burden on the Trustees or services which the Trustees should perform are increased or right of the
Trustees is limited due to amendment or change in interpretation of the applicable Laws or other changes in circumstances and it is obvious that such change does not violate the purpose of the trust and complies with interests of the Beneficiaries.
|
|
3.
|
In cases other than cases falling under Paragraph 1, the Trustees may change this Agreement by obtaining approval by the Beneficiaries in the Resolution Procedures by the Beneficiaries stipulated in Article 42
(excluding Paragraph 3).
|
|
4.
|
The Beneficiaries may not change this Agreement without prior consent of the Trustees and the Issuer even if it is obvious that such change does not harm interest of the Trustees.
|
Article 57. (Request to Acquire Beneficiary Interest)
|
1.
|
If the Material Change in Trust is made for the Trust, the Beneficiaries in danger of sustaining damage from such Material Change in Trust (provided, however, that in the event of change in the purpose of the trust and
change in the trust regarding restrictions on transfer of the Beneficiary Interest, danger of sustaining damage is not required) may request the Trustees, on a Business Day (excluding the exception days for requests as specified in Exhibit 5
(hereinafter “Exception Days for Requests”)) to acquire the Beneficial Interests held by such Beneficiaries at the price per unit which is deemed to be appropriate by the Trustees and calculated based on the market price per share of
Entrusted Shares, Etc., taking into consideration of the Beneficiary Interest Vesting Rate, Etc. In this case, the Beneficiaries shall transfer the Beneficiary Interest to the account specified by the Trustees in accordance with the method
determined by the Trustees by the day determined by the Trustees.
|
|
2.
|
In the event of split of the Trust, the Beneficiaries in danger of sustaining damage from such split (provided, however, that if the trust is split along with the change in the purpose of the trust and change in the
trust regarding restrictions on transfer of the Beneficiary Interest, danger of sustaining damage is not required) may request the Trustees on Exception Day for Requests to acquire the Beneficial Interests held by such Beneficiaries at the price per
unit which is deemed to be appropriate by the Trustees and calculated based on the market price per share of Entrusted Shares, Etc., taking into consideration of the Beneficiary Interest Vesting Rate, Etc. In this case, the Beneficiaries shall
transfer the Beneficiary Interest to the account specified by the Trustees in accordance with the method determined by the Trustees by the day determined by the Trustees.
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English Translation/For Reference Purpose Only
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3.
|
Pursuant to the preceding two (2) Paragraphs, when the Trustees acquire the Beneficial Interest, the Trustees shall purchase the relevant Beneficial Interests for its bank account.
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|
4.
|
The Trustees may request the relevant Beneficiary to pay the amount equivalent to fees related to the requests under Paragraph 1 or 2 and the Consumption Taxes related thereto.
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5.
|
The Beneficiary who has expressed its intention to approve for Material Change in Trust or the split of the trust described in Paragraph 2 may not make a request in accordance with Paragraphs 1 and 2.
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Chapter 9 Listing
Article 58. (Listing on Financial Instruments Exchange)
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1.
|
The parties of this Agreement acknowledge and accept that the Issuer has applied for the listing of the Beneficial Interest on the Tokyo Stock Exchange.
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|
2.
|
The Beneficial Interest shall be listed on the Tokyo Stock Exchange after obtaining approval from the Tokyo Stock Exchange in accordance with the Listing Regulations, Etc. stipulated by the Tokyo Stock Exchange.
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|
3.
|
The Issuer hereby covenants to other parties that it will use its best endeavors to maintain the listing of the Beneficial Interest on the Tokyo Stock Exchange or any other Financial Instrument Exchanges in Japan which
are licensed to list the Beneficiary Interest.
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Article 59. (Compliance with Regulations, Etc. of Financial
Instruments Exchange)
If the Beneficial Interest is listed on the Tokyo Stock Exchange, the Issuer shall comply with the listing
regulations, etc. stipulated by the Tokyo Stock Exchange and follow measures such as delisting or suspension of sales transactions and other measures taken for the Beneficiary Interest by the Tokyo Stock Exchange pursuant to such listing
regulations, etc.
Article 60. (Listing of Beneficiary Interest of Different Types of Shares)
If a Trust Issuing Certificate of Beneficiary Interest is created for the Shares in the Issuer with different contents from the Entrusted
Shares of the Trust and the Beneficiary Interest on such Trust Issuing Certificate of Beneficiary Interest is listed on the Tokyo Stock Exchange, such other Beneficiary Interest shall be treated separately from the Beneficial Interest.
Chapter 10 Trust Fee, Handling Fee and Trust Expenses
Article 61. (Trust Fee and Handling Fee)
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1.
|
In accordance with this Agreement and the contents of the agreement separately concluded between the Issuer or the Settlor and the Trustees, the Trustees may receive the Trust Fee and handling fee for this Agreement,
and the amount equivalent to consumption tax and local consumption tax thereon. Provided, however, the Trust Fee and handling fee for this Agreement, and the amount equivalent to consumption tax and local consumption tax which the Trustees receive
from the Entrusted Assets or Beneficiaries shall be limited to those stipulated in this Agreement.
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2.
|
The Trustees shall receive a full amount of interest attributable to the Trust Assets pursuant to Article 14, Paragraph 1 and other interest arisen from the Trust Assets for the Calculation Period which accrue within
the Calculation Period stipulated in Article 28, Paragraph 2 or Article 70, Paragraph 1 as the Trust Fee on the following day of the calculation date of such Calculation Period.
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3.
|
The Trustees shall receive a full amount of the fee accrued as provided in Article 20, Paragraphs 3, the fee accrued as provided in Article 63, Paragraph 7 and the Fee accrued as provided in Article 69, Paragraph 3 as
the Trust Fee each time of accrual.
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4.
|
Unless otherwise permitted in this Agreement or the Trust Act, the Trustees shall not, except with the approval of each and every Beneficiary, use or dispose of Entrusted Assets in order to fund the cost of any fees
relating to the Trust or the Entrusted Assets.
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English Translation/For Reference Purpose Only
Article 62. (Trust Expenses)
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1.
|
Unless otherwise provided in this Agreement, the Trust Expenses shall be borne by the Issuer, and the Issuer shall pay the Trustees such Trust Expenses in accordance with the contents of the agreement separately
concluded with the Trustees.
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2.
|
In order for the Trustees to receive advanced payment of the Trust Expenses from the Entrusted Assets, a notice to the Beneficiary indicating the amount of such advanced payment and the calculation base shall be
required notwithstanding the provision of Article 48, Paragraph 3 of the Trust Act.
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|
3
|
Unless otherwise permitted in this Agreement or the Trust Act, the Trustees shall not, except with the approval of each and every Beneficiary, use or dispose of Entrusted Assets in order to fund the cost of any expenses
relating to the Trust or the Entrusted Assets.
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Chapter
11 Exchange
Article 63. (Request for Exchange)
|
1.
|
The Beneficiaries (excluding the Settlor; hereinafter the same shall apply in this Article) may exchange all or part of the Beneficial Interests held by them to the Shares in the Issuer, the number of units according to
the Beneficiary Interest Vesting Rate, with a Designated Exchange Distributor as long as the Beneficial Interests are listed (except for the time or period designated by the Trustees on their website). Provided, however, that the exchange of the
Beneficial Interest is deemed to have been applied to the extent the number of units of the Shares in the Issuer that corresponds to the number of units of the Beneficial Interests is a whole number, in cases where the number is not a whole number.
The Designated Exchange Distributor shall request the Trustees for the Exchange to Shares in the Issuer, the number of units according to the Beneficiary Interest Vesting Rate (hereinafter “Request for Exchange”) with regard to the
Beneficial Interests received from the Beneficiaries based on the relevant Application for Exchange if the Beneficiaries apply the exchange set forth in this Agreement.
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|
2.
|
The Trustees shall distribute Shares in the Issuer that corresponds to the number of units of the Beneficial Interests with regard to the relevant Request for Exchange based on the Request for Exchange to the Designated
Exchange Distributor which has requested for the relevant Request for Exchange, in a period and the manner that are separately determined by the Trustees. The Beneficial Interests which is the objective of the Request for Exchange shall be
extinguished.
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3.
|
The Designated Exchange Distributor which has accepted the Application for Exchange shall distribute such Shares in the Issuer to the Beneficiaries which have submitted the Application for Exchange if it has received
the Shares in the Issuer set forth in the preceding Paragraph.
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4.
|
Notwithstanding the preceding Paragraphs, Application for Exchange and Request for Exchange shall be prohibited if the Designated Exchange Distributor or the Beneficiaries are not able to receive the Shares in the
Issuer to be delivered upon the Exchange of the Beneficial Interests due to constraints of the Laws or any practical reason (including the case where the Beneficiaries do not have a securities account in which they are entitled to receive the Shares
in the Issuer).
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5.
|
Notwithstanding the from Paragraph 1 to 3, if any of the events listed in the following Items applies or where the Trustees deem it necessary or helpful, the Trustees may cease acceptance of the Request for Exchange or
suspend or cancel necessary procedures to be taken by the Trustees after the acceptance of the Request for Exchange (hereinafter “Exchange Procedures”):
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|
|
(1)
|
If a Designated Exchange Distributor or the Trustees cannot confirm the payment of the fee which shall be borne by the Beneficiaries for the Exchange Procedures stipulated in Exhibit 2 (hereinafter
“Beneficiaries’ Exchange Fee”) and an amount equivalent to the Consumption Taxes imposed on the Exchange and the Beneficiaries’ Exchange Fee;
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|
|
(2)
|
If the procedures for identification of the Beneficiaries to be conducted by a Designated Exchange Distributor (including presentation of identity verification documents and any other procedures specified by the
Trustees) have not been completed prior to the course of the Exchange Procedures;
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29
English Translation/For Reference Purpose Only
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(3)
|
If the Exchange Procedures cannot be conducted due to cessation of transactions of the Beneficial Interests on the Tokyo Stock Exchange, failure of clearance or settlement functions or in any other unavoidable
circumstances;
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(4)
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When the Trustees determine that there would be difficulties in conducting the Exchange Procedures due to circumstances which the Custodian has difficulties in transferring the Shares in the Issuer or any other
unavoidable reasons;
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(5)
|
If the date which is the record date for the exercise of rights concerning the Shares in the Issuer and the Record Date for Determination of Rights for the Beneficial Interests related to Article 19, Paragraph 1hereof
are not identical, and the Trustees determine that the Exchange Procedures should be suspended or cancelled (limited to the period on and after the date which is the record date for the exercise of rights concerning the Shares in the Issuer up to
the Business Day immediately preceding the Record Date for Determination of Rights for the Beneficial Interests related to Article 19, Paragraph 1 hereof); or
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(6)
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Other than the above, when the Trustees determine that the acceptance of the Request for Exchange or implementation of the Exchange Procedures would cause difficulties in the management of the Trust.
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6.
|
If the Trustees cease acceptance of the Request for Exchange, the Designated Exchange Distributor shall immediately notify to that effect to the Beneficiaries. In such case, the Beneficiaries may cancel their Request
for Exchange which was made before the cessation of acceptance of the Request for Exchange out of those made on the day of the cessation and in such case, it shall be deemed that the Request for Exchange by the Designated Exchange Distributor to be
cancelled with regard to such Application for Exchange. If the Beneficiaries do not cancel such Application for Exchange, such Application for Exchange and the Request for Exchange with regard to such Application for Exchange by the Designated
Exchange Distributor shall be deemed to be accepted on the first Bank Business Day following the termination of such cessation of acceptance of the Request for Exchange.
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|
7.
|
The Beneficiaries shall, upon making the Application for Exchange, bear the Beneficiaries’ Exchange Fee and an amount equivalent to the Consumption Taxes imposed on the Beneficiaries’ Exchange Fee.
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8.
|
If any Application for Exchange or Request for Exchange are made, such Application for Exchange or Request for Exchange may not be withdrawn, cancelled or suspended except in the case specified in Paragraph 6 of this
Article.
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|
9.
|
The Beneficiaries may not make Request for Exchange directly to the Trustees and may only make Application for Exchange pursuant to this Article.
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|
10.
|
Notwithstanding the preceding Paragraph, the Settlor as a Beneficiary may make a Request for Exchange of all or part of the Beneficial Interests held by it to the Trustees through the procedures prescribed by the
Trustees. From Item 3 to item 6 of Paragraph 5 of this Article shall be applied
mutatis mutandis
to the Request for Exchange under this Paragraph.
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|
11.
|
If the Trustees cease acceptance of the Request for Exchange in the case where Request for Exchange has been made under the preceding Paragraph, the Settlor may cancel the Request for Exchange which was made before the
cessation of acceptance of the Request for Exchange out of those made on the day of the cessation. If the Settlor does not cancel such Request for Exchange, such Request for Exchange shall be deemed to be accepted on the first Bank Business Day
following the termination of such cessation of acceptance of the Request for Exchange
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|
12.
|
The Trustees shall, after completion of the Exchange Procedures relating to the Request for Exchange under Paragraph 10 of this Article, deliver the Shares in the Issuer to the Settlor by the Bank Business Day notified
to the Settlor in advance in accordance with the method designated by the Trustees; provided, however, that such delivery may be delayed in the event specified in from Item 3 to item 6 of Paragraph 5 of this Article or in any other unavoidable
circumstances.
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|
13.
|
The Trustees shall, upon acceptance of the Request for Exchange under Paragraph 10 of this Article, request the Settlor who has made such Request for Exchange for payment of the Settlor’s Exchange Fee in up to the
amount to be separately determined and an amount equivalent to the Consumption Taxes imposed on the Settlor’s Exchange Fee.
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Article
64. (Prohibition of Receiving Cash by Partial Cancellation of Trust)
The Beneficiaries may not receive cash by cancelling the Trust
partially.
30
English Translation/For Reference Purpose Only
Chapter 12 Termination
of Trust
Article 65. (Termination of Trust)
Neither the Issuer, the Settlors, the Trustees nor the Beneficiaries shall terminate this Agreement except for the cases set forth in Article
66.
Article 66. (Events of Termination of Trust)
The Trust shall terminate in the case where the events set forth in Items 1 to 8 of Article 163 of the Trust Act or any of the following events
occur at the time of such event; provided, however, that the Trustees may postpone the time of such termination to the time when the Trustees judge appropriate if the Trustees judge it necessary for the protection of the Beneficiaries:
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(1)
|
If the Beneficial Interest is delisted from the Tokyo Stock Exchange (except for cases where it is reasonably expected that such Beneficial Interest will be listed again on any other domestic Financial Instruments
Exchange);
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|
(2)
|
If it becomes necessary to terminate the Trust due to the Laws (including the Laws of the U.S.) or orders of the Court or the Relevant Authorities;
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|
|
(3)
|
If the Trustees determine that the Trust is difficult to survive for the reasons other than those set forth in the preceding Item and the Trustees obtain approval of the Beneficiaries for termination of the Trust
pursuant to the provision of Article 42;
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|
|
(4)
|
If any party of this Agreement (other than the Trustees) is in material breach of its obligations hereunder; provided, however, if the Settlor acknowledges the material breach of this Agreement, the Settlor shall notify
it to the Issuer without delay, and the Trust shall not terminate if, within a reasonable period of receipt of notice by Issuer of such material breach, Issuer replaces Settlor with a replacement Settlor who is approved by Trustees, such approval
not to be unreasonably withheld;
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(5)
|
If a new trustee has not been appointed after resignation or dismissal of the Trustees and it is reasonably expected that such situation will not be cured;
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(6)
|
If a petition for commencement of the Bankruptcy Proceedings is filed against the Issuer and the petition is not rejected or withdrawn within 14 days;
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(7)
|
If an order of liquidation or dissolution is made by the Court which has jurisdiction as to the Issuer or a resolution of liquidation or dissolution is made in force;
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(8)
|
If a default arise as to the monetary liabilities of the Issuer, and continues (provided, however, that this shall not apply where it does not have an adverse material impact on the business management or financial
condition of the Issuer or continuation of the Trust);
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|
(9)
|
If Trust Expenses or Trust Fee is not paid pursuant to this Agreement and it is reasonably expected that such situation will not be cured;
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(10)
|
If JASDEC ceases or cancels treating the Beneficial Interests as the Transferred Beneficiary Interests;
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|
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(11)
|
If the Trust ceases to fall under the specified trust issuing certificate of beneficiary interest provided in Item 29 (c) of Article 2 of Corporation Tax Law;
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|
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(12)
|
If the Beneficial Interest ceases to fall under the Securities Trust Beneficiary Certificate; or
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|
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(13)
|
If the Subscription Agreement or share borrowing agreement which is going to be entered into between specific shareholders of the Issuer and the initial Settlor dated on or about 19 September, 2017 entered into in
connection with the offering of the Certificate of Beneficiary Interests is not effective as of the settlement date of such offering.
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Article 67. (Notice of Events of Termination)
|
1.
|
If the Issuer judges that any event set forth in Article 163, Items 1 to 8 of the Trust Act or each Item (excluding Items 3, 9 and 10) of the preceding Article occurs (or threatens to occur) in its reasonable
discretion, the Issuer shall immediately notify in writing to that effect to the Trustees.
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|
2.
|
If the Trustees come to know that any event set forth in Article 66 occurs, the Trustees shall immediately notify in writing to that effect to the Issuer, except the event which the Issuer notifies to the Trustees
pursuant to the preceding Paragraph.
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31
English Translation/For Reference Purpose Only
Article 68. (Liquidation of Trust)
If the Trust terminates pursuant to Article 66, the Trustees shall perform obligations set forth in Article 177 of the Trust Act.
Article 69. (Distribution of Residual Assets)
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1.
|
The residual assets shall be distributed to the Beneficiaries. Only the Beneficiaries as of Trust Termination Date which is determined to be the Record Date for Determination of Rights shall be entitled to claim for
distribution of the residual assets. The Beneficiaries may not transfer any Beneficial Interests after the Trust Termination Date.
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|
2.
|
If the Trust is terminated, the Trustees shall immediately commence the liquidation proceeding of the Trust on the date on which the Beneficial Interests are delisted from all the relevant Financial Instruments
Exchanges.
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3.
|
In such liquidation proceeding of the Trust, the Trustees shall deliver to the Beneficiaries the amount of proceeds from redemptions Etc. of the Entrusted Shares or the amount of proceeds from the disposal, conducted in
its discretion, of the Entrusted Shares (or the residual assets thereof) in an appropriate manner, less the fee amount specified in Exhibit 2 (hereinafter “Residual Assets Delivery Fee”) and an amount equivalent to withholding taxes and
Consumption Taxes imposed thereon and the Trust Expenses (if any), together with any other monies (if any). Notwithstanding the foregoing, if it is reasonably deemed that such disposal should be difficult, the Trustees may deliver the units of the
Entrusted Shares of which the number is determined by the number of units of Beneficial Interests owned by the Beneficiary divided by the Beneficiary Interest Vesting Rate, without such disposal. The Trustee shall complete the conversion or delivery
within a reasonable period.
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|
4.
|
If the Trustees receive any foreign currency-denominated amount in the course of the liquidation proceeding referred to in the preceding Paragraph, such amount shall be converted to Yen amount by applying, with
necessary modification, the provisions of Article 18.
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|
5.
|
The Trustees shall not be obliged to, and shall not, deliver any interests accrued on the monies received in the course of the liquidation proceeding. In addition, the Trustees shall not pay any interests, etc. accrued
at any other financial institutions during the course of the liquidation proceeding and may receive the same as fees referred to in Paragraph 3.
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|
6.
|
The Trustees shall carry out the delivery of the monies referred to in Paragraph 3 by way of a bank transfer, a transfer to a securities account or by using the Certificate of Payment or otherwise specified by the
Trustees (by only the then practicable method).
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|
7.
|
If the Trustees carry out the delivery by way of a bank transfer or a transfer to a securities account, such delivery obligation of the Trustees set forth in this Article shall be deemed to have been discharged when the
transfer to the bank account or securities account designated by the Beneficiaries is completed.
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|
8.
|
If the Trustees carry out the delivery by using the Certificate of Payment, the Beneficiaries shall receive monies by presenting such certificate to a person to be separately specified by the Trustees (including, but
not limited to, the Trustees and any other financial institutions and postal offices (bank agencies)). In such case, the delivery obligation of the Trustees set forth in this Article shall be deemed to have been discharged when the Beneficiaries
receive the said monies.
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|
9.
|
In the case of using the Certificate of Payment to receive monies, the Beneficiaries shall receive the payment relating to the delivery by no later than the delivery receipt expiration date relating to such delivery.
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|
10.
|
The Trustees shall carry out the delivery by crediting the unpaid amount of monies relating to the delivery to the bank account constituting the Trustees’ Own Assets on the Dividend Transfer Date. On and after the
Dividend Transfer Date, the Beneficiaries shall acquire the right for substitution payment relevant to the delivery for the Trustees’ proprietary account. In such case, the delivery obligation of the Trustees set forth in this Article shall be
deemed to have been discharged when the Beneficiaries acquire the right for substitution payment.
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|
11.
|
If the Beneficiaries have not exercised the right for substitution payment for ten (10) years from the Dividend Transfer Date, such right for substitution payment shall be extinguished by prescription.
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|
12.
|
The Trustees shall, so long as it is not in breach of the duty of care as a good manager, not be held liable for any Damages incurred by the Beneficiaries due to the arrangement provided in this Article.
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32
English Translation/For Reference Purpose Only
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13.
|
Any delivery or disposal of Trust Assets in accordance with Article 68 or this Article shall be subject to such transfer restrictions or other similar restrictions, if any, under the Laws (including the U.S. Laws) as
are applicable to the Issuer or the Trustees.
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Article 70. (Final Calculation)
|
1.
|
The Trustees shall make final calculations concerning the Trust when they have completed the trust administrations set forth in Article 69 and prepare reports on the Entrusted Assets for the final calculation period and
obtain approval of calculation by notifying in writing to all Beneficiaries as of termination of the Trust.
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|
2.
|
Unless the Beneficiaries, etc. have expressed any objection within one (1) month from the time when they received a notice mentioned in the preceding Paragraph of this Article from the Trustees, the relevant
Beneficiaries, Etc. shall be deemed to have provided approval of calculations mentioned in the said Paragraph.
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Chapter
13 Resignation and Dismissal of Trustees
Article
71. (Resignation of Trustee)
|
1.
|
A Trustee may resign by giving three (3) month prior notice to the Beneficiaries, the Tokyo Stock Exchange, JASDEC and the Issuer if such Trustee reasonably judges there is a reasonable reason.
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2
|
If a Trustee resigns pursuant to the preceding Paragraph, the Issuer or the Beneficiaries shall appoint a new trustee. Provided, however, that unless the Issuer or the Beneficiaries appoint any new trustee, the
resigning Trustee shall request the Court to appoint a new trustee.
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|
3
|
If a Trustee resigns pursuant to Paragraph 1 of this Article, the relevant Trustee shall perform calculation of the trust administrations, deliver the Entrusted Assets to a new trustee and handover the trust
administrations.
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|
4.
|
If one of the Trustees resigns or is dismissed in accordance with the terms of this Agreement, then the other Trustee shall be deemed to resign simultaneously.
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Article 72. (Dismissal of Trustee)
|
1.
|
A Trustee shall be dismissed only when it is provided in Article 58, Paragraph 1 or 4 of the Trust Law.
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|
2.
|
In the event of dismissal of a Trustee, the Issuer or the Beneficiaries shall appoint a new trustee. Provided, however, that if the Issuer or the Beneficiaries does appoint a new trustee, the trust shall be terminated
pursuant to Article 66.
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|
3.
|
In the event of dismissal of a Trustee (except the
proviso
in the preceding Paragraph), the dismissed Trustee shall perform calculation of the trust administrations, deliver the Entrusted Assets to a new trustee
and handover the trust administrations.
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|
4.
|
If a Trustee’s service is terminated pursuant to Paragraph 1, the former Trustee shall not give notification provided in Article 59, Paragraph 1 of the Trust Law to the Beneficiaries.
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Chapter 14 Loss of Status of Settlor
Article 73. (Loss of Status of Settlor)
If the Settlor commits a material breach of its obligations under this Agreement or a petition for commencement of the Bankruptcy Proceedings
is filed against the Settlor and the petition is not rejected or withdrawn within a reasonable period, the Trustees may, upon consultation with the Issuer, cause such Settlor to lose its status as a settlor hereunder or thereunder, by providing a
notice to such Settlor. In such event, such Settlor shall remain liable for its obligations under this Agreement arising up to the time of loss of its status as a settlor.
33
English Translation/For Reference Purpose Only
Chapter
15 Miscellaneous
Article 74. (Inspection, Etc. of Books by
Interested Parties set forth in the Trust Law)
The interested parties set forth in Article 38, Paragraph 6 of the Trust Law may inspect or
duplicate the documents such as books in connection with the Trust in accordance with the Paragraph to the extent necessary for them to preserve or exercise their own right.
Article 75. (Tax Procedures)
The Beneficiary shall undertake tax procedures at its own expense and responsibility if it is necessary for the Trust. In addition, the
Trustees shall not be obliged to undertake any tax procedures in connection with the Trust other than those specified to be performed by the Trustees or deemed to be performed by the Trustees under the Laws.
Article 76. (Notification of Seal)
|
1.
|
The Settlors and the Issuer shall notify in writing each seal or signature to the Trustees in advance.
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|
2.
|
If the Settlors and the Issuer appoint an agent, the Settlors and the Issuer shall notify in writing the seal or signature of the relevant agent to the Trustees in advance.
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|
3.
|
If the Trustees verified the seal impression or signature on documents relating to this Agreement with the notified seal or signature and exercised due care in confirming that such seal impression or signature is the
notified seal or signature of the Settlors and the Issuer and distribute the Entrusted Assets or performs any other procedures, the Trustees shall not be held liable for any Damages to the Entrusted Assets or incurred by the Settlors, the Issuer or
agents thereof arising from forgery of the seal or signature, theft of the seal or other circumstances involving the seal or signature.
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Article 77. (Information concerning Taxation)
The Trustees (including their agents or the Custodian) may submit the required information concerning the tax practice of the Settlor or the Beneficiaries to
the relevant authorities (including foreign authorities).
Article 78. (Matters to be Notified)
|
1.
|
In any of the following events, the Settlors or the Issuer shall immediately undertake the prescribed measures by notification to MUTB. In such case, MUTB shall notify MTBJ of the above.
|
|
|
(1)
|
If the Settlors or the Issuer loses the seal for the agreement or the notified seal.
|
|
|
(2)
|
If any change occurs to the name, address, seal, signature, organization or representative or any other similar matters of the relevant Settlors or the Issuer.
|
|
2.
|
The Trustees shall not be liable for any Damages arising from the delay in measures set forth in the preceding Paragraph.
|
Article 79. (Public Notice)
If the Trustees make a public notice in connection with this Agreement, the Trustees shall comply with the means of a public notice considered
to be appropriate by the Trustees (including, but not limited to, the period of public notice) except as otherwise specified in Laws.
Article
80. (Cooperation Regulations of Issuer)
The Issuer shall give such cooperation as required for the continuation of
the Trust.
Article 81. (Exoneration of the Trustees)
|
1.
|
If the Trustees perform such business as is to be performed by the Trustees under this Agreement pursuant to Article 4, Paragraph 3, the Trustees shall not be liable for Damages incurred by the Settlors, the
Beneficiaries or the Issuer.
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2
|
If a Settlor or the Issuer fails or delays in the performance of its obligations set forth in this Agreement and the Beneficiaries incur any Damages attributable to such failure or delay, the Trustees shall not be
liable for such Damages.
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34
English Translation/For Reference Purpose Only
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3
|
If the Certificates of Beneficiary Interest of the Trust are not allowed to be listed to or are delisted from the Tokyo Stock Exchange due to the actions of the Settlors or the Issuer, the Trustees shall not be liable
for Damages arising from such disallowance or delisting incurred by the Beneficiaries, the Settlors or the Issuer and shall not be obliged to pay cost and expenses relating thereto.
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|
4
|
The Trustees shall not be obliged to confirm whether the instructions concerning the trust administrations are true or appropriate and shall not be liable as long as the Trustees administer trust administrations in
accordance with such instructions.
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5
|
The Trustees shall not be liable for the following to the Beneficiaries. Provided, however, that this shall not apply unless the Trustees administer the trust administrations in accordance with Article 4, Paragraph 3:
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|
|
(1)
|
the consequences of any action which this Agreement sets forth that the Trustees may perform at its discretion after determining such action may be lawful or theoretically practicable
|
|
|
(2)
|
the content of any information submitted by the Issuer in connection with distribution to the Beneficiaries and for any inaccuracy of any translation thereof
|
|
|
(3)
|
the validity or worth of the Entrusted Shares and Other Securities
|
|
|
(4)
|
any tax consequences that may result from the ownership of Certificates of Beneficiary Interest by the Beneficiaries
|
|
|
(5)
|
timeliness of any notice from the Issuer to the Beneficiaries through the Trustees
|
|
|
(6)
|
any investment risk taken by the Beneficiaries which is associated with acquiring any Beneficiary Interest (including changes in the prices of the Entrusted Shares and the Beneficiary Interest).
|
Article 82. (Exoneration of Trustees, Issuer and Settlors)
|
1.
|
The Trustees, the Issuer and the Settlors shall not be liable in any of the following cases.
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|
|
(1)
|
If any of the Trustees, the Issuer or the Settlors is prevented or forbidden from, or delayed in, performing any obligation under this Agreement due to the following reasons:
|
(i) enactment, abolishment or amendment of future Laws of Japan, the U.S. or any other country, or of any other governmental authority or
regulatory authority or financial instruments exchange
(ii) the articles of incorporation and other bylaws (including those will come into
force hereafter)
(iii) any act of extraordinary natural phenomena, war, other circumstances beyond its control (including but not limited
to nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, acts of terrorism, use of chemical, biological and electromagnetic weapons, revolutions, rebellions, breakdown of system for electricity, communication
or clearing system, system-down)
|
|
(2)
|
for the inability by the Beneficiaries to benefit from any distribution, etc. or benefit intended by this Agreement which is made available to holders of the Entrusted Shares and Other Securities when the Trustees,
Issuer of the Settlors perform the obligations hereunder in accordance with this Agreement
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(3)
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for any consequential Damages for any breach of the provisions of this Agreement by the Trustees, the Issuer or the Settlors
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2.
|
The Trustees, the Custodian or their agents shall not be liable to the Beneficiaries unless they breach their obligations to conduct duties with the care of good manager.
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3.
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The Issuer assumes no obligations (fiduciary or otherwise), and shall not be subject to any liability under this Agreement or any Certificate of Beneficiary Interest, to the Trustees, the Settlors or any Beneficiaries,
except for the Issuer’s obligations specifically set forth in this Agreement and the liability arising out of any breach of such obligations with negligence or bad faith.
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Article 83. (No Further Liability of Settlors)
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1.
|
No Settlor shall have any obligations or liabilities under this Agreement other than the making of the initial or
additional entrustments, as the case may be, under Article 6 or Article 7 of this Agreement. The Issuer, the Trustees and the Beneficiaries hereby waive, to the fullest extent
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35
English Translation/For Reference Purpose Only
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permitted by the Laws, any and all rights or claims against the Settlors arising from or in connection with this Agreement and the transactions contemplated hereby. For the avoidance of doubt,
this paragraph shall not apply to the extent of the rights and claims the Issuer may acquire against the Initial Settlor pursuant to the Subscription Agreement.
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2.
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Notwithstanding the preceding Paragraph, the Trustees may make monetary claims on behalf of itself or the Beneficiaries against any Settlor for the Damages only in respect of a breach of a representation or warranty
given by such Settlor in Article 3 of this Agreement.
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Article 84. (Indemnification to Settlors)
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1.
|
The Issuer agrees to indemnify and hold harmless each Settlor and their affiliates, and each of their respective directors, officers, employees agents and representatives, with respect to the Damages, resulting from,
connected with, or arising out of, under, or pursuant to such Settlor’s being a party to or acting as a Settlor under this Agreement or otherwise in respect of its role as Settlor hereunder; provided, however, that no indemnification shall be
available to any Settlor if such Damages are due to (i) any breach of this Agreement by such Settlor or (ii) the negligence or bad faith of such Settlor.
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2.
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The obligations set forth in this Article shall survive the termination of this Agreement and the succession or substitution of any party hereto.
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Article 85. (Indemnification of Trustees and Issuer)
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1.
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The Trustees agree to indemnify the Issuer or the Settlors, and each of their directors, officers, employees, agents and affiliates against the Damages which may arise out of acts performed or omitted by the Trustees or
its agents (including the Custodian).
The Damage etc. which is covered by this Paragraph does not include the damage of anticipated benefits and opportunity losses. In addition, the Trustees are not liable for the Damages caused by special
circumstances and the Damages caused indirectly through the direct damage of a victim unless the Trustees foresee or could foresee such circumstances or the Trustees foresee or could foresee that such Damages could be incurred by directors,
officers, agents or related companies of the Issuer or the Settlor respectively.
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2.
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The Issuer agrees to indemnify the Trustees, the Custodian or the Settlors, and any of their respective directors, officers, employees, agents and affiliates against, and hold each of them harmless from, Damages that
may arise (a) out of or in connection with any offer, issuance, sale, resale, transfer, entrustment or withdrawal of the Beneficiary Interest, the Entrusted Shares, or the Entrusted Shares and Other Securities, as the case may be, (b) out
of or as a result of any offering documents in respect thereof or (c) out of acts performed or omitted, including, but not limited to, any delivery by the Trustees on behalf of the Issuer of information regarding the Issuer in connection with
this Agreement, which information is provided in writing by the Issuer to the Trustees, the Beneficiary Interest, the Entrusted Shares, and Other Securities, in any such case (i) by the Trustees, the Custodian or any of their respective
directors, officers, employees, agents and affiliates, except to the extent such Damages are due to the negligence or bad faith of any of them, or (ii) by the Issuer or any of its directors, officers, employees and affiliates.
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3.
|
The obligations set forth in this Article shall survive the termination of this Agreement and the succession or substitution of any party hereto.
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4.
|
Any person seeking indemnification hereunder (an “indemnified person” in this Paragraph) shall notify in writing the person from whom it is seeking indemnification (the “indemnifying person” in this
Paragraph) of the commencement of any indemnifiable action or claim promptly after such indemnified person becomes aware of such commencement (provided that the failure to make such notification shall not affect such indemnified person’s rights
to seek indemnification except to the extent the indemnifying person is materially prejudiced by such failure) and shall consult in good faith with the indemnifying person as to the conduct of the defense of such action or claim that may give rise
to an indemnity hereunder, which defense shall be reasonable in the circumstances. No indemnified person shall compromise or settle any action or claim that may give rise to an indemnity hereunder without the consent of the indemnifying person,
which consent shall not be unreasonably withheld.
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36
English Translation/For Reference Purpose Only
Article 86. (Notification between the Parties)
Any and all notices to be given to the Trustees, the Settlors or the Issuer shall be delivered by hand or sent by mail or other method of
delivery, facsimile transmission or communication through the internet and so on (provided, however, that each such means shall be able to be confirmed of receipt), addressed to the respective address separately submitted between the parties.
Article 87. (Relationship with the Laws)
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1.
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Any matters not stipulated in this Agreement but stipulated in the applicable Laws shall be subject to the provisions of such Laws.
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2.
|
If any Laws related to this Agreement are changed, the provisions of this Agreement shall be read in accordance with such change.
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Article 88. (Severability)
In case any of the provisions contained in this Agreement should be or become invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall in no way be affected.
Article 89. (Governing Law;
Jurisdiction)
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1.
|
This Agreement and the Beneficiary Interest shall be governed by the laws of Japan, and the Japanese Standard Time shall be used for dates hereunder.
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2.
|
Notwithstanding the preceding Paragraph, the right of holders of the Shares in the Issuer (including securities delivered associated with them) and responsibility and obligations of the Issuer against the holders of the
Shares in the Issuer shall be governed by the laws of the U.S.
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3.
|
In the event of any dispute arising in connection with this Agreement and the Beneficiary Interest, the Tokyo District Court shall be the exclusive court of first instance.
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Article 90. (Original)
The Japanese language version of this Agreement shall be original.
Article 91. (Standing Proxy)
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1.
|
According to the provisions of the Listing Regulations, Etc., the Issuer shall appoint a standing proxy to cause it to perform the acts related to this Agreement in Japan.
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2.
|
The Issuer shall notify the Trustees of the standing proxy as of the Date of this Agreement in writing.
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3.
|
Any change of the standing proxy in the preceding Paragraph shall be notified by the Issuer to the Trustees in advance through the former and new standing proxies.
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[Remainder of this page intentionally left blank]
37
English Translation/For Reference Purpose Only
IN WITNESS WHEREOF, this Agreement has been executed in four (4) by the Initial Settlor and each of the
Trustees and the Issuer, retaining one (1) each.
31 August, 2017
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Issuer
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2550 N. First Street, #550, San Jose, CA 95131 USA
Techpoint, Inc.
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Settlor
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5-1,
Otemachi
1-Chome,
Chiyoda-ku, Tokyo
Mizuho Securities Co., Ltd.
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Trustee
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4-5,
Marunouchi
1-Chome,
Chiyoda-ku, Tokyo
Mitsubishi UFJ Trust and Banking Corporation
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Trustee
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11-3,
Hamamatsucho
2-Chome,
Minato-ku, Tokyo
The Master Trust Bank of Japan, Ltd.
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End
38
English Translation/For Reference Purpose Only
(Exhibit 1)
Exhibit 1 Shares in the Issuer
The Shares in the Issuer which Article 2, Item 83 of this Agreement intends to provide for in this Exhibit 1shall be set out as follows:
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Shares in the Issuer
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Techpoint Common Stock
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39
English Translation/For Reference Purpose Only
(Exhibit 2)
Exhibit 2 Trust Fees and Commission Charges
Matters which this Agreement intends to provide for in this Exhibit 2 shall be set out as follows:
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Relevant Article
in the Agreement
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Matter intended to be provided
for in this Exhibit 2
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Provision in
this Exhibit 2
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Article 20, Paragraph 3
|
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Maximum amount of the fee relating to the payment of distributions
|
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The amount obtained by multiplying the fractional amount less than 1 yen out of the balance to be obtained by dividing the total amount converted into yen the total number of units of the Beneficiary Interest. (including the
Consumption Taxes)
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Article 63, Paragraph 5
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Beneficiaries’ Exchange Fee
|
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5,000 yen per one time, per Beneficiary (excluding the Consumption Taxes)
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Article 69, Paragraph 3
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Residual Assets Delivery Fee
|
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A maximum of 1 yen plus any fractions less than 1 yen arising in the calculation process, per unit of the Relevant Beneficiary Interests (including the Consumption Taxes)
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40
English Translation/For Reference Purpose Only
(Exhibit 3)
Exhibit 3 Beneficiary Interest Vesting Rate
The Beneficiary Interest Vesting Rate which Article 2, Item 36 of this Agreement intends to provide for in this Exhibit 3 shall be set out as follows:
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Beneficiary Interest Vesting Rate
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100%
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41
English Translation/For Reference Purpose Only
(Exhibit 4)
Exhibit 4 Memorandum on Addition of Settlor (Form)
[ ] (hereinafter “Participant”), Mitsubishi UFJ Trust and Banking Corporation
(hereinafter “MUTB”) and The Master Trust Bank of Japan, Ltd. (hereinafter “MTBJ,” and together with MUTB, hereinafter, collectively, “Trustees”) hereby enter into this Memorandum on Addition of Settlor as of
31 August, 2017 (hereinafter this “Memorandum”) subject to the provisions set forth below, pursuant to the Article 31, Paragraph 3 of the Techpoint, Inc Listed Foreign Stock Trust Beneficiary Certificates Beneficiary Interest Issuance
Trust Agreement and Agreement regarding Issuer dated [MM] [DD], [YYYY], by and among Mizuho Securities Co., Ltd., the Trustees and Techpoint, Inc (hereinafter “The Agreement”). Unless otherwise provided, the terms used in this Memorandum
shall have the meanings assigned thereto in the Agreement.
Article 1 (Participation to the Agreement)
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1.
|
The Participant and the Trustees agree that the Participants shall be added to the parties of the Agreement as the Settlor.
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2.
|
The Participant shall have its status, rights and obligations as the Settlor under the Agreement starting at the time of the additional entrustment pursuant to Article 7, Paragraph 1.
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Article 2 (Matters to be Discussed)
Matters not stipulated in or any doubt or question concerning the construction or application of provisions of the Agreement shall be solved by agreement based
on discussions among the Participant and the Trustees.
Article 3 (Governing Law/Jurisdiction)
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1.
|
This Memorandum shall be governed by the laws of Japan.
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2.
|
In the event of any disputes arising in connection with this Memorandum, The Tokyo District Court shall be the exclusive court of the first instance.
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Article 4 (Language)
The Japanese
version of this Memorandum shall be deemed as the original. If this Memorandum is translated into other languages and any inconsistency between the Japanese version and such translation occurs, the Japanese version shall prevail.
[Remainder of this page intentionally left blank]
42
English Translation/For Reference Purpose Only
IN WITNESS WHEREOF, the Participant and the respective Trustees have caused this Memorandum to be executed in
triplicate, each retaining one (1) original.
[YY/MM/DD]
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Participant:
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Trustee
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Mitsubishi UFJ Trust and Banking Corporation
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Trustee
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The Master Trust Bank of Japan, Ltd.
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43
English Translation/For Reference Purpose Only
(Exhibit 5)
Exhibit 5 Exception Days for Requests
Article 57, Paragraph 1
Exception Days for
Requests
|
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(i)
|
A day other than a Bank Business Day;
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(ii)
|
A day other than a day when commercial banks and foreign exchange markets are clearing payments and carrying out their ordinary business operations (including foreign exchange and foreign currency deposit transactions)
in New York; and
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(iii)
|
If the Shares in the Issuer are listed, a day other than a trading day of the Stock Exchanges on which Shares in the Issuer is listed.
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-End-
44
Exhibit 10.1
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the “
Agreement
”), is dated as of
, 20 , between Techpoint, Inc., a Delaware corporation (the “
Corporation
”), and
(“
Indemnitee
”).
W I T N E S S E T H:
WHEREAS,
Indemnitee is either a member of the board of directors of the Corporation (the “
Board of Directors
”) or an officer of the Corporation, or both, and in such capacity or capacities, or otherwise as an Agent (as hereinafter
defined) of the Corporation, is performing a valuable service for the Corporation; and
WHEREAS, the Corporation is aware that competent
and experienced persons are increasingly reluctant to serve as directors or officers of corporations or other business entities unless they are protected by comprehensive indemnification and liability insurance, due to increased exposure to
litigation costs and risks resulting from their service to such corporations, and because the exposure frequently bears no reasonable relationship to the compensation of such directors and officers; and
WHEREAS, the Board of Directors of the Corporation has concluded that, to retain and attract talented and experienced individuals to serve or
continue to serve as officers or directors of the Corporation or as an Agent, and to encourage such individuals to take the business risks necessary for the success of the Corporation, it is necessary for the Corporation contractually to indemnify
directors, officers and Agents and to assume for itself to the fullest extent permitted by law expenses and damages in connection with claims against such officers, directors and Agents in connection with their service to the Corporation; and
WHEREAS, Section 145 of the General Corporation Law of the State of Delaware (the “
DGCL
”), under which the
Corporation is organized, empowers the Corporation to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Corporation, as directors, officers, employees or agents of other corporations
or enterprises, and expressly provides that the indemnification provided by the DGCL is not exclusive; and
WHEREAS, the Corporation
desires and has requested the Indemnitee to serve or continue to serve as a director, officer or Agent of the Corporation free from undue concern for claims for damages arising out of or related to such services to the Corporation; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Corporation on the
condition that he or she be indemnified as herein provided; and
WHEREAS, it is intended that Indemnitee shall be paid promptly by the
Corporation all amounts necessary to effectuate in full the indemnity provided herein; and
WHEREAS, certain defined terms are set forth in Section 17 below:
NOW, THEREFORE, in consideration of the premises and the covenants in this Agreement, and of Indemnitee serving or continuing to serve the
Corporation as an Agent and intending to be legally bound hereby, the parties hereto agree as follows:
1.
Services by Indemnitee
. Indemnitee agrees to serve or continue to serve (a) as a director or an officer
of the Corporation, or both, so long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the Certificate of Incorporation and bylaws of the Corporation, and until such time as Indemnitee resigns
or fails to stand for election or is removed from Indemnitee’s position, or (b) otherwise as an Agent of the Corporation. Indemnitee may from time to time also perform other services at the request or for the convenience of, or otherwise
benefiting the Corporation or any subsidiary of the Corporation. Indemnitee may at any time and for any reason resign or be removed from such position (subject to any other contractual obligation or other obligation imposed by operation of law), in
which event the Corporation shall have no obligation under this Agreement to continue Indemnitee in any such position.
2.
Indemnification
of
Indemnitee
. Subject to the limitations set forth herein and particularly in
Section 6 hereof, the Corporation hereby agrees to indemnify Indemnitee as follows:
(a) The Corporation
shall, with respect to any Proceeding (as hereinafter defined), indemnify Indemnitee to the fullest extent permitted by applicable law or as such law may from time to time be amended (but, in the case of any such amendment, only to the extent such
amendment permits the Corporation to provide broader indemnification rights than the law permitted the Corporation to provide before such amendment). The right to indemnification conferred herein shall be presumed to have been relied upon by
Indemnitee in serving or continuing to serve the Corporation as an Agent and shall be enforceable as a contract right. Without in any way diminishing the scope of the indemnification provided by this Section 2(a), the rights of indemnification
of Indemnitee shall include but shall not be limited to those rights hereinafter set forth.
(b) The Corporation
shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any Proceeding (other than an action by or in the right of the Corporation) by reason of the fact that Indemnitee is or was an Agent of the
Corporation, or any subsidiary of the Corporation, or by reason of the fact that Indemnitee is or was serving at the request of the Corporation as an Agent of another corporation, partnership, joint venture, trust or other enterprise, against
Expenses (as hereinafter defined) or Liabilities (as hereinafter defined), actually and reasonably incurred by Indemnitee in connection with such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee 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 Indemnitee’s conduct was unlawful.
2
(c) The Corporation shall indemnify Indemnitee if Indemnitee was or is a
party or is threatened to be made a party to any Proceeding by or in the right of the Corporation or any subsidiary of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee is or was an Agent of the Corporation, or
any subsidiary of the Corporation, or by reason of the fact that Indemnitee is or was serving at the request of the Corporation as an Agent of another corporation, partnership, joint venture, trust or other enterprise, against Expenses and, to the
fullest extent permitted by law, Liabilities if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect
of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of
Delaware or such other court shall deem proper.
3.
Advancement of Expenses
. All reasonable Expenses
incurred by or on behalf of Indemnitee (including costs of enforcement of this Agreement) shall be advanced from time to time by the Corporation to Indemnitee within thirty (30) days after the receipt by the Corporation of a written request for
an advance of Expenses, whether prior to or after final disposition of a Proceeding (except to the extent that there has been a Final Adverse Determination (as hereinafter defined) that Indemnitee is not entitled to be indemnified for such
Expenses), including without limitation any Proceeding brought by or in the right of the Corporation. The written request for an advancement of any and all Expenses under this paragraph shall contain reasonable detail of the Expenses incurred by
Indemnitee. In the event that such written request shall be accompanied by an affidavit of counsel to Indemnitee to the effect that such counsel has reviewed such Expenses and that such Expenses are reasonable in such counsel’s view, then such
expenses shall be deemed reasonable in the absence of clear and convincing evidence to the contrary. By execution of this Agreement, Indemnitee shall be deemed to have made whatever undertaking as may be required by law at the time of any
advancement of Expenses with respect to repayment to the Corporation of such Expenses. In the event that the Corporation shall breach its obligation to advance Expenses under this Section 3, the parties hereto agree that Indemnitee’s
remedies available at law would not be adequate and that Indemnitee would be entitled to specific performance.
4.
Presumptions and Effect of Certain Proceedings
. Upon making a request for indemnification, Indemnitee shall
be presumed to be entitled to indemnification under this Agreement and the Corporation shall have the burden of proof to overcome that presumption in reaching any contrary determination. The termination of any Proceeding by judgment, order,
settlement, arbitration award or conviction, or upon a plea of nolo contendere or its equivalent shall not affect this presumption or, except as determined by a judgment or other final adjudication adverse to Indemnitee, establish a presumption with
regard to any factual matter relevant to determining Indemnitee’s rights to indemnification hereunder. If the person or persons so empowered to make a determination pursuant to Section 5 hereof shall have failed to make the requested
determination within the period provided for in Section 5 hereof, a determination that Indemnitee is entitled to indemnification shall be deemed to have been made.
3
5.
Procedure for Determination of Entitlement to Indemnification
.
(a) Whenever Indemnitee believes that Indemnitee is entitled to indemnification pursuant to this Agreement,
Indemnitee shall submit a written request for indemnification to the Corporation. Any request for indemnification shall include sufficient documentation or information reasonably available to Indemnitee for the determination of entitlement to
indemnification. In any event, Indemnitee shall submit Indemnitee’s claim for indemnification within a reasonable time, not to exceed five (5) years after any judgment, order, settlement, dismissal, arbitration award, conviction,
acceptance of a plea of nolo contendere or its equivalent, or final determination, whichever is the later date for which Indemnitee requests indemnification. The Secretary or other appropriate officer shall, promptly upon receipt of
Indemnitee’s request for indemnification, advise the Board of Directors in writing that Indemnitee has made such request. Determination of Indemnitee’s entitlement to indemnification shall be made not later than sixty (60) days after
the Corporation’s receipt of Indemnitee’s written request for such indemnification, provided that any request for indemnification for Liabilities, other than amounts paid in settlement, shall have been made after a determination thereof in
a Proceeding. If it is so determined that the Indemnitee is entitled to indemnification, and Indemnitee has already paid the Liabilities, reimbursement to the Indemnitee shall be made within ten (10) days after such determination; otherwise,
the Corporation shall pay the Liabilities on behalf of the Indemnitee if and when the Indemnitee becomes legally obligated to make payment.
(b) The Corporation shall be entitled to select the forum in which Indemnitee’s entitlement to indemnification
will be heard;
provided
,
however
, that if there is a Change in Control of the Corporation, Independent Legal Counsel (as hereinafter defined) shall determine whether Indemnitee is entitled to indemnification. The forum shall be any one
of the following:
(i) a majority vote of Disinterested Directors (as hereinafter defined), even
though less than a quorum;
(ii) by a committee of Disinterested Directors designated by majority
vote of Disinterested Directors, even though less than a quorum;
(iii) Independent Legal Counsel,
whose determination shall be made in a written opinion; or
(iv) the stockholders of the
Corporation.
6.
Specific Limitations on Indemnification
. Notwithstanding anything in this Agreement to the
contrary, the Corporation shall not be obligated under this Agreement to make any payment to Indemnitee with respect to any Proceeding:
(a) To the extent that payment is actually made to Indemnitee under any insurance policy, or is made to Indemnitee by
the Corporation or an affiliate otherwise than pursuant to this Agreement. Notwithstanding the availability of such insurance, Indemnitee also may claim indemnification from the Corporation pursuant to this Agreement by assigning to the Corporation
any claims under such insurance to the extent Indemnitee is paid by the Corporation;
4
(b) Provided there has been no Change in Control, for Liabilities in
connection with Proceedings settled without the Corporation’s consent, which consent, however, shall not be unreasonably withheld;
(c) For an accounting of profits made from the purchase or sale by Indemnitee of securities of the Corporation within
the meaning of section 16(b) of the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”), or similar provisions of any state statutory or common law;
(d) To the extent it would be otherwise prohibited by law, if so established by a judgment or other final adjudication
adverse to Indemnitee; or
(e) In connection with a Proceeding commenced by Indemnitee (other than a Proceeding
commenced by Indemnitee to enforce Indemnitee’s rights under this Agreement) unless the commencement of such Proceeding was authorized by the Board of Directors.
7.
Fees and Expenses of Independent Legal Counsel
. The Corporation agrees to pay the reasonable fees and
expenses of Independent Legal Counsel should such Independent Legal Counsel be retained to make a determination of Indemnitee’s entitlement to indemnification pursuant to Section 5(b) of this Agreement, and to fully indemnify such
Independent Legal Counsel against any and all expenses and losses incurred by any of them arising out of or relating to this Agreement or their engagement pursuant hereto.
8.
Remedies of
Indemnitee
.
(a) In the event that (i) a determination pursuant to Section 5 hereof is made that Indemnitee is not entitled
to indemnification, (ii) advances of Expenses are not made pursuant to this Agreement, (iii) payment has not been timely made following a determination of entitlement to indemnification pursuant to this Agreement, or (iv) Indemnitee
otherwise seeks enforcement of this Agreement, Indemnitee shall be entitled to a final adjudication in the Court of Chancery of the State of Delaware of the remedy sought. Alternatively, unless court approval is required by law for the
indemnification sought by Indemnitee, Indemnitee at Indemnitee’s 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 now in effect,
which award is to be made within ninety (90) days following the filing of the demand for arbitration. The Corporation shall not oppose Indemnitee’s right to seek any such adjudication or arbitration award. In any such proceeding or
arbitration Indemnitee shall be presumed to be entitled to indemnification and advancement of Expenses under this Agreement and the Corporation shall have the burden of proof to overcome that presumption.
(b) In the event that a determination that Indemnitee is not entitled to indemnification, in whole or in part, has been
made pursuant to Section 5 hereof, the decision in the judicial proceeding or arbitration provided in paragraph (a) of this Section 8 shall be made
de novo
and Indemnitee shall not be prejudiced by reason of a determination
that Indemnitee is not entitled to indemnification.
5
(c) If a determination that Indemnitee is entitled to indemnification has
been made pursuant to Section 5 hereof, or is deemed to have been made pursuant to Section 4 hereof or otherwise pursuant to the terms of this Agreement, the Corporation shall be bound by such determination.
(d) The Corporation shall be precluded from asserting that the procedures and presumptions of this Agreement are not
valid, binding and enforceable. The Corporation shall stipulate in any such court or before any such arbitrator that the Corporation is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary.
(e) Expenses reasonably incurred by Indemnitee in connection with Indemnitee’s request for indemnification under,
seeking enforcement of or to recover damages for breach of this Agreement shall be advanced by the Corporation when and as incurred by Indemnitee irrespective of any Final Adverse Determination that Indemnitee is not entitled to indemnification.
9.
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 Corporation, in lieu of indemnifying Indemnitee, shall contribute to the amount 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 claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding
in order to reflect (i) the relative benefits received by the Corporation and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Corporation (and its
directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
10.
Maintenance of Insurance
. The Corporation represents that it presently has in place certain directors’
and officers’ liability insurance policies covering its directors and officers of the Corporation and the directors and officers of the wholly-owned subsidiaries of the Corporation. Subject only to the provisions within this Section 10,
the Corporation agrees that so long as Indemnitee shall have consented to serve or shall continue to serve as a director or officer of the Corporation, or both, or as an Agent of the Corporation, and thereafter so long as Indemnitee shall be subject
to any possible Proceeding (such periods being hereinafter sometimes referred to as the “
Indemnification Period
”), the Corporation will use all reasonable efforts to maintain in effect for the benefit of Indemnitee one or
more valid, binding and enforceable policies of directors’ and officers’ liability insurance from established and reputable insurers, providing, in all respects, coverage both in scope and amount which is no less favorable than that
presently provided or, following the Corporation’s initial public offering, than that provided as of the time of such initial public offering. Notwithstanding the foregoing, the Corporation shall not be required to maintain said policies of
directors’ and officers’ liability insurance during any time period if during such period such insurance is not reasonably available or if it is determined in good faith by the then directors of the Corporation either that:
(i) The premium cost of maintaining such insurance is substantially disproportionate to the amount of
coverage provided thereunder; or
6
(ii) The protection provided by such insurance is so
limited by exclusions, deductions or otherwise that there is insufficient benefit to warrant the cost of maintaining such insurance.
Anything in this Agreement to the contrary notwithstanding, to the extent that and for so long as the Corporation shall choose to continue to
maintain any policies of directors’ and officers’ liability insurance during the Indemnification Period, the Corporation shall maintain similar and equivalent insurance for the benefit of Indemnitee during the Indemnification Period
(unless such insurance shall be less favorable to Indemnitee than the Corporation’s existing policies).
11.
Modification, Waiver, Termination and Cancellation
. No supplement, modification, termination, cancellation
or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver.
12.
Subrogation
. In the event of
payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights.
13.
Notice by Indemnitee and Defense of Claim
. Indemnitee shall promptly notify the Corporation in writing upon
being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter, whether civil, criminal, administrative or investigative that may result in the right to indemnification or the
advancement of Expenses, but the omission so to notify the Corporation will not relieve it from any liability that it may have to Indemnitee if such omission does not prejudice the Corporation’s rights. If such omission does prejudice the
Corporation’s rights, the Corporation will be relieved from liability only to the extent of such prejudice. Notwithstanding the foregoing, such omission will not relieve the Corporation from any liability that it may have to Indemnitee
otherwise than under this Agreement. With respect to any Proceeding as to which Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at its own expense; and
(b) The Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense
thereof, with counsel reasonably satisfactory to Indemnitee;
provided
,
however
, that the Corporation shall not be entitled to assume the defense of any Proceeding if there has been a Change in Control or if Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the Corporation and Indemnitee with respect to such Proceeding. After notice from the Corporation to Indemnitee of its election to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the
right to employ Indemnitee’s own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless:
(i) the employment of counsel by Indemnitee has been authorized by the Corporation;
7
(ii) Indemnitee shall have reasonably concluded that
counsel engaged by the Corporation may not adequately represent Indemnitee due to, among other things, actual or potential differing interests; or
(iii) the Corporation shall not in fact have employed counsel to assume the defense in such Proceeding
or shall not in fact have assumed such defense and be acting in connection therewith with reasonable diligence; in each of which cases the fees and expenses of such counsel shall be at the expense of the Corporation.
(c) The Corporation shall not settle any Proceeding in any manner that would impose any penalty or limitation on
Indemnitee without Indemnitee’s written consent;
provided
,
however
, that Indemnitee will not unreasonably withhold his or her consent to any proposed settlement.
14.
Notices
. All notices, requests, demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third
business day after the date on which it is so mailed:
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(a)
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If to Indemnitee, to the address set forth below Indemnitee’s signature on the signature page hereof.
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(b)
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If to the Corporation, to:
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Techpoint, Inc.
2550 N 1
st
St, San Jose, CA 95131
Attn: Chief Financial Officer
or to such other
address as may have been furnished to Indemnitee by the Corporation or to the Corporation by Indemnitee, as the case may be.
15.
Nonexclusivity
. The rights of Indemnitee hereunder shall not be deemed exclusive of any other rights to
which Indemnitee may be entitled under applicable law, the Corporation’s Certificate of Incorporation or Bylaws, or any agreements, vote of stockholders, resolution of the Board of Directors or otherwise, and to the extent that during the
Indemnification Period the rights of the then existing directors and officers are more favorable to such directors or officers than the rights currently provided to Indemnitee thereunder or under this Agreement, Indemnitee shall be entitled to the
full benefits of such more favorable rights.
8
16.
Indemnification and Advancement Rights Primary
. The Corporation
hereby acknowledges that Indemnitee has or may have certain rights to indemnification, advancement of expenses and/or insurance provided by one or more parties other than the Corporation or an affiliate of the Corporation (collectively, the
“
Secondary Indemnitors
”). The Corporation hereby acknowledges and the Corporation and Indemnitee hereby agree: (i) that the Corporation is the indemnitor of first resort; i.e., its obligations to Indemnitee are primary
and any obligation of the Secondary Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary; (ii) that the Corporation 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 Certificate
of Incorporation and/or Bylaws of the Corporation (or any other agreement between the Corporation and Indemnitee), without regard to any rights Indemnitee may have against the Secondary Indemnitors; and (iii) that the Corporation irrevocably
waives, relinquishes and releases the Secondary Indemnitors from any and all claims against the Secondary Indemnitors that the Corporation may have for contribution, subrogation or any other recovery of any kind in respect thereof. The Corporation
further agrees that no advancement or payment by the Secondary Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Corporation shall affect the foregoing and the Secondary
Indemnitors shall have a right of contribution and/or subrogation to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Corporation. The Corporation and Indemnitee agree that the Secondary
Indemnitors are express third party beneficiaries of the terms of this provision.
17.
Certain Definitions
.
(a) “
Agent
” shall mean any person who is or was, or who has consented to serve as, a
director, officer, employee, agent, fiduciary, joint venturer, partner, manager or other official of the Corporation or a subsidiary or an affiliate of the Corporation, or any other entity (including without limitation, an employee benefit plan), in
each case either at the request of, for the convenience of, or otherwise to benefit the Corporation or a subsidiary or an affiliate of the Corporation, including but not limited to Techpoint, Inc., a California corporation. Any person who is or was
serving as a director, officer, employee or agent of a subsidiary of the Corporation shall be deemed to be serving, or have served, at the request of the Corporation.
(b) “
Change in Control
” shall mean the occurrence, after the Corporation’s initial public
offering, of any of the following:
(i) Both (A) any “person” (as defined below) is
or becomes the “beneficial owner” (as defined in Rule
13d-3
under the Exchange Act), directly or indirectly, of securities of the Corporation representing at least twenty percent (20%) of the total
voting power represented by the Corporation’s then outstanding voting securities and (B) the beneficial ownership by such person of securities representing such percentage is not approved by a majority of the “Continuing
Directors” (as defined below);
(ii) Any “person” is or becomes the “beneficial
owner” (as defined in Rule
13d-3
under the Exchange Act), directly or indirectly, of securities of the Corporation representing at least fifty percent (50%) of the total voting power represented by the
Corporation’s then outstanding voting securities;
9
(iii) A change in the composition of the Board of
Directors occurs, as a result of which fewer than
two-thirds
of the incumbent directors are directors (the “
Continuing Directors
”) who either (A) had been directors of the
Corporation on the “look-back date” (as defined below) (the “
Original Directors
”) or (B) were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority in
the aggregate of the Original Directors who were still in office at the time of the election or nomination and directors whose election or nomination was previously so approved;
(iv) The stockholders of the Corporation approve a merger or consolidation of the Corporation with any
other corporation, if such merger or consolidation would result in the voting securities of the Corporation outstanding immediately prior thereto representing (either by remaining outstanding or by being converted into voting securities of the
surviving entity) 50% or less of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation; or
(v) The stockholders of the Corporation approve (A) a plan of complete liquidation of the
Corporation or (B) an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation’s assets.
For purposes of Subsections (i) and (ii) above, the term “
person
” shall have the same meaning as when used in
sections 13(d) and 14(d) of the Exchange Act, but shall exclude (x) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or of a parent or subsidiary of the Corporation or (y) a corporation
owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of the common stock of the Corporation.
For purposes of Subsection (iii) above, the term “
look-back date
” shall mean the later of (x) the date first
written above in the preamble to this Agreement or (y) the date 24 months prior to the date of the event that may constitute a “Change in Control.”
Any other provision of this Section 17(b) notwithstanding, the term “Change in Control” shall not include a transaction, if
undertaken at the election of the Corporation, the result of which is to sell all or substantially all of the assets of the Corporation to another corporation (the “surviving corporation”); provided that the surviving corporation is owned
directly or indirectly by the stockholders of the Corporation immediately following such transaction in substantially the same proportions as their ownership of the Corporation’s common stock immediately preceding such transaction; and
provided, further, that the surviving corporation expressly assumes this Agreement.
(c) “
Disinterested
Director
” shall mean a director of the Corporation who is not or was not a party to the Proceeding in respect of which indemnification is being sought by Indemnitee.
(d) “
Expenses
” shall include all direct and indirect costs (including, without limitation,
attorneys’ fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery
10
service fees, all other disbursements or
out-of-pocket
expenses and reasonable compensation for time spent by
Indemnitee for which Indemnitee is otherwise not compensated by the Corporation or any third party) actually and reasonably incurred in connection with either the investigation, defense, settlement or appeal of a Proceeding or establishing or
enforcing a right to indemnification under this Agreement, applicable law or otherwise;
provided
,
however
, that “Expenses” shall not include any Liabilities.
(e) “
Final Adverse Determination
” shall mean that a determination that Indemnitee is not
entitled to indemnification shall have been made pursuant to Section 5 hereof and either (1) a final adjudication in the courts of the State of Delaware from which there is no further right of appeal or decision of an arbitrator pursuant
to Section 8(a) hereof shall have denied Indemnitee’s right to indemnification hereunder, or (2) Indemnitee shall have failed to file a complaint in a Delaware court or seek an arbitrator’s award pursuant to Section 8(a) for
a period of one hundred twenty (120) days after the determination made pursuant to Section 5 hereof.
(f) “
Independent Legal Counsel
” shall mean a law firm or a member of a firm selected by the
Corporation and approved by Indemnitee (which approval shall not be unreasonably withheld) or, if there has been a Change in Control, selected by Indemnitee and approved by the Corporation (which approval shall not be unreasonably withheld), that
neither is presently nor in the past five (5) years has been retained to represent: (i) the Corporation or any of its subsidiaries or affiliates, or Indemnitee or any corporation of which Indemnitee was or is a director, officer, employee
or agent, or any subsidiary or affiliate of such a corporation, in any material matter, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent
Legal Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine
Indemnitee’s right to indemnification under this Agreement.
(g) “
Liabilities
” shall
mean liabilities of any type whatsoever including, but not limited to, any judgments, fines, Employee Retirement Income Security Act excise taxes and penalties, penalties and amounts paid in settlement (including all interest assessments and other
charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement) of any Proceeding.
(h) “
Proceeding
” shall mean any threatened, pending or completed action, claim, suit,
arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party, as a witness or
otherwise, that is associated with Indemnitee’s being an Agent of the Corporation.
18.
Binding Effect;
Duration and Scope of Agreement
. This Agreement shall be binding upon the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Corporation), spouses, heirs and personal and legal representatives. This Agreement shall be deemed to be effective as of the commencement date of the Indemnitee’s service as an officer or
director of the Corporation and shall continue in effect during the Indemnification Period, regardless of whether Indemnitee continues to serve as an Agent.
11
19.
Severability
. If any provision or provisions of this Agreement
(or any portion thereof) 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 shall not in any way be affected or impaired thereby; and
(b) to the fullest extent legally possible, the provisions of this Agreement shall be construed so as to give effect to
the intent of any provision held invalid, illegal or unenforceable.
20.
Governing Law
. This Agreement shall
be governed by and construed and enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within the State of Delaware, without regard to conflict of
laws rules.
21.
Consent to Jurisdiction
. The Corporation and Indemnitee each irrevocably consent to the
jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding that arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the
state courts of the State of Delaware.
22.
Entire Agreement
. This Agreement represents the entire agreement
between the parties hereto, and there are no other agreements, contracts or understandings between the parties hereto with respect to the subject matter of this Agreement, except as specifically referred to herein or as provided in Section 15
hereof.
23.
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.
[* * *]
12
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by a duly authorized
officer and Indemnitee has executed this Agreement as of the date first above written.
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TECHPOINT, INC.,
a Delaware corporation
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T
ECHPOINT
, I
NC
.
I
NDEMNIFICATION
A
GREEMENT
Exhibit 10.2
TECHPOINT, INC.
2012
STOCK INCENTIVE PLAN
1.
Purposes of the Plan
. The purposes of this Plan are to attract and retain the best available
personnel, to provide additional incentives to Employees, Directors and Consultants and to promote the success of the Company’s business.
2.
Definitions
. As used herein, the following definitions shall apply:
(a) “
Administrator
” means the Board or any of the Committees appointed to administer the Plan.
(b) “
Affiliate
” and “
Associate
” shall have the respective meanings ascribed to such terms in Rule
12b-2
promulgated under the Exchange Act.
(c) “
Applicable Laws
” means the legal
requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal and state securities laws, the corporate laws of California and, to the extent other than California, the corporate law of the state
of the Company’s incorporation, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein.
(d) “
Assumed
” means that (i) pursuant to a Corporate Transaction defined in Section 2(q)(i), 2(q)(ii) or 2(q)(iii),
the contractual obligations represented by the Award are expressly assumed (and not simply by operation of law) by the successor entity or its Parent in connection with the Corporate Transaction with appropriate adjustments to the number and type of
securities of the successor entity or its Parent subject to the Award and the exercise or purchase price thereof which preserves the compensation element of the Award existing at the time of the Corporate Transaction as determined in accordance with
the instruments evidencing the agreement to assume the Award or (ii) pursuant to a Corporate Transaction defined in Section 2(q)(iv) or 2(q)(v), the Award is expressly affirmed by the Company.
(e) “
Award
” means the grant of an Option, Restricted Stock, or other right or benefit under the Plan.
(f) “
Award Agreement
” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee,
including any amendments thereto.
(g) “
Board
” means the Board of Directors of the Company.
(h) “
Cause
” means, with respect to the termination by the Company or a Related Entity of the Grantee’s Continuous
Service, that such termination is for “Cause” as such term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement
and definition, is based on, in the determination of the Administrator, the Grantee’s: (i) performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity; (ii) dishonesty,
intentional misconduct or material breach of any agreement with the Company or a Related Entity; or (iii) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person.
1
(i) “
Change in Control
”
means a change in ownership or control of the
Company after the Registration Date effected through either of the following transactions:
(i) the direct or indirect acquisition by
any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule
13d-3
of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s
outstanding securities pursuant to a tender or exchange offer made directly to the Company’s shareholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such shareholders
accept, or
(ii) a change in the composition of the Board over a period of
thirty-six
(36) months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors.
(j) “
Code
” means the Internal Revenue Code of 1986, as amended.
(k) “
Committee
” means any committee composed of Directors of the Board appointed by the Board to administer the Plan.
(l) “
Common Stock
” means the voting common stock of the Company.
(m) “
Company
” means Techpoint, Inc., a California corporation.
(n) “
Consultant
” means any person (other than an Employee or a Director, solely with respect to rendering services in such
person’s capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.
(o) “
Continuing Directors
” means members of the Board who either (i) have been Board members continuously for a period
of at least
thirty-six
(36) months or (ii) have been Board members for less than
thirty-six
(36) months and were elected or nominated for election as
Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board.
(p) “
Continuous Service
” means that the provision of services to the Company or a Related Entity in any capacity of Employee,
Director or Consultant, is not interrupted or terminated. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any successor, in
any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise
provided in the Award Agreement).
2
An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.
For purposes of each Incentive Stock Option granted under the Plan, if such leave exceeds ninety (90) days, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then the Incentive Stock Option shall be
treated as a
Non-Qualified
Stock Option on the day three (3) months and one (1) day following the expiration of such ninety (90) day period.
(q) “
Corporate Transaction
” means any of the following transactions:
(i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which
is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company;
(iii) the complete liquidation or dissolution of the Company;
(iv) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; or
(v) acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a
Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule
13d-3
of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power
of the Company’s outstanding securities but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction.
(r) “
Covered Employee
” means an Employee who is a “covered employee” under Section 162(m)(3) of the Code.
(s) “
Director
” means a member of the Board or the board of directors of any Related Entity.
(t) “
Disability
” means as defined under the long-term disability policy of the Company or the Related Entity to which the
Grantee provides services regardless of whether the Grantee is covered by such policy. If the Company or the Related Entity to which the Grantee provides service does not have a long-term disability plan in place, “Disability” means that a
Grantee is unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive days. A Grantee
will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion.
3
(u) “
Employee
” means any person, including an Officer or Director, who is in the
employ of the Company or any Related Entity, subject to the control and direction of the Company or any Related Entity as to both the work to be performed and the manner and method of performance. The payment of a director’s fee by the Company
or a Related Entity shall not be sufficient to constitute “employment” by the Company.
(v) “
Exchange Act
”
means the Securities Exchange Act of 1934, as amended.
(w) “
Fair Market Value
” means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system,
including without limitation The Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted on an automated
quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, but selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the
Common Stock on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock of the type described in (i) and (ii), above, the Fair Market
Value thereof shall be determined by the Administrator in good faith and in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations which requires that consideration be given to (A) the price at which
securities of reasonably comparable corporations (if any) in the same industry are being traded, or (B) if there are no securities of reasonably comparable corporations in the same industry being traded, the earnings history, book value and
prospects of the issuer in light of market conditions generally.
(x) “
Good Reason
” means the occurrence of any of the
following events or conditions unless consented to by the Grantee (and the Grantee shall be deemed to have consented to any such event or condition unless the Grantee provides written notice of the Grantee’s
non-acquiescence
within 30 days of the effective time of such event or condition):
(i) a change
in the Grantee’s responsibilities or duties which represents a material and substantial diminution in the Grantee’s responsibilities or duties as in effect immediately preceding the consummation of a Corporate Transaction or Change in
Control;
4
(ii) a reduction in the Grantee’s base salary to a level below that in effect at any time
within six (6) months preceding or at any time thereafter; or
(iii) requiring the Grantee to be based at any place outside a
50-mile
radius from the Grantee’s job location or residence, except for reasonably required travel on business which is not materially greater than such travel requirements prior.
(y) “
Grantee
” means an Employee, Director or Consultant who receives an Award under the Plan.
(z) “
Immediate Family
” means any 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 or employee), a trust in which these persons (or the
Grantee) have more than fifty percent (50%) 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 fifty percent
(50%) of the voting interests.
(aa) “
Incentive Stock Option
” means an Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code.
(bb) “
Non-Qualified
Stock
Option
” means an Option not intended to qualify as an Incentive Stock Option.
(cc) “
Officer
” means a person who
is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(dd) “
Option
” means an option to purchase Shares pursuant to an Award Agreement granted under the Plan.
(ee) “
Parent
” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of
the Code.
(ff) “
Performance-Based Compensation
” means compensation qualifying as “performance-based
compensation” under Section 162(m) of the Code.
(gg) “
Plan
” means this 2012 Stock Incentive Plan.
(hh) “
Post-Termination Exercise Period
” means the period specified in the Award Agreement of not less than thirty
(30) days commencing on the date of termination (other than termination by the Company or any Related Entity for Cause) of the Grantee’s Continuous Service, or such longer period as may be applicable upon death or Disability.
(ii) “
Registration Date
” means the first to occur of (i) the closing of the first sale to the general public pursuant to
a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, of (A) the
5
Common Stock or (B) the same class of securities of a successor corporation (or its Parent) issued pursuant to a Corporate Transaction in exchange for or in substitution of the Common Stock;
and (ii) in the event of a Corporate Transaction, the date of the consummation of the Corporate Transaction if the same class of securities of the successor corporation (or its Parent) issuable in such Corporate Transaction shall have been sold
to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, on or prior to the date of consummation of such Corporate
Transaction.
(jj) “
Related Entity
” means any Parent or Subsidiary of the Company and any business, corporation,
partnership, limited liability company or other entity in which the Company or a Parent or a Subsidiary of the Company holds a substantial ownership interest, directly or indirectly.
(kk) “
Replaced
” means that (i) pursuant to a Corporate Transaction defined in Section 2(q)(i), 2(q)(ii) or
2(q)(iii), the Award is replaced with a comparable stock award or a cash incentive program of the successor entity or Parent thereof which preserves the compensation element of such Award existing at the time of the Corporate Transaction and
provides for subsequent payout in accordance with the same vesting schedule applicable to such Award or (ii) pursuant to a Corporate Transaction defined in Section 2(q)(iv) or 2(q)(v), the Award is replaced with a comparable stock award or
a cash incentive program of the Company or Parent thereof which preserves the compensation element of such Award existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule
applicable to such Award. The determination of Award comparability shall be made by the Administrator and its determination shall be final, binding and conclusive.
(ll) “
Restricted Stock
” means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such
restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator.
(mm) “
Rule
16b-3
” means Rule
16b-3
promulgated under the Exchange Act or any successor thereto.
(nn) “
Share
” means a share of the Common Stock.
(oo) “
Subsidiary
” means a “subsidiary corporation”, whether now or hereafter existing, as defined in
Section 424(f) of the Code.
3.
Stock Subject to the Plan
.
(a) Subject to the provisions of Section 10 below, the maximum aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is five million four hundred thousand (5,400,000) Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.
6
(b) Any Shares covered by an Award (or portion of an Award) which is forfeited, canceled or
expires (whether voluntarily or involuntarily) shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan. Shares that actually have been issued under the Plan
pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited or repurchased by the Company, such Shares shall become available for future grant
under the Plan.
4.
Administration of the Plan
.
(a) Plan Administrator.
(i)
Administration with Respect to Directors and Officers
. Prior to the Registration Date, with respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. On or after the Registration Date, with respect to grants of Awards to Directors or
Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable
Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule
16b-3.
Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board.
(ii)
Administration With Respect to Consultants and Other
Employees
. With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee
shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.
(iii)
Administration With Respect to Covered Employees
. Notwithstanding the foregoing, as of and after the date that the exemption for
the Plan under Section 162(m) of the Code expires, as set forth in Section 20 below, grants of Awards to any Covered Employee intended to qualify as Performance-Based Compensation shall be made only by a Committee (or subcommittee of a
Committee) which is comprised solely of two or more Directors eligible to serve on a committee making Awards qualifying as Performance-Based Compensation. In the case of such Awards granted to Covered Employees, references to the
“Administrator” or to a “Committee” shall be deemed to be references to such Committee or subcommittee.
(b)
Multiple Administrative Bodies
. The Plan may be administered by different bodies with respect to Directors, Officers, Consultants, and Employees who are neither Directors nor Officers.
(c)
Powers of the Administrator
. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder;
7
(ii) to determine whether and to what extent Awards are granted hereunder;
(iii) to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions of any Award granted hereunder;
(vi) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such rules or laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
(vii) to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that
would adversely affect the Grantee’s rights under an outstanding Award shall not be made without the Grantee’s written consent;
(viii) to construe and interpret the terms of the Plan and Awards, including without limitation, any notice of award or Award Agreement,
granted pursuant to the
Plan; and
(ix) to take such other action, not inconsistent with the terms of the Plan, as the
Administrator deems appropriate.
5.
Eligibility
. Awards other than Incentive Stock Options may be granted to Employees, Directors
and Consultants. Incentive Stock Options may be granted only to Employees of the Company or a Parent or a Subsidiary of the Company. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional
Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in foreign jurisdictions as the Administrator may determine from time to time.
6.
Terms and Conditions of Awards
.
(a)
Designation of Award
. Each Award shall be designated in the Award Agreement. In the case of an Option, the Option shall be
designated as either an Incentive Stock Option or a
Non-Qualified
Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options
designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary of the Company) exceeds $100,000, such excess Options, to the extent
of the Shares covered thereby in excess of the foregoing limitation, shall be treated as
Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which
they were granted, and the Fair Market Value of the Shares shall be determined as of the grant date of the relevant Option.
8
(b)
Conditions of Award
. Subject to the terms of the Plan, the Administrator shall
determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration)
upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, increase in share price, earnings per share,
total shareholder return, return on equity, return on assets, return on investment, net operating income, cash flow, revenue, economic value added, personal management objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement.
(c)
Acquisitions and Other Transactions
. The Administrator may issue Awards under the Plan in settlement, assumption or substitution
for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase,
asset purchase or other form of transaction.
(d)
Deferral of Award Payment
. The Administrator may establish one or more programs
under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or
receipt of Shares or other consideration under an Award (but only to the extent that such deferral programs would not result in an accounting compensation charge unless otherwise determined by the Administrator). The Administrator may establish the
election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that
the Administrator deems advisable for the administration of any such deferral program.
(e)
Separate Programs
. The Administrator
may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time.
(f)
Individual Option Limit
. Following the date that the exemption from application of Section 162(m) of the Code described in
Section 20 (or any exemption having similar effect) ceases to apply to Awards, the maximum number of Shares with respect to which Options may be granted to any Grantee in any fiscal year of the Company shall be two million (2,000,000) Shares.
In connection with a Grantee’s commencement of Continuous Service, a Grantee may be granted Options for up to an additional five hundred thousand (500,000) Shares which shall not count against the limit set forth in the previous sentence. The
foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 10, below. To the extent required by Section 162(m) of the Code or the regulations thereunder,
in applying the foregoing limitations with respect to a
9
Grantee, if any Option is canceled, the canceled Option shall continue to count against the maximum number of Shares with respect to which Options may be granted to the Grantee. For this purpose,
the repricing of an Option shall be treated as the cancellation of the existing Option and the grant of a new Option.
(g)
Term of
Award
. The term of each Award shall be the term stated in the Award Agreement, provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted
to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the term of the Incentive Stock Option
shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement.
(h)
Transferability of Awards
.
Non-Qualified
Stock Options shall be transferable (i) by will or by the laws of descent and distribution, or (ii) to the extent and in the manner authorized by the
Administrator by gift to members of the Grantee’s Immediate Family. Incentive Stock Options and other Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee.
(i)
Time of Granting
Awards
. The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other date as is determined by the Administrator.
7.
Award Exercise or Purchase Price, Consideration and Taxes
.
(a)
Exercise or Purchase Price
. The exercise or purchase price, if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant; or
(B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less
than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(ii) In the case of a
Non-Qualified
Stock Option:
(A) granted to a person who, at the time of the grant of such Option, owns
stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair
Market Value per Share on the date of grant; or
10
(B) granted to any person other than a person described in the preceding paragraph, the per
Share exercise price shall be not less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant.
(iii) In
the case of Awards intended to qualify as Performance-Based Compensation, the exercise or purchase price, if any, shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(iv) In the case of the sale of Shares:
(A) granted to a person who, at the time of the grant of such Award, or at the time the purchase is consummated, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the per Share purchase price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant; or
(B) granted to any person other than a person described in the preceding paragraph, the per Share purchase price
shall be not less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant.
(v) In the case of other
Awards, such price as is determined by the Administrator.
(vi) Notwithstanding the foregoing provisions of this Section 7(a), in
the case of an Award issued pursuant to Section 6(c), above, the exercise or purchase price for the Award shall be determined in accordance with the provisions of the relevant instrument evidencing the agreement to issue such Award.
(b)
Consideration
. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an
Award including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following.
(i) cash;
(ii) check;
(iii)
delivery of Grantee’s promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines as appropriate (but only to the extent that the acceptance or terms of the promissory note would not violate
an Applicable Law and would not result in an accounting compensation charge with respect to the use of such promissory note to pay the exercise price unless otherwise determined by the Administrator);
(iv) if the exercise or purchase occurs on or after the Registration Date, surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require which have a Fair Market Value on the date of surrender or
11
attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised (but only to the extent that such exercise of the Award would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator; generally an accounting charge will result if the Shares used to pay the exercise price were acquired less than six
months before the exercise);
(v) with respect to Options, if the exercise occurs on or after the Registration Date, payment through a
broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company
sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to
complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c)
Taxes
. No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made
arrangements acceptable to the Administrator for the satisfaction of any foreign, federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Award the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations.
8.
Exercise of Award
.
(a)
Procedure for Exercise; Rights as a Shareholder
.
(i) Any Award granted hereunder shall be exercisable only at such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement, subject to reasonable conditions such as continued employment. In any event, unless approved in advance in writing by the Adminstrator, the Award may not be exercised (in whole or in part)
until the Post-Termination Exercise Period (but in no event later than the expiration date of the term of such Award as set forth in the Award Agreement) or, if earlier, immediately prior to the occurrence of a Corporate Transaction or Change in
Control.
(ii) An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance
with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay
the purchase price as provided in Section 7(b)(v). Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no
right to vote or receive dividends or any other rights as a shareholder shall exist with respect to Shares subject to an Award, notwithstanding the exercise of an Option or other Award. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued, except as provided in the Award Agreement or Section 10 below.
12
(b)
Exercise of Award Following Termination of Continuous Service
. In the event of
termination of a Grantee’s Continuous Service for any reason other than Disability or death (but not in the event of a Grantee’s change of status from Employee to Consultant or from Consultant to Employee), such Grantee may, but only
during the Post-Termination Exercise Period (and in no event later than the expiration date of the term of such Award as set forth in the Award Agreement), exercise the portion of the Grantee’s Award that was vested immediately after the
effectiveness of such termination or such other portion of the Grantee’s Award as may be determined by the Administrator. The Grantee’s Award Agreement may provide that upon the termination of the Grantee’s Continuous Service prior to
the occurrence of a Corporate Transaction or a Change in Control, and as a result of the Grantee’s voluntary action, unless such termination was for Good Reason or as otherwise determined by the Administrator, the Grantee’s right to
exercise the Award shall be limited to fifty percent (50%) of the shares that were vested immediately prior to such termination. For example, if the portion of the Grantee’s Award that was vested immediately prior to the effective date of such
voluntary termination was one hundred thousand (100,000) shares, absent action by the Administrator, the portion of Grantee’s Award that would be deemed to be “vested” for purposes of this Plan would equal fifty thousand (50,000)
shares. In the event of a Grantee’s change of status from Employee to Consultant, an Employee’s Incentive Stock Option shall convert automatically to a
Non-Qualified
Stock Option on the day three
(3) months and one day following such change of status. To the extent that the Grantee’s Award was unvested immediately following the effectiveness of termination, or if the Grantee does not exercise the vested portion of the
Grantee’s Award within the Post-Termination Exercise Period, the Award shall terminate.
(c)
Disability of Grantee
. In the
event of termination of a Grantee’s Continuous Service as a result of his or her Disability, such Grantee may, but only within twelve (12) months from the date of such termination (but in no event later than the expiration date of the term
of such Award as set forth in the Award Agreement), exercise the portion of the Grantee’s Award that was vested at the date of such termination; provided, however, that if such Disability is not a “disability” as such term is defined
in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a
Non-Qualified
Stock Option on the day three (3) months and one
day following such termination. To the extent that the Grantee’s Award was unvested at the date of termination as a result of his or her Disability, or if Grantee does not exercise the vested portion of the Grantee’s Award within the time
specified herein, the Award shall terminate.
(d)
Death of Grantee
. In the event of a termination of the Grantee’s Continuous
Service as a result of his or her death, or in the event of the death of the Grantee during the Post-Termination Exercise Period or during the twelve (12) month period following the Grantee’s termination of Continuous Service as a result
of his or her Disability, the Grantee’s estate or a person who acquired the right to exercise the Award by bequest or inheritance may exercise the portion of the Grantee’s Award that was vested immediately after the effectiveness of such
termination, within twelve (12) months from the date of death (but in no event later than the expiration of the term of such Award as set forth in the Award Agreement). To the extent that, at the time of death, the Grantee’s Award was
unvested, or if the Grantee’s estate or a person who acquired the right to exercise the Award by bequest or inheritance does not exercise the vested portion of the Grantee’s Award within the time specified herein, the Award shall
terminate.
13
9.
Conditions Upon Issuance of Shares
.
(a) Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.
10.
Adjustments Upon Changes in Capitalization
. Subject to any required action by the shareholders of the Company, the number of
Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each
such outstanding Award, the maximum number of Shares with respect to which Options
may be granted to any Grantee in any fiscal year of the Company, as well as any other terms that the Administrator determines require adjustment shall be
proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares, or similar transaction affecting the
Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction with respect to
Common Stock including a corporate merger, consolidation, acquisition of property or stock, separation (including a
spin-off
or other distribution of stock or property), reorganization, liquidation (whether
partial or complete) or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by
the Administrator and its determination shall be final, binding and conclusive. Except as the Administrator determines, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.
11.
Corporate Transactions and Changes in Control
.
(a)
Termination of Award to Extent Not Assumed in Corporate
Transaction
. Effective upon the consummation of a Corporate Transaction, all outstanding Awards under the Plan shall terminate. However, all such Awards shall not terminate to the extent they are Assumed in connection with the Corporate
Transaction.
14
(b)
Acceleration of Award Upon Corporate Transaction or Change in Control
.
(i)
Corporate Transaction
. Except as provided otherwise in an individual Award Agreement, in the event of a Corporate Transaction
and:
(A) for the portion of each Award that is Assumed or Replaced, then such Award (if Assumed), the replacement Award (if
Replaced), or the cash incentive program (if Replaced) automatically shall become fully vested, exercisable and payable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at Fair Market Value) for all
of the Shares at the time represented by such Assumed or Replaced portion of the Award, immediately upon termination of the Grantee’s Continuous Service if such Continuous Service is terminated by the successor company or the Company without
Cause or voluntarily by the Grantee with Good Reason within twelve (12) months after the Corporate Transaction; and
(B) for
the portion of each Award that is neither Assumed nor Replaced, such portion of the Award shall automatically become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at
Fair Market Value) for all of the Shares at the time represented by such portion of the Award, immediately prior to the specified effectiveness of such Corporate Transaction.
(ii)
Change in Control
. Except as provided otherwise in an individual Award Agreement, following a Change in Control (other than a
Change in Control which also is a Corporate Transaction) and upon the termination of the Continuous Service of a Grantee if such Continuous Service is terminated by the Company or Related Entity without Cause or voluntarily by the Grantee with Good
Reason within twelve (12) months after a Change in Control, each Award of such Grantee which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any repurchase or forfeiture
rights (other than repurchase rights exercisable at Fair Market Value), immediately upon the termination of such Continuous Service.
(c)
Effect of Acceleration on Incentive Stock Options
. The portion of any Incentive Stock Option accelerated under this Section 11 in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Stock
Option under the Code only to the extent the $100,000 dollar limitation of Section 422(d) of the Code is not exceeded. To the extent such dollar limitation is exceeded, the accelerated excess portion of such Option shall be exercisable as a
Non-Qualified
Stock Option.
12.
Repurchase Rights
. If the provisions of an Award Agreement grant
to the Company the right to repurchase Shares upon termination of the Grantee’s Continuous Service, the Award Agreement shall (or may, with respect to Awards granted or issued to Officers, Directors or Consultants) provide that:
(a) the right to repurchase must be exercised, if at all, within ninety (90) days of the termination of the Grantee’s Continuous
Service (or in the case of Shares issued upon exercise of Awards after the date of termination of the Grantee’s Continuous Service, within ninety (90) days after the date of the Award exercise);
15
(b) the consideration payable for the Shares upon exercise of such repurchase right shall be made
in cash or by cancellation of purchase money indebtedness within the ninety (90) day periods specified in Section 12(a);
(c)
the amount of such consideration shall be equal to the original purchase price paid by Grantee for each such Share; and
(d) the
right to repurchase Shares, other than the right to repurchase Shares at the original purchase price pursuant to clause (i) of Section 12(c), shall terminate on the Registration Date.
13.
Effective Date and Term of Plan
. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its
approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated. Subject to Section 18 below, and Applicable Laws, Awards may be granted under the Plan upon its becoming
effective.
14.
Amendment, Suspension or Termination of the Plan
.
(a) The Board may at any time amend, suspend or terminate the Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required.
(b) No Award may be granted during
any suspension of the Plan or after termination of the Plan.
(c) No suspension or termination of the Plan (including termination of the
Plan under Section 13, above) shall adversely affect any rights under Awards already granted to a Grantee.
15.
Reservation of
Shares
.
(a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to
which such requisite authority shall not have been obtained.
16.
No Effect on Terms of Employment/Consulting Relationship
. The
Plan shall not confer upon any Grantee any right with respect to the Grantee’s Continuous Service, nor shall it interfere in any way with his or her right or the right of the Company or a Related Entity to terminate the Grantee’s
Continuous Service at any time, with or without Cause, and with or without notice. The ability of the Company or any Related Entity to terminate the employment of a Grantee who is employed at will is in no way affected by its determination that the
Grantee’s Continuous Service has been terminated for Cause for the purposes of this Plan.
16
17.
No Effect on Retirement and Other Benefit Plans
. Except as specifically provided in a
retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any
benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a “Retirement Plan” or “Welfare
Plan” under the Employee Retirement Income Security Act of 1974, as amended.
18.
Shareholder Approval
. Continuance of the
Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws.
Any Award exercised before shareholder approval is obtained shall be rescinded if shareholder approval is not obtained within the time prescribed, and Shares issued on the exercise of any such Award shall not be counted in determining whether
shareholder approval is obtained.
19.
Information to Grantees
. The Company shall provide to each Grantee, during the period for
which such Grantee has one or more Awards outstanding, copies of financial statements at least annually.
20.
Effect of
Section 162(m) of the Code
. Section 162(m) of the Code does not apply to the Plan prior to the Registration Date. Following the Registration Date, the Plan, and all Awards (except Awards of Restricted Stock that vest over time) issued
thereunder, are intended to be exempt from the application of Section 162(m) of the Code, which restricts under certain circumstances the Federal income tax deduction for compensation paid by a public company to named executives in excess of
$1 million per year. The exemption is based on Treasury Regulation
Section 1.162-27(f),
in the form existing on the effective date of the Plan, with the understanding that such regulation generally
exempts from the application of Section 162(m) of the Code compensation paid pursuant to a plan that existed before a company becomes publicly held. Under such Treasury Regulation, this exemption is available to the Plan for the duration of the
period that lasts until the earlier of (i) the expiration of the Plan, (ii) the material modification of the Plan, (iii) the exhaustion of the maximum number of shares of Common Stock available for Awards under the Plan, as set forth
in Section 3(a), (iv) the first meeting of shareholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the Company first becomes subject to the reporting
obligations of Section 12 of the Exchange Act, or (v) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. To the extent that the Administrator determines as of the date of grant
of an Award that (i) the Award is intended to qualify as Performance-Based Compensation and (ii) the exemption described above is no longer available with respect to such Award, such Award shall not be effective until any shareholder
approval required under Section 162(m) of the Code has been obtained.
17
TECHPOINT, INC. 2012 STOCK INCENTIVE PLAN
NOTICE OF STOCK OPTION AWARD
Grantee’s Name and Address:
_______________________________________
_______________________________________
You (the “Grantee”) have been granted an option to purchase shares of Common Stock, subject to the terms and conditions of this
Notice of Stock Option Award (the “Notice”), the Techpoint, Inc. 2012 Stock Incentive Plan, as amended from time to time (the “Plan”) and the Stock Option Award Agreement (the “Option Agreement”) attached hereto, as
follows. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice.
Award Number
Date of Award
Vesting
Commencement Date
Exercise Price per Share
Total Number of Shares Subject
to the Option (the “Shares”)
Total Exercise Price
Type of
Option:
Expiration Date:
Post-Termination Exercise Period:
Vesting
Schedule
:
This Option is immediately exercisable although the Shares issued upon exercise of the Option will be subject to the
restrictions on transfer and a right of repurchase at the Exercise Price per Share, in favor of the Company, as described in Section 15
of the Option Agreement (the “Repurchase Right”).
For purposes of this Notice and the Option Agreement, the term “vest” shall mean, with respect to any Shares, that such Shares
(whether subject to the Option or acquired upon exercise of the Option) are no longer subject to the Repurchase Right, provided, however, that such Shares shall remain subject to other restrictions on transfer set forth in the Option Agreement or
the Plan. If the Grantee would become vested in a fraction of a Share, such Share shall not vest until the Grantee becomes vested in the entire Share. Provided that the Grantee’s Continuous Service is not terminated and other limitations set
forth in this Notice, the Plan and the Option Agreement, the Repurchase Right shall lapse in accordance with the following schedule:
1
During any authorized leave of absence, the vesting of the Shares shall be suspended after the
leave of absence exceeds a period of ninety (90) days. Vesting of the Shares shall resume upon the Grantee’s termination of the leave of absence and return to Continuous Service. The Vesting Schedule of the Shares shall be extended by the
length of the suspension.
In the event of termination of the Grantee’s Continuous Service for Cause, the Grantee’s right to
exercise the Option shall terminate concurrently with the termination of the Grantee’s Continuous Service, except as otherwise determined by the Administrator.
In the event of the Grantee’s change in status from Employee to Consultant or from an Employee whose customary employment is 20 hours or
more per week to an Employee whose customary employment is fewer than 20 hours per week, vesting of the Option shall continue only to the extent determined by the Administrator as of such change in status consistent with any minimum vesting
requirements set forth in the Plan.
IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Option
is to be governed by the terms and conditions of this Notice, the Plan, and the Option Agreement.
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Techpoint, Inc.,
a California
corporation
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By:
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Fumihiro Kozato, its Chief Executive Officer
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THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD
OF THE GRANTEE’S CONTINUOUS SERVICE (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL
CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF THE GRANTEE’S CONTINUOUS SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE’S RIGHT OR THE RIGHT OF THE COMPANY OR RELATED ENTITY TO WHICH THE
GRANTEE PROVIDES SERVICES TO TERMINATE THE GRANTEE’S CONTINUOUS SERVICE, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY,
THE GRANTEE’S STATUS IS AT WILL.
The Grantee acknowledges receipt of a copy of the Plan and the Option Agreement, and represents
that he or she is familiar with the terms and provisions thereof, and hereby accepts the Option subject to all of the terms and provisions hereof and thereof. The Grantee has reviewed this Notice, the Plan, and the Option Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice, and fully understands all provisions of this Notice, the Plan and the Option Agreement. The Grantee hereby agrees that all disputes arising out of or
relating to this Notice, the Plan and the Option Agreement shall be resolved in accordance with Section 22 of the Option Agreement. The Grantee further agrees to notify the Company upon any change in the residence address indicated in this
Notice.
Dated: ______________________
Signed: _________________________________
2
Award Number:
TECHPOINT, INC. 2012 STOCK INCENTIVE PLAN
IMMEDIATELY EXERCISABLE STOCK OPTION AWARD AGREEMENT
1.
Grant of Option
. Techpoint, Inc., a California corporation (the “Company”), hereby grants to the Grantee (the
“Grantee”) named in the Notice of Stock Option Award (the “Notice”), an option (the “Option”) to purchase the Total Number of Shares of Common Stock subject to the Option (the “Shares”) set forth in the
Notice, at the Exercise Price per Share set forth in the Notice (the “Exercise Price”) subject to the terms and provisions of the Notice, this Stock Option Award Agreement (the “Option Agreement”) and the Company’s 2012
Stock
Incentive Plan, as amended from time to time (the “Plan”), which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option
Agreement.
If designated in the Notice as an Incentive Stock Option, the Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by
the Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary of the Company) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be
treated as
Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is awarded.
2.
Exercise of Option
.
(a)
Right to Exercise
. The Option shall be immediately exercisable during its term in accordance with the applicable provisions of the
Plan and this Option Agreement. The Option shall be subject to the provisions of Section
11 of the Plan relating to the exercisability or termination of the Option in the event of a Corporate Transaction or a Change in Control. The
Grantee shall be subject to reasonable limitations on the number of requested exercises during any monthly or weekly period as determined by the Administrator. In no event shall the Company issue fractional Shares.
(b)
Method of Exercise
. The Option shall be exercisable by delivery of an exercise notice (a form of which is attached as Exhibit A) or
by such other procedure as specified from time to time by the Administrator which shall state the election to exercise the Option, the whole number of Shares in respect of which the Option is being exercised, and such other provisions as may be
required by the Administrator. The exercise notice shall be delivered in person, by certified mail, or by such other method (including electronic transmission) as determined from time to time by the Administrator to the Company accompanied by
payment of the Exercise Price. The Option shall be deemed to be exercised upon receipt by the Company of such notice accompanied by the Exercise Price.
1
(c)
Taxes
. No Shares will be delivered to the Grantee or other person pursuant to the
exercise of the Option until the Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of applicable income tax and employment tax withholding obligations, including, without limitation, such other tax
obligations of the Grantee incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of the Option, the Company or the Grantee’s employer may offset or withhold
(from any amount owed by the Company or the Grantee’s employer to the Grantee) or collect from the Grantee or other person an amount sufficient to satisfy such tax obligations and/or the employer’s withholding obligations.
3.
Grantee’s Representations
. The Grantee understands that neither the Option nor the Shares exercisable pursuant to the Option
have been registered under the Securities Act of 1933, as amended or any United States securities laws. In the event the Shares purchasable pursuant to the exercise of the Option have not been registered under the Securities Act of 1933, as amended,
at the time the Option is exercised, the Grantee shall, if requested by the Company, concurrently with the exercise of all or any portion of the Option, deliver to the Company his or her Investment Representation Statement in the form attached
hereto as Exhibit B.
4.
Method of Payment
. Payment of the Exercise Price shall be made by any of the following, or a combination
thereof, at the election of the Grantee; provided, however, that such exercise method does not then violate any Applicable Law.
(a) cash;
(b) check;
(c) if
the exercise occurs on or after the Registration Date, surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon
exercise of the Option) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate Exercise Price of the Shares as to which the Option is being exercised (but only to the extent that such exercise of the Option
would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price); or
(d) if the
exercise occurs on or after the Registration Date, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (i) shall provide written instructions to a Company-designated brokerage firm to effect the immediate
sale of some or all of the purchased Shares and remit to the Company sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (ii) shall provide written directives to the Company to deliver the certificates
for the purchased Shares directly to such brokerage firm in order to complete the sale transaction.
5.
Restrictions on
Exercise
. The Option may not be exercised if the issuance of the Shares subject to the Option upon such
exercise would constitute a violation of any Applicable Laws.
2
6.
Termination or Change of Continuous Service
. In the event the Grantee’s Continuous
Service terminates, the Grantee may, but only during the Post-Termination Exercise Period, exercise the portion of the Option that was vested at the date of such termination (the “Termination Date”). In the event of termination of the
Grantee’s Continuous Service for Cause, the Grantee’s right to exercise the Option shall, except as otherwise determined by the Administrator, terminate concurrently with the termination of the Grantee’s Continuous Service (also the
“Termination Date”). In no event shall the Option be exercised later than the Expiration Date set forth in the Notice. In the event of the Grantee’s change in status from Employee, Director or Consultant to any other status of
Employee, Director or Consultant, the Option shall remain in effect and vesting of the Option shall continue only to the extent determined by the Administrator as of such change in status consistent with any minimum vesting requirements set forth in
the Plan; provided, however, with respect to any Incentive Stock Option that shall remain in effect after a change in status from Employee to Director or Consultant, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option
and shall be treated as a
Non-Qualified
Stock Option on the day three (3) months and one (1) day following such change in status. Except as provided in Sections 7 and 8 below, to the extent that the
Option was unvested on the Termination Date, or if the Grantee does not exercise the vested portion of the Option within the Post-Termination Exercise Period,
the Option shall terminate.
7.
Disability of Grantee
. In the event the Grantee’s Continuous Service terminates as a result of his or her Disability, the
Grantee may, but only within twelve (12) months from the Termination Date (and in no event later than the Expiration Date), exercise the portion of the Option that was vested on the Termination Date; provided, however, that if such Disability
is not a “disability” as such term is defined in Section 22(e)(3) of the Code and the Option is an Incentive Stock Option, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a
Non-Qualified
Stock Option on the day three (3) months and one (1) day following the Termination Date. To the extent that the Option was unvested on the Termination Date, or if the Grantee does not
exercise the vested portion of the Option within the time specified herein, the Option shall terminate. Section 22(e)(3) of the Code provides that an individual is permanently and totally disabled if he or she is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve
(12) months.
8.
Death of Grantee
. In the event of the termination of the Grantee’s Continuous Service as a result of his
or her death, or in the event of the Grantee’s death during the Post-Termination Exercise Period or during the twelve (12) month period following the Grantee’s termination of Continuous Service as a result of his or her Disability,
the Grantee’s estate, or a person who acquired the right to exercise the Option by bequest or inheritance, may exercise the portion of the Option that was vested at the date of termination within twelve (12) months from the date of death
(but in no event later than the Expiration Date). To the extent that the Option was unvested on the date of death, or if the vested portion of the Option is not exercised within the time specified herein, the Option shall terminate.
9.
Transferability of Option
. The Option, if an Incentive Stock Option, may not be transferred in any manner other than by will or by
the laws of descent and distribution and may be exercised during the lifetime of the Grantee only by the Grantee. The Option, if a
Non-Qualified
Stock Option, may not be transferred in any manner other than by
will or by the laws of descent and distribution, provided, however, that a
Non-Qualified
Stock Option may be transferred to members of the Grantee’s Immediate Family to the extent and in the manner
authorized by the Administrator. The terms of the Option shall be binding upon the executors, administrators, heirs and successors of the Grantee.
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10.
Term of Option
. The Option must be exercised no later than the Expiration Date set
forth in the Notice or such earlier date as otherwise provided herein. After the Expiration Date or such earlier date, the Option shall be of no further force or effect and may not be exercised.
11.
Transfer Restrictions for Unvested Shares
. The Shares sold to the Grantee hereunder may not be sold, transferred by gift, pledged,
hypothecated, or otherwise transferred or disposed of by the Grantee prior to the date that the Shares become vested pursuant to the Vesting Schedule set forth in the Notice. Any attempt to transfer Shares in violation of this Section 11 will
be null and void and will be disregarded.
12.
Company’s Right of First Refusal
. The Grantee acknowledges and agrees that the
Shares are subject to a right of first refusal (“Right of First Refusal”) as set forth in the Bylaws of the Company, which Right of First Refusal is incorporated herein by reference irrespective of whether the Bylaws are amended at some
future date to remove the Right of First Refusal therefrom, and that, except in compliance with such Right of First Refusal, neither the Grantee nor a transferee (either being sometimes referred to herein as the “Holder”) shall sell,
hypothecate, encumber or otherwise transfer any Shares or any right or interest therein.
13.
Escrow of Stock
. For purposes of
facilitating the enforcement of the provisions of the Repurchase Right, the Grantee agrees, immediately upon receipt of the certificate(s) for the Shares, to deliver such certificate(s), together with an Assignment Separate from Certificate in the
form attached hereto as Exhibit C, executed in blank by the Grantee and the Grantee’s spouse (if required for transfer) with respect to each such stock certificate, to the Secretary or Assistant Secretary of the Company, or their designee, to
hold in escrow for so long as such Shares have not vested
pursuant to the Vesting Schedule set forth in the Notice and are subject to Company’s Repurchase Right, with the authority to take all such actions and to effectuate all such
transfers and/or releases as may be necessary or appropriate to accomplish the objectives of this Option Agreement in accordance with the terms hereof. The Grantee hereby acknowledges that the appointment of the Secretary or Assistant Secretary of
the Company (or their designee) as the escrow holder hereunder with the stated authorities is a material inducement to the Company to make this Option Agreement and that such appointment is coupled with an interest and is accordingly irrevocable.
The Grantee agrees that such escrow holder shall not be liable to any party hereto (or to any other party) for any actions or omissions unless such escrow holder is grossly negligent relative thereto. The escrow holder may rely upon any letter,
notice or other document executed by any signature purported to be genuine and may resign at any time. Subject to the provisions of any security agreement relating to Grantee’s purchase of the Shares, upon the vesting of Shares and termination
of the Company’s Repurchase Right as set forth in Section 15, the escrow holder will, upon request, transmit to the Grantee the certificate evidencing such Shares.
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14.
Additional Securities
. Any securities or cash received (other than a regular cash
dividend) as the result of ownership of the Shares (the “Additional Securities”), including, but not by way of limitation, warrants, options and securities received as a stock dividend or stock split, or as a result of any transaction
described in Section
10 or 11 of the Plan, shall be subject to the same conditions and restrictions as the Shares with respect to which they were issued, including, without limitation, the Vesting Schedule set forth in the Notice and the
Repurchase Right and
retained in escrow in the same manner as the Shares with respect to which they relate. The Grantee shall be entitled to direct the Company to exercise any warrant or option received as Additional Securities upon supplying
the funds necessary to do so, in which event the securities so purchased shall constitute Additional Securities, but the Grantee may not direct the Company to sell any such warrant or option. If Additional Securities consist of a convertible
security, the Grantee may exercise any conversion right, and any securities so acquired shall constitute Additional Securities. Appropriate adjustments to reflect the distribution of Additional Securities shall be made to the price per share to be
paid upon the exercise of the Repurchase Right in order to reflect the effect of any such transaction upon the Company’s capital structure. In the event of any change in certificates evidencing the Shares or the Additional Securities by reason
of any recapitalization, reorganization or other transaction that results in the creation of Additional Securities, the escrow holder is authorized to deliver to the issuer the certificates evidencing the Shares or the Additional Securities in
exchange for the certificates of the replacement securities.
15.
Company’s Repurchase Right
.
(a)
Grant of Repurchase Right
. The Company is hereby granted the right (the “Repurchase Right”), exercisable at any time
during the ninety (90) day period following the Termination Date, to repurchase all or any portion of the Shares that have not vested pursuant to the terms of the Vesting Schedule (the “Share Repurchase Period”)
.
(b)
Exercise of the Repurchase Right
. The Repurchase Right shall be exercisable by written notice delivered to the Grantee
prior
to the expiration of the Share Repurchase Period. The notice shall indicate the number of Shares to be repurchased and the date on which the repurchase is to be effected, such date to be not later than the last day of the Share Repurchase Period. On
the date on which the repurchase is to be effected, the Company and/or its assigns shall pay to the Grantee in cash or cash equivalents (including the cancellation of any purchase-money indebtedness) an amount equal to the Exercise Price per Share
for unvested Shares that are to be repurchased from the Grantee. Upon such payment or deposit into escrow for the benefit of the Grantee, the Company and/or its assigns shall become the legal and beneficial owner of the Shares being repurchased and
all rights and interest thereon or related thereto, and the Company shall have the right to transfer to its own name or its assigns the number of Shares being repurchased, without further action by the Grantee.
(c)
Assignment
. Whenever the Company shall have the right to purchase Shares under this Repurchase Right, the Company may designate and
assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations, to exercise all or a part of the Company’s Repurchase Right.
(d)
Termination of the Repurchase Right
. The Repurchase Right shall terminate with respect to any Shares for which it is not timely
exercised. In addition, the Repurchase Right shall terminate and cease to be exercisable with respect to all vested Shares upon the Registration Date.
5
(e)
Additional Shares or Substituted Securities
. In the event of any transaction described
in Sections 10 or 11 of the Plan, the Repurchase Right shall apply to the new capital stock or other property (including cash paid other than as a regular cash dividend) received in exchange for the Shares in consummation of the Corporate
Transaction and such stock or property shall be deemed Additional Securities for purposes of this Agreement, but only to the extent the Shares are at the time covered by such Repurchase Right. Appropriate adjustments shall be made to the price per
share payable upon exercise of the Repurchase Right to reflect the effect of the Corporate Transaction. To the extent that this Agreement will not be Assumed, the Repurchase Right as to such unvested Shares shall automatically lapse.
16.
Stop-Transfer Notices
. In order to ensure compliance with the restrictions on transfer set forth in this Option Agreement, the
Notice or the Plan, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
17.
Refusal to Transfer
. The Company shall not be required (i) to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Option Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have
been so transferred.
18.
Special Tax Election for Exercise of Option Subject to Forfeiture/Tax Consequences
. Set forth below is a
brief summary as of the date of this Option Agreement of some of the federal tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE GRANTEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
(a)
Section 83(b) Election For
Exercise of
Non-Qualified
Stock Option Subject to Vesting
. If the Shares are acquired hereunder pursuant to the exercise of a
Non-Qualified
Stock Option that has not
vested pursuant to the Vesting Schedule set forth in the Notice, then the Grantee understands that under Code Section 83, the excess of the Fair Market Value of the Shares on the date any forfeiture restrictions applicable to the Shares lapse
over the Exercise Price paid for the Shares will be reportable as ordinary income on the lapse date and subject to applicable income tax and employment tax withholding. For this purpose, the term “forfeiture restrictions” includes the
right of the Company to repurchase the Shares pursuant to the Repurchase Right provided under Section 15. The Grantee understands that he/she may elect under Code Section 83(b) to be taxed at the time the Shares are acquired hereunder,
rather than when and as the Shares cease to be subject to the forfeiture restrictions. Such election (the “83(b) Election”) must be filed with the Internal Revenue Service within thirty (30) days after the date Shares are acquired
upon exercise of the Option. If the 83(b) Election is made, the excess of the Fair Market Value of the Shares on the date the Option is exercised over the Exercise Price paid for the Shares will be reportable as ordinary income and subject to
applicable income tax and employment tax withholding. Even if the Fair Market Value of the Shares on the
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date the Option is exercised equals the Exercise Price paid (and thus no tax is payable), the 83(b) Election must be made to avoid adverse tax consequences in the future. THE FORM FOR MAKING THIS
83(b) ELECTION IS ATTACHED AS EXHIBIT D HERETO. THE GRANTEE UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY
(30)-DAY
PERIOD MAY RESULT IN THE RECOGNITION OF ORDINARY INCOME BY THE
GRANTEE AS THE FORFEITURE RESTRICTIONS LAPSE.
(b)
Conditional Section 83(b) Election For Exercise of Incentive Stock Option
Subject to Vesting
. If the Shares are acquired hereunder pursuant to the exercise of an Incentive Stock Option, as specified in Notice, then the following tax principles shall be applicable to the Shares:
(i) For regular tax purposes, no taxable income will be recognized at the time the Option is exercised.
(ii) The excess of (A) the Fair Market Value of the Shares on the date the Option is exercised or (if later) on the date any forfeiture
restrictions applicable to the Shares lapse over (B) the Exercise Price paid for the Shares will be includible in Grantee’s income for alternative minimum tax purposes.
(iii) If Grantee makes a disqualifying disposition of the Shares, then Grantee will recognize ordinary income in the year of such disposition
equal in amount to the excess of (A) the Fair Market Value of the Shares on the date Option is exercised or (if later) on the date any forfeiture restrictions applicable to the Shares lapse over (B) the Exercise Price paid for Shares. Any
additional gain recognized upon the disqualifying disposition will be either short-term or long-term capital gain depending upon the period for which the Shares are held prior to the disposition.
(iv) For purposes of the foregoing, the term “forfeiture restrictions” will include the right of the Company to repurchase the
Shares pursuant to the Repurchase Right at the Exercise Price per Share under Section 15. The term “disqualifying disposition” means any sale or other disposition of the Shares within two (2) years after the Grant Date or within
one (1) year after the exercise of the Option.
(v) In the absence of final Treasury Regulations relating to Incentive Stock
Options, it is not certain whether the Grantee may, in connection with the exercise of the Option for any Shares at the time subject to forfeiture restrictions, file a protective 83(b) Election under Code Section 83(b) which would limit
(A) Grantee’s alternative minimum taxable income upon exercise and (B) Grantee’s ordinary income upon a disqualifying disposition to the excess of the Fair Market Value of Shares on the date the Option is exercised over the
Exercise Price paid for the Shares. The appropriate form for making such a protective 83(b) Election is attached as Exhibit D and must be filed with the Internal Revenue Service within thirty (30) days after the date the Option is exercised.
However, such election if properly filed will only be allowed to the extent the final Treasury Regulations or other legal authority permit such a protective election.
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(c)
FILING RESPONSIBILITY
. THE GRANTEE ACKNOWLEDGES THAT IT IS THE GRANTEE’S SOLE
RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY 83(b) ELECTION UNDER CODE SECTION 83(b), EVEN IF THE GRANTEE REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
(d)
Exercise of Vested
Non-Qualified
Stock Option
. If pursuant to the Vesting Schedule set
forth in the Notice, the Shares acquired upon exercise of the Option are not subject to any forfeiture restrictions, the Grantee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if
any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If the Grantee is an Employee or a former Employee, the Company will be required to withhold from the Grantee’s compensation or collect from the
Grantee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(e)
Exercise of Vested Incentive Stock Option
. If pursuant to the Vesting Schedule set forth in
the Notice, the Shares acquired upon exercise of the Option are not subject to any forfeiture restrictions and if the Option qualifies as an Incentive Stock Option, there will be no regular federal income tax liability upon the exercise of the
Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as income for purposes of the alternative minimum tax for federal tax purposes and may subject the Grantee to
the alternative minimum tax in the year of exercise. However, the Internal Revenue Service issued proposed regulations which would subject the Grantee to withholding at the time the Grantee exercises an Incentive Stock Option for Social Security and
Medicare based upon the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. These proposed regulations are subject to further modification by the Internal Revenue Service and, if adopted, would be
effective only for the exercise of an Incentive Stock Option that occurs two years after the regulations are issued in final form.
(f)
Exercise of Incentive Stock Option Following Disability
. If the Grantee’s Continuous Service terminates as a result of Disability that is not permanent and total disability as such term is defined in Section 22(e)(3) of the Code, to
the extent permitted on the date of termination, the Grantee must exercise an Incentive Stock Option within three (3) months of such termination for the Incentive Stock Option to be qualified as an Incentive Stock Option. Section 22(e)(3)
of the Code provides that an individual is permanently and totally disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months.
(g)
Disposition
of Shares
. In the case of a
Non-Qualified
Stock Option, if Shares are held for more than one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. In the case of an Incentive Stock Option, if Shares transferred pursuant to the Option are held for more than one year after receipt of the Shares and are disposed more than two years after the Date of Award, any gain realized
on disposition of the Shares also will be treated as capital gain for federal income tax
8
purposes and subject to the same tax rates and holding periods that apply to Shares acquired upon exercise of a
Non-Qualified
Stock Option. If Shares
purchased under an Incentive Stock Option are disposed of prior to the expiration of such
one-year
or
two-year
periods, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.
19.
Lock-Up
Agreement
.
(a)
Agreement
. The Grantee, if requested by the Company and the lead underwriter of any public offering of the Common Stock (the
“Lead Underwriter”), hereby irrevocably agrees not to sell, contract to sell, grant any option to purchase, transfer the economic risk of ownership in, make any short sale of, pledge or otherwise transfer or dispose of any interest in any
Common Stock or any securities convertible into or exchangeable or exercisable for or any other rights to purchase or acquire Common Stock (except Common Stock included in such public offering or acquired on the public market after such offering)
during the
180-day
period following the effective date of a registration statement of the Company filed under the Securities Act of 1933, as amended, or such shorter period of time as the Lead Underwriter
shall specify. The Grantee further agrees to sign such documents as may be requested by the Lead Underwriter to effect the foregoing and agrees that the Company may impose stop-transfer instructions with respect to such Common Stock subject to the
lock-up
period until the end of such period. The Company and the Grantee acknowledge that each Lead Underwriter of a public offering of the Company’s stock, during the period of such offering and for the
180-day
period thereafter, is an intended beneficiary of this Section 19.
(b)
No Amendment
Without Consent of Underwriter
. During the period from identification of a Lead Underwriter in connection with any public offering of the Company’s Common Stock until the earlier of (i) the expiration of the
lock-up
period specified in Section 19(a) in connection with such offering or (ii) the abandonment of such offering by the Company and the Lead Underwriter, the provisions of this Section 19 may
not be amended or waived except with the consent of the Lead Underwriter.
20.
Entire Agreement: Governing Law
. The Notice, the
Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject
matter hereof, and may not be modified adversely to the Grantee’s interest except by means of a writing signed by the Company and the Grantee. Nothing in the Notice, the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties. The Notice, the Plan and this Option Agreement are to be construed in accordance with and governed by the internal laws of the
State of California without giving
effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. Should any provision of the Notice, the Plan or this
Option Agreement be determined by a court of law to be illegal or unenforceable, such provision shall be enforced to the fullest extent allowed by law and the other provisions shall nevertheless remain effective and shall remain enforceable.
9
21.
Headings
. The captions used in the Notice and this Option Agreement are inserted for
convenience and shall not be deemed a part of the Option for construction or interpretation.
22.
Dispute Resolution
The provisions
of this Section 22 shall be the exclusive means of resolving disputes arising out of or relating to the Notice, the Plan and this Option Agreement. The Company, the Grantee, and the Grantee’s assignees pursuant to Section 11 (the
“parties”) shall attempt in good faith to resolve any disputes arising out of or relating to the Notice, the Plan and this Option Agreement by negotiation between individuals who have authority to settle the controversy. Negotiations shall
be commenced by either party by notice of a written statement of the party’s position and the name and title of the individual who will represent the party. Within thirty (30) days of the written notification, the parties shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to resolve the dispute. If the dispute has not been resolved by negotiation, the parties agree that any suit, action, or proceeding arising out of or
relating to the Notice, the Plan or this Option Agreement shall be brought in the United States District Court for the Northern District of California (or should such court lack jurisdiction to hear such action, suit or proceeding, in a California
state court in the County of Santa Clara) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any
such suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 22 shall for any
reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.
23.
Confidentiality
. The Company shall provide to the Grantee, during the period the Option is outstanding, copies of financial
statements of the Company at least annually. The Grantee understands and agrees that such financial statements are confidential and shall not be disclosed by the Grantee, to any entity or person, for any reason, at any time, without the prior
written consent of the Company, unless required by law. If disclosure of such financial statements is required by law, whether through subpoena, request for production, deposition, or otherwise, the Grantee promptly shall provide written notice to
Company, including copies of the subpoena, request for production, deposition, or otherwise, within five (5) business days of their receipt by the Grantee and prior to any disclosure so as to provide Company an opportunity to move to quash or
otherwise to oppose the disclosure. Notwithstanding the foregoing, the Grantee may disclose the terms of such financial statements to his or her spouse or domestic partner, and for legitimate business reasons, to legal, financial, and tax advisors.
24.
Notices
. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon
personal delivery, upon deposit for delivery by an internationally recognized express mail courier service or upon deposit in the United States mail by certified mail (if the parties are within the United States), with postage and fees prepaid,
addressed to the other party at its address as shown in these instruments, or to such other address as such party may designate in writing from time to time to the other party.
10
EXHIBIT A
TECHPOINT, INC. 2012 STOCK INCENTIVE PLAN
EXERCISE NOTICE
Techpoint, Inc.
2550 N. 1st St., Suite 400
San Jose, CA, 95131
Attention: Secretary
1. Effective as of today,
______________, ___ the undersigned (the “Grantee”) hereby elects to exercise the Grantee’s option to purchase ___________ shares of the Common Stock (the “Shares”) of Techpoint, Inc. (the “Company”) under and
pursuant to the Company’s 2012 Stock Incentive Plan, as amended from time to time (the “Plan”) and the [ ] Incentive [ ]
Non-Qualified
Stock Option Award Agreement (the “Option
Agreement”) and Notice of Stock Option Award (the “Notice”) dated ______________, ________. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Exercise Notice.
2.
Representations of the Grantee
. The Grantee acknowledges that the Grantee has received, read and understood the Notice, the Plan and
the Option Agreement and agrees to abide by and be bound by their terms and conditions.
3.
Rights as Shareholder
. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan.
The
Grantee shall enjoy rights as a shareholder until such time as the Grantee disposes of the Shares or the Company and/or its assignee(s) exercises the Repurchase Right. Upon such exercise, the Grantee shall have no further rights as a holder of the
Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of the Option Agreement, and the Grantee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be
surrendered to the Company for transfer or cancellation.
4.
Delivery of Payment
. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares, which, to the extent selected, shall be deemed to be satisfied by use of the broker-dealer sale and remittance procedure to pay the Exercise Price provided in Section 4(d) of the Option Agreement.
5.
Tax Consultation
. The Grantee understands that the Grantee may suffer adverse tax consequences as a result of the Grantee’s
purchase or disposition of the Shares. The Grantee represents that the Grantee has consulted with any tax consultants the Grantee deems advisable in connection with the purchase or disposition of the Shares and that the Grantee is not relying on the
Company for any tax advice.
1
6.
Tax Election; Taxes
. The Grantee shall provide the Company with a copy of any timely
filed 83(b) Election relating to the purchase of the Shares. If the Grantee makes a timely 83(b) Election, the Grantee shall immediately pay the Company (or the Related Entity that employs the Grantee) the amount necessary to satisfy any applicable
federal, state, and local income and employment tax withholding obligations. If the Grantee does not make a timely 83(b) Election, the Grantee shall, either at the time that the restrictions lapse under the Option Agreement and the Plan or at the
time withholding is otherwise required by Applicable Law, pay the Company (or the Related Entity that employs the Grantee) the amount necessary to satisfy any applicable federal, state, and local income and employment tax withholding obligations. In
addition, the Grantee agrees to satisfy all other applicable federal, state and local income and employment tax withholding obligations and herewith delivers to the Company the full amount of such obligations or has made arrangements acceptable to
the Company to satisfy such obligations. In the case of an Incentive Stock Option, the Grantee also agrees, as partial consideration for the designation of the Option as an Incentive Stock Option, to notify the Company in writing within thirty
(30) days of any disposition of any shares acquired by exercise of the Option if such disposition occurs within two (2) years from the Grant Date or within one (1) year from the date the Shares were transferred to the Grantee. If the
Company is required to satisfy any federal, state or local income or employment tax withholding obligations as a result of such an early disposition, the Grantee agrees to satisfy the amount of such withholding in a manner that the Administrator
prescribes.
7.
Restrictive Legends
. The Grantee understands and agrees that the Company shall cause the legends set forth below or
legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR ANY STATE SECURITIES LAWS
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, A
REPURCHASE RIGHT HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS, REPURCHASE RIGHT ARE BINDING ON TRANSFEREES OF THESE SHARES.
2
8.
Successors and Assigns
. The Company may assign any of its rights under this Exercise
Notice to single or multiple assignees, and this agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice shall be binding upon the Grantee and
his or her heirs, executors, administrators, successors and assigns.
9.
Headings
. The captions used in this Exercise Notice are
inserted for convenience and shall not be deemed a part of this agreement for construction or interpretation.
10.
Dispute
Resolution
. The provisions of Section 22 of the Option Agreement shall be the exclusive means of resolving disputes arising out of or relating to this Exercise Notice.
11.
Governing Law; Severability
. This Exercise Notice is to be construed in accordance with and governed by the internal laws of the
State of California without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. Should any
provision of this Exercise Notice be determined by a court of law to be illegal or unenforceable, such provision shall be enforced to the fullest extent allowed by law and the other provisions shall nevertheless remain effective and shall remain
enforceable.
12.
Notices
. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively
given upon personal delivery, upon deposit for delivery by an internationally recognized express mail courier service or upon deposit in the United States mail by certified mail (if the parties are within the United States), with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party.
13.
Further Instruments
. The parties agree to execute such further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this agreement.
14.
Entire Agreement
. The Notice, the Plan and the Option
Agreement are incorporated herein by reference and together with this Exercise Notice constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of
the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee’s interest except by means of a writing signed by the Company and the Grantee. Nothing in the Notice, the Plan, the Option
Agreement and this Exercise Notice (except as expressly provided therein) is intended to confer any rights or remedies on any persons other than the parties.
[Signatures follow on next page.]
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Submitted by:
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Accepted by:
TECHPOINT, INC.
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By:
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(Signature)
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Fumihiro Kozato, its Chief Executive Officer
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Address:
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Address:
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2550 N. 1st St., Suite 400
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San Jose, CA, 95131
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Signature Page to
Exercise Notice
EXHIBIT B
TECHPOINT, INC. 2012 STOCK INCENTIVE PLAN
INVESTMENT REPRESENTATION STATEMENT
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GRANTEE:
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COMPANY:
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Techpoint, Inc.
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SECURITY:
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COMMON STOCK
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AMOUNT:
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DATE:
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In connection with the purchase of the above-listed Securities, the undersigned Grantee represents to the Company the
following:
(a) Grantee is aware of the Company’s business affairs and financial condition and has acquired sufficient
information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Grantee is acquiring these Securities for investment for Grantee’s own account only and not with a view to, or for resale in connection
with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b) Grantee acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon among other things, the bona fide nature of Grantee’s investment intent as expressed herein. Grantee further understands
that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Grantee further acknowledges and understands that the Company is under no obligation
to register the Securities. Grantee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the
opinion of counsel satisfactory to the Company.
(c) Grantee is familiar with the provisions of Rule 701 and Rule 144, each promulgated
under the Securities Act, which, in substance, permit limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a
non-public
offering subject to
the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Grantee, the exercise will be exempt from registration under the Securities Act. In the event the
Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market
stand-off
agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited
“broker’s transaction” or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information
about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
1
In the event that the Company does not qualify under Rule 701 at the time of grant of the Option,
then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the
Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a
non-affiliate
who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Grantee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed
its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Grantee understands that no assurances can be given that any such other registration exemption
will be available in such event.
(e) Grantee represents that Grantee is a resident of China.
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Signature of Grantee:
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Date:
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2
EXHIBIT C
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
[Please sign this document but do not date it. The date and information of the transferee will be completed if and when the shares are assigned.]
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and transfers unto ___________________, __________________ (____) shares of
the Common Stock of Techpoint, Inc., a California corporation (the “Company”), standing in his name on the books of, represented by Certificate No. __ herewith, and does hereby irrevocably constitute and appoint the Secretary of the
Company attorney to transfer the said stock in the books of the Company with full power of substitution.
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DATED: __________________________
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_______________________________________
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The undersigned spouse of __________________________ joins in this assignment.
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Dated: __________________________
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_______________________________________
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(Spouse of _____________)
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1
EXHIBIT D
ELECTION UNDER SECTION 83(b)
OF
THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the Internal Revenue Code, to include in gross
income for ________ the amount of any compensation taxable in connection with the taxpayer’s receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the undersigned are:
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TAXPAYER’S NAME
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_______________________________________
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SPOUSE’S NAME
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_______________________________________
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TAXPAYER’S SOCIAL SECURITY NO.:
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_______________________________________
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SPOUSE’S SOCIAL SECURITY NO.:
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_______________________________________
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TAXABLE YEAR:
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Calendar Year _________________
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ADDRESS:
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_______________________________________
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_______________________________________
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_______________________________________
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2. The property which is the subject of this election is __________ shares of common stock of
Techpoint, Inc.
3. The property was transferred to the undersigned on ____________, ____.
4. The property is subject to the following restrictions: The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase price if for any reason taxpayer’s employment or service with the issuer is terminated. The issuer’s repurchase right lapses in a series of periodic installments.
5. The fair market value of the property at the time of transfer (determined without regard to any restriction other than a
restriction which by its terms will never lapse) is: $_______ per share x ________ shares = $___________.
6. The
undersigned paid $______ per share x _________ shares for the property transferred or a total of $______________.
The undersigned has submitted a copy of
this statement to the person for whom the services were performed in connection with the undersigned’s receipt of the above-described property. The undersigned taxpayer is the person performing the services in connection with the transfer of
said property.
The undersigned will file this election with the Internal Revenue Service office to which he or she files his annual
income tax return not later than 30 days after the date of transfer of the property. Additionally, the undersigned will include a copy of the election with his income tax return for the taxable year in which the property is transferred.
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Dated: _______________________________________
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_______________________________________________
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Taxpayer
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The undersigned spouse of taxpayer joins in this election.
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Dated: _______________________________________
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_______________________________________________
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Spouse of Taxpayer
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1
The property described in the above Section 83(b) election is comprised of shares of common stock acquired
pursuant to the exercise of an incentive stock option under Section 422 of the Internal Revenue Code (the “Code”). Accordingly, it is the intent of the Taxpayer to utilize this election to achieve the following tax results:
1. The purpose of this election is to have the alternative minimum taxable income attributable to the purchased shares measured by the amount
by which the fair market value of such shares at the time of their transfer to the Taxpayer exceeds the purchase price paid for the shares. In the absence of this election, such alternative minimum taxable income would be measured by the spread
between the fair market value of the purchased shares and the purchase price which exists on the various lapse dates in effect for the forfeiture restrictions applicable to such shares. The election is to be effective to the full extent permitted
under the Code.
2. Section 421(a)(1) of the Code expressly excludes from income any excess of the fair market value of the purchased
shares over the amount paid for such shares. Accordingly, this election is also intended to be effective in the event there is a “disqualifying disposition” of the shares, within the meaning of Section 421(b) of the Code, which would
otherwise render the provisions of Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer hereby elects to have the amount of disqualifying disposition income measured by the excess of the fair market value of the
purchased shares on the date of transfer to the Taxpayer over the amount paid for such shares. Since Section 421(a) presently applies to the shares which are the subject of this Section 83(b) election, no taxable income is actually
recognized for regular tax purposes at this time, and no income taxes are payable, by the Taxpayer as a result of this election.
THIS PAGE 2 IS TO BE
ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION.
2
Exhibit 10.3
TECHPOINT, INC.
2017
STOCK INCENTIVE PLAN
(Adopted by the Board of Directors on August 10, 2017)
Table of Contents
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SECTION 1. ESTABLISHMENT AND
PURPOSE
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1
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SECTION 2. DEFINITIONS
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1
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(a)
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“Affiliate”
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1
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(b)
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“Award”
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1
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(c)
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“Award Agreement”
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1
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(d)
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“Board of Directors” or “Board”
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1
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(e)
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“Cash-Based Award”
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1
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(f)
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“Change in Control”
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1
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(g)
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“Code”
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3
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(h)
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“Committee”
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3
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(i)
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“Company”
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3
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(j)
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“Consultant”
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3
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(k)
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“Disability”
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3
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(l)
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“Employee”
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3
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(m)
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“Exchange Act”
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3
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(n)
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“Exercise Price”
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3
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(o)
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“Fair Market Value”
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3
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(p)
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“ISO”
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4
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(q)
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“JDR”
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4
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(r)
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“Nonstatutory Option” or “NSO”
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4
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(s)
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“Option”
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4
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(t)
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“Outside Director”
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4
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(u)
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“Parent”
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4
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(v)
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“Participant”
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4
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(w)
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“Performance Based Award”
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4
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(x)
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“Plan”
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4
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(y)
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“Purchase Price”
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4
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(z)
|
|
“Restricted Share”
|
|
|
4
|
|
|
|
|
|
|
(aa)
|
|
“SAR”
|
|
|
5
|
|
|
|
|
|
|
(bb)
|
|
“Section 409A”
|
|
|
5
|
|
|
|
|
|
|
(cc)
|
|
“Service”
|
|
|
5
|
|
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
i
|
|
|
|
|
|
|
|
|
|
|
|
|
(dd)
|
|
“Share”
|
|
|
5
|
|
|
|
|
|
|
(ee)
|
|
“Stock”
|
|
|
5
|
|
|
|
|
|
|
(ff)
|
|
“Stock Unit”
|
|
|
5
|
|
|
|
|
|
|
(gg)
|
|
“Subsidiary”
|
|
|
5
|
|
|
|
|
|
SECTION 3. ADMINISTRATION
|
|
|
5
|
|
|
|
|
|
|
(a)
|
|
Committee Composition
|
|
|
5
|
|
|
|
|
|
|
(b)
|
|
Committee for Non-Officer Grants
|
|
|
5
|
|
|
|
|
|
|
(c)
|
|
Committee Procedures
|
|
|
6
|
|
|
|
|
|
|
(d)
|
|
Committee Responsibilities
|
|
|
6
|
|
|
|
|
|
SECTION 4. ELIGIBILITY
|
|
|
7
|
|
|
|
|
|
|
(a)
|
|
General Rule
|
|
|
7
|
|
|
|
|
|
|
(b)
|
|
Ten-Percent Stockholders
|
|
|
7
|
|
|
|
|
|
|
(c)
|
|
Attribution Rules
|
|
|
7
|
|
|
|
|
|
|
(d)
|
|
Outstanding Stock
|
|
|
8
|
|
|
|
|
|
|
(e)
|
|
Automatic Grants to Outside Directors
|
|
|
8
|
|
|
|
|
|
SECTION 5. STOCK SUBJECT TO
PLAN
|
|
|
9
|
|
|
|
|
|
|
(a)
|
|
Basic Limitation
|
|
|
9
|
|
|
|
|
|
|
(b)
|
|
Section 162(m) Award Limitation
|
|
|
9
|
|
|
|
|
|
|
(c)
|
|
Additional Shares
|
|
|
9
|
|
|
|
|
|
|
(d)
|
|
Substitution and Assumption of Awards
|
|
|
10
|
|
|
|
|
|
SECTION 6. RESTRICTED SHARES
|
|
|
10
|
|
|
|
|
|
|
(a)
|
|
Restricted Share Award Agreement
|
|
|
10
|
|
|
|
|
|
|
(b)
|
|
Payment for Awards
|
|
|
10
|
|
|
|
|
|
|
(c)
|
|
Vesting
|
|
|
10
|
|
|
|
|
|
|
(d)
|
|
Voting and Dividend Rights
|
|
|
10
|
|
|
|
|
|
|
(e)
|
|
Restrictions on Transfer of Shares
|
|
|
10
|
|
|
|
|
|
SECTION 7. TERMS AND CONDITIONS OF
OPTIONS
|
|
|
11
|
|
|
|
|
|
|
(a)
|
|
Stock Option Award Agreement
|
|
|
11
|
|
|
|
|
|
|
(b)
|
|
Number of Shares
|
|
|
11
|
|
|
|
|
|
|
(c)
|
|
Exercise Price
|
|
|
11
|
|
|
|
|
|
|
(d)
|
|
Withholding Taxes
|
|
|
11
|
|
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
ii
|
|
|
|
|
|
|
|
|
|
|
|
|
(e)
|
|
Exercisability and Term
|
|
|
11
|
|
|
|
|
|
|
(f)
|
|
Exercise of Options
|
|
|
12
|
|
|
|
|
|
|
(g)
|
|
Effect of Change in Control
|
|
|
12
|
|
|
|
|
|
|
(h)
|
|
No Rights as a Stockholder
|
|
|
12
|
|
|
|
|
|
|
(i)
|
|
Modification, Extension and Renewal of Options
|
|
|
12
|
|
|
|
|
|
|
(j)
|
|
Restrictions on Transfer of Shares
|
|
|
12
|
|
|
|
|
|
|
(k)
|
|
Buyout Provisions
|
|
|
12
|
|
|
|
|
|
SECTION 8. PAYMENT FOR SHARES
|
|
|
12
|
|
|
|
|
|
|
(a)
|
|
General Rule
|
|
|
12
|
|
|
|
|
|
|
(b)
|
|
Surrender of Stock
|
|
|
12
|
|
|
|
|
|
|
(c)
|
|
Services Rendered
|
|
|
13
|
|
|
|
|
|
|
(d)
|
|
Cashless Exercise
|
|
|
13
|
|
|
|
|
|
|
(e)
|
|
Exercise/Pledge
|
|
|
13
|
|
|
|
|
|
|
(f)
|
|
Net Exercise
|
|
|
13
|
|
|
|
|
|
|
(g)
|
|
Promissory Note
|
|
|
13
|
|
|
|
|
|
|
(h)
|
|
Other Forms of Payment
|
|
|
13
|
|
|
|
|
|
|
(i)
|
|
Limitations under Applicable Law
|
|
|
13
|
|
|
|
|
|
SECTION 9. STOCK APPRECIATION
RIGHTS
|
|
|
14
|
|
|
|
|
|
|
(a)
|
|
SAR Award Agreement
|
|
|
14
|
|
|
|
|
|
|
(b)
|
|
Number of Shares
|
|
|
14
|
|
|
|
|
|
|
(c)
|
|
Exercise Price
|
|
|
14
|
|
|
|
|
|
|
(d)
|
|
Exercisability and Term
|
|
|
14
|
|
|
|
|
|
|
(e)
|
|
Effect of Change in Control
|
|
|
14
|
|
|
|
|
|
|
(f)
|
|
Exercise of SARs
|
|
|
14
|
|
|
|
|
|
|
(g)
|
|
Modification, Extension or Assumption of SARs
|
|
|
14
|
|
|
|
|
|
|
(h)
|
|
Buyout Provisions
|
|
|
15
|
|
|
|
|
|
SECTION 10. STOCK UNITS
|
|
|
15
|
|
|
|
|
|
|
(a)
|
|
Stock Unit Award Agreement
|
|
|
15
|
|
|
|
|
|
|
(b)
|
|
Payment for Awards
|
|
|
15
|
|
|
|
|
|
|
(c)
|
|
Vesting Conditions
|
|
|
15
|
|
|
|
|
|
|
(d)
|
|
Voting and Dividend Rights
|
|
|
15
|
|
|
|
|
|
|
(e)
|
|
Form and Time of Settlement of Stock Units
|
|
|
15
|
|
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
iii
|
|
|
|
|
|
|
|
|
|
|
|
|
(f)
|
|
Death of Participant
|
|
|
16
|
|
|
|
|
|
|
(g)
|
|
Creditors’ Rights
|
|
|
16
|
|
|
|
|
|
SECTION 11. CASH-BASED AWARDS
|
|
|
16
|
|
|
|
|
|
SECTION 12. ADJUSTMENT OF SHARES
|
|
|
16
|
|
|
|
|
|
|
(a)
|
|
Adjustments
|
|
|
16
|
|
|
|
|
|
|
(b)
|
|
Dissolution or Liquidation
|
|
|
17
|
|
|
|
|
|
|
(c)
|
|
Reorganizations
|
|
|
17
|
|
|
|
|
|
|
(d)
|
|
Reservation of Rights
|
|
|
17
|
|
|
|
|
|
SECTION 13. DEFERRAL OF AWARDS
|
|
|
18
|
|
|
|
|
|
|
(a)
|
|
Committee Powers
|
|
|
18
|
|
|
|
|
|
|
(b)
|
|
General Rules
|
|
|
18
|
|
|
|
|
|
SECTION 14. AWARDS UNDER OTHER PLANS
|
|
|
18
|
|
|
|
|
|
SECTION 15. PAYMENT OF DIRECTOR’S FEES IN
SECURITIES
|
|
|
19
|
|
|
|
|
|
|
(a)
|
|
Effective Date
|
|
|
19
|
|
|
|
|
|
|
(b)
|
|
Elections to Receive NSOs, SARs, Restricted Shares or Stock Units
|
|
|
19
|
|
|
|
|
|
|
(c)
|
|
Number and Terms of NSOs, SARs, Restricted Shares or Stock Units
|
|
|
19
|
|
|
|
|
|
SECTION 16. LEGAL AND REGULATORY
REQUIREMENTS
|
|
|
19
|
|
|
|
|
|
|
SECTION 17.
|
|
TAXES
|
|
|
19
|
|
|
|
|
|
|
(a)
|
|
Withholding Taxes
|
|
|
19
|
|
|
|
|
|
|
(b)
|
|
Share Withholding
|
|
|
19
|
|
|
|
|
|
|
(c)
|
|
Section 409A
|
|
|
20
|
|
|
|
|
|
SECTION 18. TRANSFERABILITY
|
|
|
20
|
|
|
|
|
|
SECTION 19. PERFORMANCE BASED AWARDS
|
|
|
20
|
|
|
|
|
|
SECTION 20. NO EMPLOYMENT RIGHTS
|
|
|
22
|
|
|
|
|
|
SECTION 21. DURATION AND AMENDMENTS
|
|
|
22
|
|
|
|
|
|
|
(a)
|
|
Term of the Plan
|
|
|
22
|
|
|
|
|
|
|
(b)
|
|
Right to Amend the Plan
|
|
|
22
|
|
|
|
|
|
|
(c)
|
|
Effect of Termination
|
|
|
22
|
|
|
|
|
|
SECTION 22. AWARDS TO NON-U.S.
PARTICIPANTS
|
|
|
22
|
|
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
iv
|
|
|
|
|
|
|
|
|
|
|
|
SECTION 23. CANCELLATION OR CLAWBACK OF
AWARDS
|
|
|
23
|
|
|
|
|
|
SECTION 24. GOVERNING LAW
|
|
|
23
|
|
|
|
|
|
SECTION 25. SUCCESSORS AND ASSIGNS
|
|
|
23
|
|
|
|
|
|
SECTION 26. EXECUTION
|
|
|
23
|
|
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
v
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
SECTION 1.
ESTABLISHMENT AND PURPOSE.
The Plan was adopted by the Board of Directors on August 10, 2017 and shall be effective immediately
prior to the closing of the initial offering of Stock to the public on the Mothers market of the Tokyo Stock Exchange (the “Effective Date”), as a successor to the Techpoint, Inc. 2012 Incentive Plan (the “Predecessor Plan”) for
use in connection with the Company’s initial public offering in Japan and registration of its securities with the United States Securities and Exchange Commission. The Plan’s purpose is to enhance the Company’s ability to attract,
retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership and other incentive opportunities.
SECTION 2. DEFINITIONS.
(a)
“
Affiliate
” shall mean any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity.
(b)
“
Award
” shall mean any award of an Option, a SAR, a Restricted Share, a Stock Unit or a Cash-Based Award under the
Plan.
(c)
“
Award Agreement
” shall mean the agreement between the Company and the recipient of an Award which
contains the terms, conditions and restrictions pertaining to such Award.
(d)
“
Board of Directors
”
or
“
Board
” shall mean the Board of Directors of the Company, as constituted from time to time.
(e)
“
Cash-Based Award
” shall mean an Award that entitles the Participant to receive a cash-denominated payment.
(f)
“
Change in Control
” shall mean the occurrence of any of the following events:
|
|
(i)
|
A change in the composition of the Board of Directors occurs, as a result of which fewer than one-half of the incumbent directors are directors who either:
|
|
|
(A)
|
Had been directors of the Company on the “look-back date” (as defined below) (the “original directors”); or
|
|
|
(B)
|
Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or
nomination and the directors whose election or nomination was previously so approved (the “continuing directors”);
|
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
1
provided, however, that for this purpose, the “original directors” and
“continuing directors” shall not include any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the Board;
|
|
(ii)
|
Any “person” (as defined below) who by the acquisition or aggregation of securities, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of
directors (the “Base Capital Stock”); except that any change in the relative beneficial ownership of the Company’s securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base
Capital Stock, and any decrease thereafter in such person’s ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person’s beneficial ownership of any securities of the
Company;
|
|
|
(iii)
|
The consummation of a merger or consolidation of the Company or a Subsidiary of the Company with or into another entity or any other corporate reorganization, if persons who were not stockholders of the Company
immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding securities of each of (A) the Company (or its
successor) and (B) any direct or indirect parent corporation of the Company (or its successor); or
|
|
|
(iv)
|
The sale, transfer or other disposition of all or substantially all of the Company’s assets.
|
For purposes of subsection (f)(i) above, the term “look-back” date shall mean the later of (1) the Effective Date and
(2) the date that is 24 months prior to the date of the event that may constitute a Change in Control.
For purposes of subsection
(f)(ii) above, the term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act, but shall exclude (1) a trustee or other fiduciary holding securities under an employee benefit plan maintained
by the Company or a Parent or Subsidiary and (2) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the Stock.
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
2
Any other provision of this Section 2(f) notwithstanding, a transaction shall not constitute
a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities
immediately before such transaction, and a Change in Control shall not be deemed to occur if the Company files a registration statement with the United States Securities and Exchange Commission in connection with an initial or secondary public
offering of securities or debt of the Company to the public or otherwise lists its Shares or JDRs for trading on the Tokyo Stock Exchange.
(g)
“
Code
” shall mean the United States Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder.
(h)
“
Committee
” shall mean the Compensation Committee as designated by the Board of
Directors, which is authorized to administer the Plan, as described in Section 3 hereof.
(i)
“
Company
” shall
mean Techpoint, Inc., a Delaware corporation.
(j)
“
Consultant
” shall mean an individual who is a consultant or
advisor and who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor (not including service as a member of the Board of Directors) or a member of the board of directors of a Parent or a
Subsidiary, in each case who is not an Employee.
(k)
“
Disability
” shall mean any permanent and total disability
as defined by Section 22(e)(3) of the Code.
(l)
“
Employee
” shall mean any individual who is a common-law
employee of the Company, a Parent, a Subsidiary or an Affiliate.
(m)
“
Exchange Act
” shall mean the United States
Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(n)
“
Exercise
Price
” shall mean, in the case of an Option, the amount for which one Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. “Exercise Price” shall mean, in the case of a SAR,
an amount, as specified in the applicable SAR Award Agreement, which is subtracted from the Fair Market Value of one Share in determining the amount payable upon exercise of such SAR.
(o)
“
Fair Market Value
” with respect to a Share, shall mean the market price of one Share, determined by the Committee
as follows:
|
|
(i)
|
If the Stock was traded over-the-counter on the date in question, then the Fair Market Value shall be equal to the last transaction price quoted for such date by the OTC Bulletin Board or, if not so quoted, shall be
equal to the mean between the last reported representative bid and asked prices quoted for such date by the principal automated inter-dealer quotation system on which the Stock is quoted or, if the Stock is not quoted on any such system, by the Pink
Quote system;
|
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
3
|
|
(ii)
|
If the Stock was traded on any established stock exchange (such as the New York Stock Exchange, The Nasdaq Global Market, The Nasdaq Global Select Market or the Tokyo Stock Exchange) or national market system on the
date in question, then the Fair Market Value shall be equal to the closing price reported for such date by the applicable exchange or system; or
|
|
|
(iii)
|
If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate.
|
In all cases, the determination of Fair Market Value by the Committee shall be conclusive and binding on all persons.
(p)
“
ISO
” shall mean an employee incentive stock option described in Section 422 of the Code.
(q)
“
JDR
” means a Japanese Depositary Receipt, which evidences a beneficial interest in a Share represented by a
certificate held in trust by a bank.
(r)
“
Nonstatutory Option
” or “NSO” shall mean an employee stock
option that is not an ISO.
(s)
“
Option
” shall mean an ISO or Nonstatutory Option granted under the Plan and
entitling the holder to purchase Shares.
(t)
“
Outside Director
” shall mean a member of the Board of Directors who
is not a common-law employee of, or paid consultant to, the Company, a Parent or a Subsidiary.
(u)
“
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. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be a Parent commencing as of such date.
(v)
“
Participant
” shall mean a person who holds an Award.
(w)
“
Performance Based Award
” shall mean any Restricted Share Award, Stock Unit Award or Cash-Based Award granted to a
Participant that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code.
(x)
“
Plan
” shall mean this 2017 Stock Incentive Plan of Techpoint, Inc., as amended from time to time.
(y)
“
Purchase Price
” shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Committee.
(z)
“
Restricted Share
” shall mean a Share awarded under the Plan.
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
4
(aa)
“
SAR
” shall mean a stock appreciation right granted under the Plan.
(bb)
“
Section 409A
” means Section 409A of the Code.
(cc)
“
Service
” shall mean service as an Employee, Consultant or Outside Director, subject to such further limitations
as may be set forth in the Plan or the applicable Award Agreement. Service does not terminate when an Employee goes on a bona fide leave of absence, that was approved by the Company in writing, if the terms of the leave provide for continued Service
crediting, or when continued Service crediting is required by applicable law. However, for purposes of determining whether an Option is entitled to ISO status, an Employee’s employment will be treated as terminating three months after such
Employee went on leave, unless such Employee’s right to return to active work is guaranteed by law or by a contract. Service terminates in any event when the approved leave ends, unless such Employee immediately returns to active work. The
Company determines which leaves of absence count toward Service, and when Service terminates for all purposes under the Plan.
(dd)
“
Share
” shall mean one share of Stock, as adjusted in accordance with Section 12 (if applicable). Unless the context otherwise requires, reference to a “Share” shall include a JDR.
(ee)
“
Stock
” shall mean the Common Stock, par value $0.0001, of the Company.
(ff)
“
Stock Unit
” shall mean a bookkeeping entry representing the Company’s obligation to deliver one Share (or
distribute cash) on a future date in accordance with the provisions of a Stock Unit Award Agreement.
(gg)
“
Subsidiary
” shall mean any corporation, if the Company and/or one or more other Subsidiaries own not less than 50% of the total combined voting power of all classes of outstanding stock of such corporation. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.
SECTION 3.
ADMINISTRATION.
(a) Committee Composition
. The Plan shall be administered by a Committee appointed by the Board, or by the
Board acting as the Committee. The Committee shall consist of two or more directors of the Company. In addition, to the extent required by the Board, the composition of the Committee shall satisfy (i) such requirements as the Securities and
Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and (ii) such requirements as the Internal Revenue Service may establish for
outside directors acting under plans intended to qualify for exemption under Section 162(m)(4)(C) of the Code.
(b) Committee for
Non-Officer Grants
. The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who need not satisfy the requirements of Section 3(a), who may administer the Plan with
respect to Employees who are not considered officers or directors of the Company under Section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and may determine all terms of such grants. Within the limitations of the
preceding sentence, any reference in the Plan to the
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Committee shall include such committee or committees appointed pursuant to the preceding sentence. To the extent permitted by applicable laws, the Board of Directors may also authorize one or
more officers of the Company to designate Employees, other than officers under Section 16 of the Exchange Act, to receive Awards and/or to determine the number of such Awards to be received by such persons; provided, however, that the Board of
Directors shall specify the total number of Awards that such officers may so award.
(c) Committee Procedures
. The Board of
Directors shall designate one of the members of the Committee as chairman. The Committee may hold meetings at such times and places as it shall determine. The acts of a majority of the Committee members present at meetings at which a quorum exists,
or acts reduced to or approved in writing (including via email) by all Committee members, shall be valid acts of the Committee.
(d)
Committee Responsibilities
. Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take the following actions:
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(i)
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To interpret the Plan and to apply its provisions;
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(ii)
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To adopt, amend or rescind rules, procedures and forms relating to the Plan;
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(iii)
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To adopt, amend or terminate sub-plans established for the purpose of satisfying applicable foreign laws including qualifying for preferred tax treatment under applicable foreign tax laws;
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(iv)
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To authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan;
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(v)
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To determine when Awards are to be granted under the Plan;
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(vi)
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To select the Participants to whom Awards are to be granted;
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(vii)
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To determine the type of Award and number of Shares or amount of cash to be made subject to each Award;
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(viii)
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To prescribe the terms and conditions of each Award, including (without limitation) the Exercise Price and Purchase Price, and the vesting or duration of the Award (including accelerating the vesting of Awards, either
at the time of the Award or thereafter, without the consent of the Participant), to determine whether an Option is to be classified as an ISO or as a Nonstatutory Option, and to specify the provisions of the agreement relating to such Award;
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(ix)
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To amend any outstanding Award Agreement, subject to applicable legal restrictions and to the consent of the Participant if the Participant’s rights or obligations would be materially impaired;
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(x)
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To prescribe the consideration for the grant of each Award or other right under the Plan and to determine the sufficiency of such consideration;
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(xi)
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To determine the disposition of each Award or other right under the Plan in the event of a Participant’s divorce or dissolution of marriage;
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(xii)
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To determine whether Awards under the Plan will be granted in replacement of other grants under an incentive or other compensation plan of an acquired business;
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(xiii)
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To correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award Agreement;
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(xiv)
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To establish or verify the extent of satisfaction of any performance goals or other conditions applicable to the grant, issuance, exercisability, vesting and/or ability to retain any Award; and
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(xv)
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To take any other actions deemed necessary or advisable for the administration of the Plan.
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Subject to the
requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate, except that the Committee may not
delegate its authority with regard to the selection for participation of or the granting of Awards under the Plan to persons subject to Section 16 of the Exchange Act. All decisions, interpretations and other actions of the Committee shall be
final and binding on all Participants and all persons deriving their rights from a Participant. No member of the Committee shall be liable for any action that he has taken or has failed to take in good faith with respect to the Plan or any Award
under the Plan.
SECTION 4. ELIGIBILITY.
(a) General Rule
. Only Employees, Consultants and Outside Directors shall be eligible for the grant of Awards. Only common-law employees
of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs.
(b) Ten-Percent Stockholders
. An Employee who
owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, a Parent or Subsidiary shall not be eligible for the grant of an ISO unless such grant satisfies the requirements of Section 422(c)(5) of
the Code.
(c) Attribution Rules
. For purposes of Section 4(b) above, in determining stock ownership, an Employee shall be
deemed to own the stock owned, directly or indirectly, by or for such Employee’s brothers, sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be
deemed to be owned proportionately by or for its stockholders, partners or beneficiaries.
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(d) Outstanding Stock
. For purposes of Section 4(b) above, “outstanding
stock” shall include all stock actually issued and outstanding immediately after the grant. “Outstanding stock” shall not include shares authorized for issuance under outstanding options held by the Employee or by any other person.
(e) Automatic Grants to Outside Directors
.
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(i)
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Subject to approval of the Plan by the Company’s stockholders, on the date of each annual meeting of the Company’s stockholders (or as soon as practicable thereafter), each Outside Director shall receive a
grant of Stock Units with respect to 7,500 Shares (subject to adjustment under Section 12). The Stock Units granted under this Section 4(e)(i) shall vest on the first anniversary of the date of grant (or, if earlier, the date of the
Company’s next annual meeting of stockholders following the date of grant). Notwithstanding the foregoing, each Stock Unit granted under this Section 4(e)(i) shall become vested if a Change in Control occurs with respect to the Company
during the Outside Director’s Service.
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(ii)
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Subject to approval of the Plan by the Company’s stockholders, a person who is initially elected or appointed to the Board other than on the date of an annual meeting of stockholders and who is an Outside Director
at the time of such initial election or appointment shall receive on the date of such initial election or appointment (or as soon as practicable thereafter) a pro-rated grant of Stock Units which proration shall reflect such Outside Director’s
partial year of service, calculated as 7,500 Shares (subject to adjustment under Section 12) multiplied by a fraction, (A) the numerator of which is the number of days from the date of such initial election or appointment through the first
anniversary of the date of the preceding annual meeting of stockholders and (B) the denominator of which is three hundred and sixty-five (365). The Stock Units granted under this Section 4(e)(ii) shall vest on the first anniversary of the
date of grant (or, if earlier, the date of the Company’s next annual meeting of stockholders following the date of grant). Notwithstanding the foregoing, each Stock Unit granted under this Section 4(e)(ii) shall become vested if a Change
in Control occurs with respect to the Company during the Outside Director’s Service.
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(iii)
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The grant date fair value of all Awards (as determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) granted under the Plan to any Outside
Director as compensation for services as an Outside Director during any twelve (12)-month period may not exceed $500,000, provided that any Award granted to an Outside Director in lieu of a cash retainer pursuant to Section 15(b) will be
excluded from such limit.
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SECTION 5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation
. Shares offered under the Plan shall be authorized but unissued Shares or treasury Shares. The aggregate number of
Shares authorized for issuance as Awards under the Plan shall not exceed the sum of (x) 2,500,000 Shares, plus (y) the sum of the number of Shares subject to outstanding awards under the Predecessor Plan on the Effective Date that are
subsequently forfeited or terminated for any reason before being exercised or settled, plus the number of Shares subject to vesting restrictions under the Predecessor Plan on the Effective Date that are subsequently forfeited, plus the number of
reserved Shares not issued or subject to outstanding grants under the Predecessor Plan on the Effective Date, plus (z) an annual increase on the first day of each fiscal year, for a period of not more than 10 years, beginning on January 1,
2018, and ending on (and including) January 1, 2027, in an amount equal to the lesser of (i) four percent (4%) of the outstanding Shares on the last day of the immediately preceding fiscal year or (ii) if the Board acts prior to
the first day of the fiscal year, such lesser amount (including zero) that the Board determines for purposes of the annual increase for that fiscal year. Notwithstanding the foregoing, the number of Shares that may be delivered in the aggregate
pursuant to the exercise of ISOs granted under the Plan shall not exceed 10,000,000 Shares plus, to the extent allowable under Section 422 of the Code, any Shares that become available for issuance under the Plan pursuant to Section 5(c).
The limitations of this Section 5(a) shall be subject to adjustment pursuant to Section 12. The number of Shares that are subject to Awards outstanding at any time under the Plan shall not exceed the number of Shares which then remain
available for issuance under the Plan. The Company shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan.
(b) Section 162(m) Award Limitation
. Notwithstanding any contrary provisions of the Plan, and subject to the provisions of
Section 12, during any time when the transition period relief under Treasury Regulation Section 1.162-27 (f)(2) has lapsed or does not apply, and with respect to any Option or SAR intended to qualify as “performance-based
compensation” under Section 162(m) of the Code, no Participant eligible for an Award may receive Options or SARs under the Plan in any calendar year that relate to an aggregate of more than 1,000,000 Shares, and no more than two
(2) times this amount in the first year of employment (subject to adjustment under Section 12). To the extent required by Section 162(m) of the Code, in applying the foregoing limitation with respect to a Participant, if any Option or
SAR is canceled, the canceled Option or SAR shall continue to count against the maximum number of Shares with respect to which Options and SARs may be granted to the Participant. For this purpose, the repricing of an Option or SAR shall be treated
as the cancellation of the existing Option or SAR and the grant of a new Option or SAR.
(c) Additional Shares
. If Restricted
Shares or Shares issued upon the exercise of Options are forfeited, then such Shares shall again become available for Awards under the Plan. If Stock Units, Options or SARs are forfeited or terminate for any reason before being exercised or settled,
or an Award is settled in cash without the delivery of Shares to the holder, then any Shares subject to the Award shall again become available for Awards under the Plan. Only the number of Shares (if any) actually issued in settlement of Awards (and
not forfeited) shall reduce the number available in Section 5(a) and the balance shall again become available for Awards under the Plan. Any Shares withheld to satisfy the grant price or Exercise Price or tax withholding obligation pursuant to
any Award shall again become available for Awards under the Plan. Notwithstanding the foregoing provisions of this Section 5(c), Shares that have actually been issued shall not again become available for Awards under the Plan, except for Shares
that are forfeited and do not become vested.
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(d) Substitution and Assumption of Awards
. The Committee may make Awards under the Plan by
assumption, substitution or replacement of stock options, stock appreciation rights, stock units or similar awards granted by another entity (including a Parent or Subsidiary), if such assumption, substitution or replacement is in connection with an
asset acquisition, stock acquisition, merger, consolidation or similar transaction involving the Company (and/or its Parent or Subsidiary) and such other entity (and/or its affiliate). The terms of such assumed, substituted or replaced Awards shall
be as the Committee, in its discretion, determines is appropriate, notwithstanding limitations on Awards in the Plan. Any such substitute or assumed Awards shall not count against the Share limitation set forth in Section 5(a) (nor shall Shares
subject to such Awards be added to the Shares available for Awards under the Plan as provided in Section 5(c) above), except that Shares acquired by exercise of substitute ISOs will count against the maximum number of Shares that may be issued
pursuant to the exercise of ISOs under the Plan.
SECTION 6. RESTRICTED SHARES.
(a) Restricted Share Award Agreement
. Each grant of Restricted Shares under the Plan shall be evidenced by a Restricted Share Award
Agreement between the Participant and the Company. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Restricted
Share Award Agreements entered into under the Plan need not be identical.
(b) Payment for Awards
. Restricted Shares may be sold or
awarded under the Plan for such consideration as the Committee may determine, including (without limitation) cash, cash equivalents, full-recourse promissory notes, past services and future services.
(c) Vesting
. Each Award of Restricted Shares may or may not be subject to vesting. Vesting shall occur, in full or in installments,
upon satisfaction of the conditions specified in the Restricted Share Award Agreement. A Restricted Share Award Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability or retirement or other events. The
Committee may determine, at the time of granting Restricted Shares or thereafter, that all or part of such Restricted Shares shall become vested in the event that a Change in Control occurs with respect to the Company.
(d) Voting and Dividend Rights
. The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other
rights as the Company’s other stockholders. A Restricted Share Award Agreement, however, may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares. Such additional Restricted Shares
shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid.
(e) Restrictions
on Transfer of Shares
. Restricted Shares shall be subject to such rights of repurchase, rights of first refusal or other restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Restricted Share Award
Agreement and shall apply in addition to any general restrictions that may apply to all holders of Shares.
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SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Award Agreement
. Each grant of an Option under the Plan shall be evidenced by a Stock Option Award Agreement between
the Participant and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate
for inclusion in a Stock Option Award Agreement. The Stock Option Award Agreement shall specify whether the Option is an ISO or an NSO. The provisions of the various Stock Option Award Agreements entered into under the Plan need not be identical.
(b) Number of Shares
. Each Stock Option Award Agreement shall specify the number of Shares that are subject to the Option and
shall provide for the adjustment of such number in accordance with Section 12.
(c) Exercise Price
. Each Stock Option Award
Agreement shall specify the Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the Fair Market Value of a Share on the date of grant, except as otherwise provided in 4(b), and the Exercise Price of an NSO shall not be less
than 100% of the Fair Market Value of a Share on the date of grant. Notwithstanding the foregoing, Options may be granted with an Exercise Price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction
described in, and in a manner consistent with, Section 424(a) of the Code. Subject to the foregoing in this Section 7(c), the Exercise Price under any Option shall be determined by the Committee in its sole discretion. The Exercise Price
shall be payable in one of the forms described in Section 8.
(d) Withholding Taxes
. As a condition to the exercise of an
Option, the Participant shall make such arrangements as the Committee may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise. The Participant shall also
make such arrangements as the Committee may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option.
(e) Exercisability and Term
. Each Stock Option Award Agreement shall specify the date when all or any installment of the Option is to
become exercisable. The Stock Option Award Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed 10 years from the date of grant (five years for ISOs granted to Employees described in
Section 4(b)). A Stock Option Award Agreement may provide for accelerated exercisability in the event of the Participant’s death, Disability, or retirement or other events and may provide for expiration prior to the end of its term in the
event of the termination of the Participant’s Service. Options may be awarded in combination with SARs, and such an Award may provide that the Options will not be exercisable unless the related SARs are forfeited. Subject to the foregoing in
this Section 7(e), the Committee in its sole discretion shall determine when all or any installment of an Option is to become exercisable and when an Option is to expire.
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(f) Exercise of Options
. Each Stock Option Award Agreement shall set forth the extent to
which the Participant shall have the right to exercise the Option following termination of the Participant’s Service with the Company and its Subsidiaries, and the right to exercise the Option of any executors or administrators of the
Participant’s estate or any person who has acquired such Option(s) directly from the Participant by bequest or inheritance. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Options
issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.
(g) Effect of Change in
Control
. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become exercisable as to all or part of the Shares subject to such Option in the event that a Change in Control occurs with respect to
the Company.
(h) No Rights as a Stockholder
. A Participant shall have no rights as a stockholder with respect to any Shares
covered by his Option until the date of the issuance of a stock certificate for such Shares. No adjustments shall be made, except as provided in Section 12.
(i) Modification, Extension and Renewal of Options
. Within the limitations of the Plan, the Committee may modify, extend or renew
outstanding options or may accept the cancellation of outstanding options (to the extent not previously exercised), whether or not granted hereunder, in return for the grant of new Options for the same or a different number of Shares and at the same
or a different Exercise Price, or in return for the grant of a different Award for the same or a different number of Shares, without stockholder approval. The foregoing notwithstanding, no modification of an Option shall, without the consent of the
Participant, materially impair his or her rights or obligations under such Option.
(j) Restrictions on Transfer of Shares
. Any
Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall be set forth in
the applicable Stock Option Award Agreement and shall apply in addition to any general restrictions that may apply to all holders of Shares.
(k) Buyout Provisions
. The Committee may at any time (i) offer to buy out for a payment in cash or cash equivalents an Option
previously granted or (ii) authorize a Participant to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.
SECTION 8. PAYMENT FOR SHARES.
(a)
General Rule
. The entire Exercise Price or Purchase Price of Shares issued under the Plan shall be payable in lawful money of the United States of America at the time when such Shares are purchased, except as provided in Section 8(b)
through Section 8(h) below.
(b) Surrender of Stock
. To the extent that a Stock Option Award Agreement so provides, payment
may be made all or in part by surrendering, or attesting to the ownership of, Shares which have already been owned by the Participant or his or her representative. Such Shares shall be valued at their Fair Market Value on the date when the new
Shares are purchased under the Plan. The Participant shall not surrender, or attest to the ownership of, Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional compensation
expense) with respect to the Option for financial reporting purposes.
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(c) Services Rendered
. At the discretion of the Committee, Shares may be awarded under the
Plan in consideration of services rendered to the Company or a Subsidiary. If Shares are awarded without the payment of a Purchase Price in cash, the Committee shall make a determination (at the time of the Award) of the value of the services
rendered by the Participant and the sufficiency of the consideration to meet the requirements of Section 6(b).
(d) Cashless
Exercise
. To the extent that a Stock Option Award Agreement so provides, payment may be made all or in part by delivery (on a form prescribed by the Committee) of an irrevocable direction to a securities broker to sell Shares and to deliver all
or part of the sale proceeds to the Company in payment of the aggregate Exercise Price.
(e) Exercise/Pledge
. To the extent that a
Stock Option Award Agreement so provides, payment may be made all or in part by delivery (on a form prescribed by the Committee) of an irrevocable direction to a securities broker or lender to pledge Shares, as security for a loan, and to deliver
all or part of the loan proceeds to the Company in payment of the aggregate Exercise Price.
(f) Net Exercise
. To the extent that a
Stock Option Award Agreement so provides, by a “net exercise” arrangement pursuant to which the number of Shares issuable upon exercise of the Option shall be reduced by the largest whole number of Shares having an aggregate Fair Market
Value that does not exceed the aggregate Exercise Price (plus tax withholdings, if applicable) and any remaining balance of the aggregate Exercise Price (and/or applicable tax withholdings) not satisfied by such reduction in the number of whole
Shares to be issued shall be paid by the Participant in cash or any other form of payment permitted under the Stock Option Agreement.
(g) Promissory Note
. To the extent that a Stock Option Award Agreement or Restricted Share Award Agreement so provides, payment may be
made all or in part by delivering (on a form prescribed by the Company) a full-recourse promissory note.
(h) Other Forms of
Payment
. To the extent that a Stock Option Award Agreement or Restricted Share Award Agreement so provides, payment may be made in any other form that is consistent with applicable laws, regulations and rules.
(i) Limitations under Applicable Law
. Notwithstanding anything herein or in a Stock Option Award Agreement or Restricted Share Award
Agreement to the contrary, payment may not be made in any form that is unlawful, as determined by the Committee in its sole discretion.
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SECTION 9. STOCK APPRECIATION RIGHTS.
(a) SAR Award Agreement
. Each grant of a SAR under the Plan shall be evidenced by a SAR Award Agreement between the Participant and the
Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Award Agreements entered into under the Plan need not be
identical.
(b) Number of Shares
. Each SAR Award Agreement shall specify the number of Shares to which the SAR pertains and shall
provide for the adjustment of such number in accordance with Section 12.
(c) Exercise Price
. Each SAR Award Agreement shall
specify the Exercise Price. The Exercise Price of a SAR shall not be less than 100% of the Fair Market Value of a Share on the date of grant. Notwithstanding the foregoing, SARs may be granted with an Exercise Price of less than 100% of the Fair
Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code. Subject to the foregoing in this Section 9(c), the Exercise Price under any SAR shall be
determined by the Committee in its sole discretion.
(d) Exercisability and Term
. Each SAR Award Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR Award Agreement shall also specify the term of the SAR. A SAR Award Agreement may provide for accelerated exercisability in the event of the Participant’s death,
Disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Participant’s Service. SARs may be awarded in combination with Options, and such an Award may provide
that the SARs will not be exercisable unless the related Options are forfeited. A SAR may be included in an ISO only at the time of grant but may be included in an NSO at the time of grant or thereafter. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
(e) Effect of Change in Control
. The Committee may determine, at
the time of granting a SAR or thereafter, that such SAR shall become fully exercisable as to all Common Shares subject to such SAR in the event that a Change in Control occurs with respect to the Company.
(f) Exercise of SARs
. Upon exercise of a SAR, the Participant (or any person having the right to exercise the SAR after his or her
death) shall receive from the Company (i) Shares, (ii) cash or (iii) a combination of Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall,
in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject to the SARs exceeds the Exercise Price.
(g) Modification, Extension or Assumption of SARs
. Within the limitations of the Plan, the Committee may modify, extend or assume
outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Company or by another issuer) in return for the grant of new SARs for the same or a different number of Shares and at the same or a different Exercise Price,
or in return for the grant of a different Award for the same or a different number of Shares, without stockholder approval. The foregoing notwithstanding, no modification of a SAR shall, without the consent of the holder, materially impair his or
her rights or obligations under such SAR.
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(h) Buyout Provisions
. The Committee may at any time (i) offer to buy out for a
payment in cash or cash equivalents a SAR previously granted, or (ii) authorize a Participant to elect to cash out a SAR previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.
SECTION 10. STOCK UNITS.
(a)
Stock Unit Award Agreement
. Each grant of Stock Units under the Plan shall be evidenced by a Stock Unit Award Agreement between the Participant and the Company. Such Stock Units shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The provisions of the various Stock Unit Award Agreements entered into under the Plan need not be identical.
(b) Payment for Awards
. To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be required of
the Award recipients.
(c) Vesting Conditions
. Each Award of Stock Units may or may not be subject to vesting. Vesting shall occur,
in full or in installments, upon satisfaction of the conditions specified in the Stock Unit Award Agreement. A Stock Unit Award Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability or retirement or
other events. The Committee may determine, at the time of granting Stock Units or thereafter, that all or part of such Stock Units shall become vested in the event that a Change in Control occurs with respect to the Company.
(d) Voting and Dividend Rights
. The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock
Unit awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both. Prior to distribution, any dividend equivalents
which are not paid shall be subject to the same conditions and restrictions (including without limitation, any forfeiture conditions) as the Stock Units to which they attach.
(e) Form and Time of Settlement of Stock Units
. Settlement of vested Stock Units may be made in the form of (i) cash,
(ii) Shares or (iii) any combination of both, as determined by the Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined
performance factors. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Shares over a series of trading days. A Stock Unit Award Agreement may provide that vested Stock
Units may be settled in a lump sum or in installments. A Stock Unit Award Agreement may provide that the distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be
deferred to any later date, subject to compliance with Section 409A. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock
Units shall be subject to adjustment pursuant to Section 12.
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(f) Death of Participant
. Any Stock Unit Award that becomes payable after the
Participant’s death shall be distributed to the Participant’s beneficiary or beneficiaries. Each recipient of a Stock Unit Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with
the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Participant’s death. If no beneficiary was designated or if no designated beneficiary survives the Participant, then any
Stock Units Award that becomes payable after the Participant’s death shall be distributed to the Participant’s estate.
(g)
Creditors’ Rights
. A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the
applicable Stock Unit Award Agreement.
SECTION 11. CASH-BASED AWARDS
The Committee may, in its sole discretion, grant Cash-Based Awards to any Participant in such number or amount and upon such terms, and subject
to such conditions, as the Committee shall determine at the time of grant and specify in an applicable Award Agreement. The Committee shall determine the maximum duration of the Cash-Based Award, the amount of cash which may be payable pursuant to
the Cash-Based Award, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Committee shall determine. Each Cash-Based Award shall specify a cash-denominated payment amount, formula or
payment ranges as determined by the Committee. 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, as the Committee determines.
SECTION 12. ADJUSTMENT OF SHARES.
(a)
Adjustments
. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a
combination or consolidation of the outstanding Stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make appropriate and equitable adjustments in:
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(i)
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The number of Shares available for future Awards under Section 5;
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(ii)
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The number of Stock Units to be granted to Outside Directors under Section 4(e);
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(iii)
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The limitations set forth in Sections 5(a) and (b) and Section 19;
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(iv)
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The number of Shares covered by each outstanding Award; and
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(v)
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The Exercise Price under each outstanding Option and SAR.
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TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
16
(b) Dissolution or Liquidation
. To the extent not previously exercised or settled,
Options, SARs and Stock Units shall terminate immediately prior to the dissolution or liquidation of the Company.
(c)
Reorganizations
. In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Subject to compliance with Section 409A, such agreement shall
provide for:
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(i)
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The continuation of the outstanding Awards by the Company, if the Company is a surviving corporation;
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(ii)
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The assumption of the outstanding Awards by the surviving corporation or its parent or subsidiary;
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(iii)
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The substitution by the surviving corporation or its parent or subsidiary of its own awards for the outstanding Awards;
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(iv)
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Immediate vesting, exercisability or settlement of outstanding Awards followed by the cancellation of such Awards upon or immediately prior to the effectiveness of such transaction; or
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(v)
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Settlement of the intrinsic value of the outstanding Awards (whether or not then vested or exercisable) in cash or cash equivalents or equity (including cash or equity subject to deferred vesting and delivery consistent
with the vesting restrictions applicable to such Awards or the underlying Shares) followed by the cancellation of such Awards (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Committee determines in good
faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment); in each case without the Participant’s consent.
Any acceleration of payment of an amount that is subject to Section 409A will be delayed, if necessary, until the earliest time that such payment would be permissible under Section 409A without triggering any additional taxes applicable
under Section 409A.
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The Company will have no obligation to treat all Awards, all Awards held by a Participant, or all Awards of the
same type, similarly.
(d) Reservation of Rights
. Except as provided in this Section 12, a Participant shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Award. The grant of an Award pursuant to the Plan
shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
17
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. In the event of any change affecting the Shares or the Exercise Price of
Shares subject to an Award, including a merger or other reorganization, for reasons of administrative convenience, the Company in its sole discretion may refuse to permit the exercise of any Award during a period of up to 30 days prior to the
occurrence of such event.
SECTION 13. DEFERRAL OF AWARDS.
(a) Committee Powers
. Subject to compliance with Section 409A, the Committee (in its sole discretion) may permit or require a
Participant to:
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(i)
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Have cash that otherwise would be paid to such Participant as a result of the exercise of a SAR or the settlement of Stock Units credited to a deferred compensation account established for such Participant by the
Committee as an entry on the Company’s books;
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(ii)
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Have Shares that otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR converted into an equal number of Stock Units; or
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(iii)
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Have Shares that otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR or the settlement of Stock Units converted into amounts credited to a deferred compensation account
established for such Participant by the Committee as an entry on the Company’s books. Such amounts shall be determined by reference to the Fair Market Value of such Shares as of the date when they otherwise would have been delivered to such
Participant.
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(b) General Rules
. A deferred compensation account established under this Section 13 may be
credited with interest or other forms of investment return, as determined by the Committee. A Participant for whom such an account is established shall have no rights other than those of a general creditor of the Company. Such an account shall
represent an unfunded and unsecured obligation of the Company and shall be subject to the terms and conditions of the applicable agreement between such Participant and the Company. If the deferral or conversion of Awards is permitted or required,
the Committee (in its sole discretion) may establish rules, procedures and forms pertaining to such Awards, including (without limitation) the settlement of deferred compensation accounts established under this Section 13.
SECTION 14. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards may be settled in the form of Shares issued under the Plan. Such Shares
shall be treated for all purposes under the Plan like Shares issued in settlement of Stock Units and shall, when issued, reduce the number of Shares available under Section 5.
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
18
SECTION 15. PAYMENT OF DIRECTOR’S FEES IN SECURITIES.
(a) Effective Date
. No provision of this Section 15 shall be effective unless and until the Board has determined to implement such
provision.
(b) Elections to Receive NSOs, SARs, Restricted Shares or Stock Units
. An Outside Director may elect to receive his or
her annual retainer payments and/or meeting fees from the Company in the form of cash, NSOs, SARs, Restricted Shares or Stock Units, or a combination thereof, as determined by the Board. Alternatively, the Board may mandate payment in any of such
alternative forms. Such NSOs, SARs, Restricted Shares and Stock Units shall be issued under the Plan. An election under this Section 15 shall be filed with the Company on the prescribed form.
(c) Number and Terms of NSOs, SARs, Restricted Shares or Stock Units
. The number of NSOs, SARs, Restricted Shares or Stock Units to be
granted to Outside Directors in lieu of annual retainers and meeting fees that would otherwise be paid in cash shall be calculated in a manner determined by the Board. The terms of such NSOs, SARs, Restricted Shares or Stock Units shall also be
determined by the Board.
SECTION 16. LEGAL AND REGULATORY REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the United States Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any stock exchange on which the
Company’s securities may then be listed, and the Company has obtained the approval or favorable ruling from any governmental agency which the Company determines is necessary or advisable. The Company shall not be liable to a Participant or
other persons as to: (a) the non-issuance or sale of Shares as to which the Company has not obtained from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale
of any Shares under the Plan; and (b) any tax consequences expected, but not realized, by any Participant or other person due to the receipt, exercise or settlement of any Award granted under the Plan.
SECTION 17. TAXES.
(a) Withholding
Taxes
. To the extent required by applicable federal, state, local or foreign law, a Participant or his or her successor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in
connection with the Plan. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied.
(b) Share Withholding
. The Committee may permit a Participant to satisfy all or part of his or her withholding or income tax
obligations by having the Company withhold all or a portion of any Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Shares that he or she previously acquired. Such Shares shall be valued at their Fair
Market Value on the date when taxes otherwise would be withheld in cash. In no event may a Participant have Shares withheld that would otherwise be issued to him or her in excess of the number necessary to satisfy the maximum legally required tax
withholding.
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
19
(c) Section 409A
. Each Award that provides for “nonqualified deferred
compensation” within the meaning of Section 409A shall be subject to such additional rules and requirements as specified by the Committee from time to time in order to comply with Section 409A. If any amount under such an Award is
payable upon a “separation from service” (within the meaning of Section 409A) to a Participant 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 Participant’s separation from service, or (ii) the Participant’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. In addition, the settlement of any such Award may not be accelerated except to the extent permitted by Section 409A.
SECTION 18. TRANSFERABILITY.
Unless the
agreement evidencing an Award (or an amendment thereto authorized by the Committee) expressly provides otherwise, no Award granted under the Plan, nor any interest in such Award, may be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner (prior to the vesting and lapse of any and all restrictions applicable to Shares issued under such Award), other than by will or the laws of descent and distribution; provided, however, that an ISO may be
transferred or assigned only to the extent consistent with Section 422 of the Code. Any purported assignment, transfer or encumbrance in violation of this Section 18 shall be void and unenforceable against the Company.
SECTION 19. PERFORMANCE BASED AWARDS.
The number of Shares or other benefits granted, issued, retainable and/or vested under an Award may be made subject to the attainment of
performance goals. The Committee may utilize any performance criteria selected by it in its sole discretion to establish performance goals; provided, however, that in the case of any Performance Based Award, the following conditions shall apply:
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(i)
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The amount potentially available under a Performance Based Award shall be subject to the attainment of
pre-established, objective performance goals relating to a specified period of service based on one or more of the following performance criteria: (A) cash flow, (B) earnings per share, (C) earnings before interest, taxes and
amortization, (D) return on equity, (E) total stockholder return, (F) share price performance, (G) return on capital, (H) return on assets or net assets, (I) revenue, (J) income or net income, (K) operating
income or net operating income, (L) operating profit or net operating profit, (M) operating margin or profit margin, (N) return on operating revenue, (O) return on invested capital, (P) market segment shares, (Q) costs,
(R) expenses, (S) initiation or completion of research activities, (T) initiation or completion of development programs, (U) other milestones with respect to research activities or development
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TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
20
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programs, (V) regulatory body approval, (W) implementation or completion of critical projects, (X) commercial milestones or (Y) other milestones with respect to the growth of
the Company’s business or the development or commercialization of any product or service (“Qualifying Performance Criteria”), any of which may be measured either individually, alternatively or in any combination, applied to either the
Company as a whole or to a business unit or Subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to
previous years’ results or to a designated comparison group or index, in each case as specified by the Committee in the Award;
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(ii)
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Unless specified otherwise by the Committee at the time the performance goals are established or otherwise within the time prescribed by Section 162(m) of the Code, the Committee shall appropriately adjust the
method of evaluating performance under a Qualifying Performance Criteria for a performance period as follows: (A) to exclude asset write-downs, (B) to exclude litigation or claim judgments or settlements, (C) to exclude the effect of
changes in tax law, accounting principles or other such laws or provisions affecting reported results, (D) to exclude accruals for reorganization and restructuring programs, (E) to exclude any extraordinary nonrecurring items as determined
under generally accepted accounting principles and/or described in managements’ discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year,
(F) to exclude the dilutive effects of acquisitions or joint ventures, (G) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a performance period following such
divestiture, (H) to exclude the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off,
combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends, (I) to exclude the effects of stock based compensation and the award of bonuses under the
Company’s bonus plans; and (J) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles, in each case in compliance with
Section 162(m) of the Code;
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(iii)
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The Committee shall establish the applicable performance goals in writing and an objective method for determining the Award earned by a Participant if the goals are attained, while the outcome is substantially uncertain
and not later than the 90th day of the performance period (but in no event after 25% of the period of service with respect to which the performance goals relate has elapsed), and shall determine and certify in writing, for each Participant, the
extent to which the performance goals have been met prior to payment or vesting of the Award;
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TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
21
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(iv)
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The Committee may not in any event increase the amount of compensation payable under the Plan upon the attainment of the pre-established performance goals to a Participant who is a “covered employee” within
the meaning of Section 162(m) of the Code; and
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(v)
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The maximum aggregate number of Shares that may be subject to Performance Based Awards granted to a Participant in any calendar year is 1,000,000 Shares, and no more than two (2) times this amount in the first year
of employment (subject to adjustment under Section 12), and the maximum aggregate amount of cash that may be payable to a Participant under Performance Based Awards granted to a Participant in any calendar year that are Cash-Based Awards is
$2,000,000.
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SECTION 20. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any Award granted under the Plan, shall be construed to give any person any right to become, to be treated as, or
to remain an Employee or Consultant. The Company and its Subsidiaries reserve the right to terminate any person’s Service at any time and for any reason, with or without notice.
SECTION 21. DURATION AND AMENDMENTS.
(a) Term of the Plan
. The Plan, as set forth herein, shall come into existence on the date of its adoption by the Board of Directors;
provided, however, that no Award may be granted hereunder prior to the Effective Date. The Board of Directors may suspend or terminate the Plan at any time. No ISOs may be granted after the tenth anniversary of the earlier of (i) the date the
Plan is adopted by the Board of Directors, or (ii) the date the Plan is approved the stockholders of the Company.
(b) Right to
Amend the Plan
. The Board of Directors may amend the Plan at any time and from time to time. Rights and obligations under any Award granted before amendment of the Plan shall not be materially impaired by such amendment, except with consent of
the Participant. An amendment of the Plan shall be subject to the approval of the Company’s stockholders only to the extent required by applicable laws, regulations or rules.
(c) Effect of Termination
. No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan shall
not affect Awards previously granted under the Plan.
SECTION 22. AWARDS TO NON-U.S. PARTICIPANTS.
Awards may be granted to Participants who are non-United States nationals or employed or providing services outside the United States, or both,
on such terms and conditions different from those applicable to Awards to Participants who are employed or providing services in the United States as may, in the judgment of the Committee, be necessary or desirable to recognize
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
22
differences in local law, currency or tax policy or custom. The Committee also may impose conditions on the exercise, vesting or settlement of Awards in order to minimize the Company’s
obligation with respect to tax equalization for Participants on assignments outside their home country. The Committee may, in its sole discretion, adjust the value of any Awards or any amounts due to Participants hereunder to reflect any foreign
currency conversions or fluctuations in foreign currency exchange rates; provided, however, that none of the Company or any Parent , Subsidiary or Affiliate shall be liable for any foreign exchange rate fluctuations between a Participant’s
local currency and the United States Dollar that may affect the value of any Awards or of any amounts due to a Participant hereunder.
SECTION 23.
CANCELLATION OR CLAWBACK OF AWARDS.
The Committee shall have full authority to implement any policies and procedures necessary to
comply with Section 10D of the Exchange Act and any other regulatory regimes. Notwithstanding anything to the contrary contained herein, any Awards granted under the Plan (including any amounts or benefits arising from such Awards) shall be
subject to any clawback or recoupment arrangements or policies the Company has in place from time to time, pursuant to which the Committee may, to the extent permitted by applicable law and stock exchange rules or the applicable Company arrangement
or policy, and shall, to the extent required, cancel or require reimbursement of any Awards granted to a Participant or any Shares issued or cash received upon vesting, exercise or settlement of any such Awards or sale of Shares underlying such
Awards.
SECTION 24. GOVERNING LAW.
The Plan and each Award Agreement and all disputes or controversies arising out of or relating thereto shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware as to matters within the scope thereof, and as to all other matters, the internal laws of the State of California, without regard to the laws of any other jurisdiction that might be applied
because of the conflicts of laws principles of any state.
SECTION 25. SUCCESSORS AND ASSIGNS.
The terms of the Plan shall be binding upon and inure to the benefit of the Company and any successor entity, including any successor entity
contemplated by Section 12(c).
SECTION 26. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the Company has caused its authorized officer to execute the same.
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TECHPOINT, INC.
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By
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Name
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Title
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TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
23
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
NOTICE OF STOCK OPTION GRANT
You have been granted the following Option (this “
Option
” or this “
Award
”) to purchase shares of Common
Stock (“
Stock
”) of Techpoint, Inc. (the “
Company
”) under the Techpoint, Inc. 2017 Stock Incentive Plan (as may be amended from time to time, the “
Plan
”):
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Name of Optionee:
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[Name of Optionee]
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Grant Date:
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[Date of Grant]
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Total Number of Shares Subject to Option:
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[Total Shares]
1
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Type of Option:
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☐ Incentive Stock Option
☐ Nonstatutory Stock Option
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Exercise Price Per Share:
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$[Exercise Price]
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Vesting Commencement Date:
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[Vesting Commencement Date]
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Vesting Schedule:
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[This Option becomes exercisable when you complete [●] months of continuous Service as an Employee or a Consultant from the Vesting Commencement Date.
Actual vesting schedule to be inserted.
]
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Expiration Date:
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[Expiration Date] This Option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement.
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By your written signature below (or your electronic acceptance) and the signature of the Company’s
representative below, you and the Company agree that this Option is granted under and governed by the term and conditions of the Plan and the Stock Option Agreement (this “
Agreement
”), both of which are attached to and
made a part of this document.
By your written signature below (or your electronic acceptance), you further agree that the Company
may deliver by
e-mail
all documents relating to the Plan or this Award (including without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company
is required to deliver to its security holders (including without limitation, annual reports and proxy statements). You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third
party under contract with the Company. If the Company posts these documents on a website, it will notify you by
e-mail.
Should you electronically accept this Agreement, you agree to the following: “This
electronic contract contains my electronic signature, which I have executed with the intent to sign this Agreement.”
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1
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Indicate whether reference to a “Share” shall mean a JDR.
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OPTIONEE
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TECHPOINT, INC.
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By:
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Optionee’s Signature
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Title:
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Optionee’s Printed Name
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2
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
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The Plan and Other
Agreements
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The Option that you are receiving is granted pursuant and subject in all respects to the applicable provisions of the Plan, which is
incorporated herein by reference. Capitalized terms not defined in this Agreement will have the meanings ascribed to them in the Plan.
The attached Notice, this Agreement and the Plan constitute the entire understanding between you and the Company regarding this Award. Any prior agreements,
commitments or negotiations concerning this Option are superseded. This Agreement may be amended by the Committee without your consent; however, if any such amendment would materially impair your rights or obligations under this Agreement, this
Agreement may be amended only by another written agreement, signed by you and the Company.
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Tax Treatment
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This Option is intended to be an incentive stock option under Section 422 of the Code or a nonstatutory option, as provided in the Notice of Stock Option Grant. Even if this Option is designated as an incentive stock option, it
will be deemed to be a nonstatutory option to the extent required by the $100,000 annual limitation under Section 422(d) of the Code.
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Vesting
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This Option becomes exercisable in installments, as shown in the Notice of Stock Option Grant. This Option will in no event become exercisable for additional Shares after your Service as an Employee or a Consultant has terminated
for any reason.
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Term
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This Option expires in any event at the close of business at Company headquarters on the day before the tenth (10th) anniversary of the Grant Date, as shown on the Notice of Stock Option Grant (fifth (5th) anniversary for a more
than ten percent (10%) shareholder as provided under the Plan if this is an incentive stock option). This Option may expire earlier if your Service terminates, as described below.
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Regular Termination
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If your Service terminates for any reason except due to your death or Disability, then this Option will expire at the close of business at Company headquarters on the date three (3) months after the date your Service terminates
(or, if earlier, the Expiration Date). The Company determines when your Service terminates for this purpose and all purposes under the Plan and its determinations are conclusive and binding on all persons.
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Death
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If your Service terminates because of your death, then this Option will expire at the close of business at Company headquarters on the date twelve (12) months after the date your Service terminates (or, if earlier, the
Expiration Date). During that period of up to twelve (12) months, your estate or heirs may exercise this Option.
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Disability
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If your Service terminates because of your Disability, then this Option will expire at the close of business at Company headquarters on the date twelve (12) months after the date your Service terminates (or, if earlier, the
Expiration Date).
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Leaves of Absence
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For purposes of this Option, your Service does not terminate when you go on a military leave, a sick leave or another
bona fide
leave
of absence, if the leave of absence was approved by the Company in writing and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you
immediately return to active work.
If you go on a leave of absence, then the vesting
schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave. If you commence working on a part-time basis, then the vesting schedule specified in the
Notice of Stock Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
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Restrictions on Exercise
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The Company will not permit you to exercise this Option if the issuance of Shares at that time would violate any law or regulation. The inability of the Company to obtain approval from any regulatory body having authority deemed by
the Company to be necessary to the lawful issuance and sale of the Stock pursuant to this Option will relieve the Company of any liability with respect to the
non-issuance
or sale of the Stock as to which such
approval will not have been obtained.
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Notice of Exercise
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When you wish to exercise this Option you must provide a written or electronic notice of exercise form (substantially in the form attached to this Agreement as
Exhibit A
) in accordance with such procedures as are established
by the Company and communicated to you from time to time. Any notice of exercise must specify how many Shares you wish to purchase and how your Shares should be registered. The notice of exercise will be effective when it is received by the Company.
If someone else wants to exercise this Option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.
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Form of Payment
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When you submit your notice of exercise, you must include payment of the Option exercise price for the Shares you are purchasing. Payment may
be made in the following form(s):
• Your personal check, a cashier’s check, a money order or a wire transfer.
• Certificates for
Shares that you own, along with any forms needed to effect a transfer of those Shares to the Company. The value of the Shares, determined as of the effective date of the Option exercise, will be applied to the Option exercise price. Instead of
surrendering Shares, you may attest to the ownership of those Shares on a form provided by the Company and have the same number of Shares subtracted from the Shares issued to you upon exercise of this Option. However, you may not surrender or attest
to the ownership of Shares in payment of the exercise price if your action would cause the Company to recognize a compensation expense (or additional compensation expense) with respect to this Option for financial reporting
purposes.
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• By delivery on a form approved by the Company of an irrevocable direction to a
securities broker approved by the Company to sell all or part of the Shares that are issued to you when you exercise this Option and to deliver to the Company from the sale proceeds an amount sufficient to pay the Option exercise price and any
withholding taxes. The balance of the sale proceeds, if any, will be delivered to you. The directions must be given by providing a notice of exercise form approved by the Company.
• By delivery on a
form approved by the Company of an irrevocable direction to a securities broker or lender approved by the Company to pledge Shares that are issued to you when you exercise this Option as security for a loan and to deliver to the Company from the
loan proceeds an amount sufficient to pay the Option exercise price and any withholding taxes. The directions must be given by providing a notice of exercise form approved by the Company.
• If permitted by the
Committee, by a “
net exercise
” arrangement pursuant to which the number of Shares issuable upon exercise of the Option will be reduced by the largest whole number of Shares having an aggregate Fair Market Value that does not exceed
the aggregate exercise price (plus tax withholdings, if applicable) and any remaining balance of the aggregate exercise price (and/or applicable tax withholdings) not satisfied by such reduction in the number of whole Shares to be issued will be
paid by you in cash other form of payment permitted under this Option. The directions must be given by providing a notice of exercise form approved by the Company.
• Any other form permitted by the Committee in its sole discretion.
Notwithstanding the foregoing, payment may not be made in any form that is unlawful, as
determined by the Committee in its sole discretion.
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Withholding Taxes and Stock Withholding
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Regardless of any action the Company and/or the Subsidiary or Affiliate employing you (“
Employer
”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other
tax-related
withholding (“
Tax-Related
Items
”), you acknowledge that the ultimate liability for all
Tax-Related
Items
legally due by you is and remains your responsibility and that the Company and/or your Employer (1) make no representations or undertakings regarding the treatment of any
Tax-Related
Items in connection
with any aspect of this Option grant, including the grant, vesting or exercise of this Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of
the grant or any aspect of this Option to reduce or eliminate your liability for
Tax-Related
Items.
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Prior to exercise of this Option, you will pay or make adequate arrangements satisfactory to the Company and/or your Employer to satisfy all withholding and payment on account obligations of the Company and/or your Employer. In this
regard, you authorize the Company and/or your Employer to withhold all applicable
Tax-Related
Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or your
Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when you exercise this Option, provided that the Company only withholds
the amount of Shares necessary to satisfy the maximum legally required tax withholding, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by
the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company. The Fair Market Value of the Shares, determined as of the effective date of the Option exercise, will be applied as a credit
against the withholding taxes. Finally, you will pay to the Company or your Employer any amount of
Tax-Related
Items that the Company or your Employer may be required to withhold as a result of your
participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to deliver the Shares if you fail to comply with your obligations in connection
with the
Tax-Related
Items as described in this section.
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Restrictions on Resale
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You agree not to sell any Shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such
period of time after the termination of your Service as the Company may specify.
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Transfer of Option
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In general, only you can exercise this Option prior to your death. You may not sell, transfer, assign, pledge or otherwise dispose of this
Option, other than as designated by you by will or by the laws of descent and distribution, except as provided below. For instance, you may not use this Option as security for a loan. If you attempt to do any of these things, this Option will
immediately become invalid. You may in any event dispose of this Option in your will. Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company
obligated to recognize your former spouse’s interest in this Option in any other way.
However, if this Option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the Committee may, in its sole discretion, allow
you to transfer this Option as a gift to one or more family members. For purposes of this Agreement, “
family member
” means a 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 individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals
have more than fifty percent (50%) of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than fifty percent (50%)
of the voting interest.
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In addition, if this Option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the Committee may, in its sole discretion, allow you to transfer this Option to your spouse or former spouse pursuant
to a domestic relations order in settlement of marital property rights.
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The Committee will allow you to transfer this Option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement.
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Retention Rights
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Neither this Option nor this Agreement gives you the right to be employed or retained by the Company or any Subsidiary or Affiliate of the Company in any capacity. The Company and its Subsidiaries and Affiliates reserve the right to
terminate your Service at any time, with or without cause.
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Shareholder Rights
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This Option carries neither voting rights nor rights to dividends. You, or your estate or heirs, have no rights as a shareholder of the Company unless and until you have exercised this Option by giving the required notice to the
Company and paying the exercise price. No adjustments will be made for dividends or other rights if the applicable record date occurs before you exercise this Option, except as described in the Plan.
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Adjustments
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The number of Shares covered by this Option and the exercise price per Share will be subject to adjustment in the event of a stock split, a stock dividend or a similar change in Company Shares, and in other circumstances, as set
forth in the Plan. The forfeiture provisions and restrictions described above will apply to all new, substitute or additional stock options or securities to which you are entitled by reason of this Award.
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Successors and Assigns
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Except as otherwise provided in the Plan or this Agreement, every term of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective heirs, legatees, legal representatives, successors,
transferees and assigns.
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Notice
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Any notice required or permitted under this Agreement will be given in writing and will be deemed effectively given upon the earliest of personal delivery, receipt or the third (3rd) full day following mailing with postage and fees
prepaid, addressed to the other party hereto at the address last known in the Company’s records or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.
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Section 409A of the Code
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To the extent this Agreement is subject to, and not exempt from, Section 409A of the Code, this Agreement is intended to comply with Section 409A, and its provisions will be interpreted in a manner consistent with such
intent. You acknowledge and agree that changes may be made to this Agreement to avoid adverse tax consequences to you under Section 409A.
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Applicable Law and
Choice of
Venue
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This Agreement will be interpreted and enforced under the laws of the State of Delaware as to matters within the scope thereof, and as to all
other matters, the internal laws of the State of California, without regard to the laws of any other jurisdiction that might be applied because of the conflicts of laws principles of any state.
For purposes of litigating any dispute that arises directly or indirectly from the
relationship of the parties evidenced by this Award or this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation will be conducted only in the courts of Santa
Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.
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Miscellaneous
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You understand and acknowledge that (1) the Plan is entirely discretionary, (2) the Company and your Employer have reserved the
right to amend, suspend or terminate the Plan at any time, (3) the grant of this Option does not in any way create any contractual or other right to receive additional grants of options (or benefits in lieu of options) at any time or in any
amount and (4) all determinations with respect to any additional grants, including (without limitation) the times when options will be granted, the number of Shares subject to awards, the exercise price and the vesting schedule, will be at the
sole discretion of the Company.
The value of this Option will be an extraordinary
item of compensation outside the scope of your employment contract, if any, and will not be considered a part of your normal or expected compensation for purposes of calculating severance, resignation, redundancy or
end-of-service
payments, bonuses, long-service awards, pension or retirement benefits or similar payments.
You understand and acknowledge that participation in the Plan ceases upon termination of your Service for any reason, except as may explicitly be provided
otherwise in the Plan or this Agreement.
You hereby authorize and direct your
Employer to disclose to the Company or any Subsidiary or Affiliate any information regarding your employment, the nature and amount of your compensation and the fact and conditions of your participation in the Plan, as your Employer deems necessary
or appropriate to facilitate the administration of the Plan.
You consent to the
collection, use and transfer of personal data as described in this subsection. You understand and acknowledge that the Company, your Employer and the Company’s other Subsidiaries and Affiliates hold certain personal information regarding you
for the purpose of managing and administering the Plan, including (without limitation) your name, home address, telephone number, date of birth, social insurance or other government identification number, salary, nationality, job title, any Shares
or directorships held in the Company and details of all options or any other entitlements to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor (the “
Data
”). You further understand and acknowledge
that the Company, its Subsidiaries and/or its Affiliates will
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transfer Data among themselves as necessary for the purpose of implementation, administration and management of your participation in the
Plan and that the Company and/or any Subsidiary may each further transfer Data to any third party assisting the Company in the implementation, administration and management of the Plan. You understand and acknowledge that the recipients of Data may
be located in the United States or elsewhere, and that the laws of a recipient’s country of operation (e.g., the United States) may not have equivalent privacy protections as local laws where you reside or work. You authorize such recipients to
receive, possess, use, retain and transfer Data, in electronic or other form, for the purpose of administering your participation in the Plan, including a transfer to any broker or other third party with whom you elect to deposit Shares acquired
under the Plan of such Data as may be required for the administration of the Plan and/or the subsequent holding of Shares on your behalf. You may, at any time, view the Data, require any necessary modifications of Data, make inquiries about the
treatment of Data or withdraw the consents set forth in this subsection by contacting the Human Resources Department of the Company in writing.
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BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF
THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
9
EXHIBIT A
TECHPOINT, INC.
2017
STOCK INCENTIVE PLAN
NOTICE OF EXERCISE OF STOCK OPTION
OPTIONEE INFORMATION:
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Name:
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Social Security Number:
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Employee Number:
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Address:
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OPTION INFORMATION:
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Grant Date:
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Exercise Price per Share:
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$
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Total Number of Shares of Techpoint, Inc. (the “
Company
”) Covered by Option:
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Type of Stock Option:
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☐ Nonstatutory (NSO)
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☐ Incentive (ISO)
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Number of Shares of the Company for which Option is Being Exercised Now:
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(“
Purchased Shares
”)
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Total Exercise Price for the Purchased Shares:
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$
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Form of Payment:
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☐ Cash or Check for $
payable to “Techpoint, Inc.”
☐ Cashless exercise
☐ Net exercise
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Name(s) in which the Purchased Shares should be Registered:
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The Certificate for the Purchased Shares (if any) should be sent to the Following Address:
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ACKNOWLEDGMENTS:
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1.
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I understand that all sales of Purchased Shares are subject to compliance with the Company’s policy on securities trades.
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2.
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I hereby acknowledge that I received and read a copy of the prospectus describing the Techpoint, Inc. 2017 Stock Incentive Plan and the tax consequences of an exercise.
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A-1
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3.
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In the case of a nonstatutory option, I understand that I must recognize ordinary income equal to the spread between the fair market value of the Purchased Shares on the date of exercise and the exercise price. I
further understand that I am required to pay withholding taxes at the time of exercising a nonstatutory option.
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4.
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In the case of an incentive stock option, I agree to notify the Company if I dispose of the Purchased Shares before I have met both of the tax holding periods applicable to incentive stock options (that is, if I dispose
of the Purchased Shares prior to the date that is two (2) years after the Grant Date and one (1) year after the date the option was exercised).
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A-2
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK AWARD
You have been granted the following restricted shares of Common Stock (the “
Restricted Shares
” or this
“
Award
”) of Techpoint, Inc. (the “
Company
”) under the Techpoint, Inc. 2017 Stock Incentive Plan (as may be amended from time to time, the “
Plan
”):
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Name of Recipient:
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[Name of Recipient]
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Grant Date:
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[Date of Grant]
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Total Number of Shares Granted:
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[Total Shares]
1
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Vesting Commencement Date:
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[Vesting Commencement Date]
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Vesting Schedule:
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[The Restricted Shares vest when you complete [●] months of continuous Service as an Employee or a Consultant from the Vesting Commencement Date.
Actual vesting schedule to be inserted
.]
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By your written signature below (or your electronic acceptance) and the signature of the Company’s
representative below, you and the Company agree that the Restricted Shares are granted under and governed by the term and conditions of the Plan and the Restricted Stock Agreement (this “
Agreement
”), both of which are
attached to and made a part of this document.
By your written signature below (or your electronic acceptance), you further agree
that the Company may deliver by
e-mail
all documents relating to the Plan or this Award (including without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents
that the Company is required to deliver to its security holders (including without limitation, annual reports and proxy statements). You also agree that the Company may deliver these documents by posting them on a website maintained by the Company
or by a third party under contract with the Company. If the Company posts these documents on a website, it will notify you by
e-mail.
Should you electronically accept this Agreement, you agree to the
following: “This electronic contract contains my electronic signature, which I have executed with the intent to sign this Agreement.”
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RECIPIENT
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TECHPOINT, INC.
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By:
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Recipient’s Signature
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Title:
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Recipient’s Printed Name
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1
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Indicate whether reference to a “Share” shall mean a JDR.
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TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
RESTRICTED STOCK AGREEMENT
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The Plan and Other
Agreements
|
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The Restricted Shares that you are receiving are granted pursuant and subject in all respects to the applicable provisions of the Plan, which
is incorporated herein by reference. Capitalized terms not defined in this Agreement will have the meanings ascribed to them in the Plan.
The attached Notice, this Agreement and the Plan constitute the entire understanding between you and the Company regarding this Award. Any prior agreements,
commitments or negotiations concerning this Award are superseded. This Agreement may be amended by the Committee without your consent; however, if any such amendment would materially impair your rights or obligations under this Agreement, this
Agreement may be amended only by another written agreement, signed by you and the Company.
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Payment For Shares
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No cash payment is required for the Shares you receive. You are receiving the Shares in consideration for Services rendered by you.
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Vesting
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The Shares that you are receiving will vest in installments, as shown in the Notice of Restricted Stock Award. No additional Shares vest after your Service as an Employee or a Consultant has terminated for any reason.
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Shares Restricted
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Unvested Shares will be considered “
Restricted Shares
.” Except to the extent permitted by the Committee, you may not sell, transfer, assign, pledge or otherwise dispose of Restricted Shares.
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Forfeiture
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If your Service terminates for any reason, then your Shares will be forfeited to the extent that they have not vested before the termination date and do not vest as a result of termination. This means that the Restricted Shares will
immediately revert to the Company. You receive no payment for Restricted Shares that are forfeited. The Company determines when your Service terminates for this purpose and all purposes under the Plan and its determinations are conclusive and
binding on all persons.
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Leaves of Absence
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For purposes of this Award, your Service does not terminate when you go on a military leave, a sick leave or another
bona fide
leave
of absence, if the leave of absence was approved by the Company in writing and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you
immediately return to active work.
If you go on a leave of absence, then the vesting
schedule specified in the Notice of Restricted Stock Award may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave. If you commence working on a part-time basis, then the vesting schedule specified in
the Notice of Restricted Stock Award may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time
schedule.
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Stock Certificates or
Book Entry
Form
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The Restricted Shares will be evidenced by either stock certificates or book entries on the Company’s stock transfer records pending expiration of the restrictions thereon. If you are issued certificates for the Restricted
Shares, the certificates will have stamped on them a special legend referring to the forfeiture restrictions. In addition to or in lieu of imposing the legend, the Company may hold the certificates in escrow. As your vested percentage increases, you
may request (at reasonable intervals) that the Company release to you a
non-legended
certificate for your vested Shares.
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Shareholder Rights
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During the period of time between the Grant Date and the date the Restricted Shares become vested, you will have all the rights of a shareholder with respect to the Restricted Shares except for the right to transfer the Restricted
Shares, as set forth above. Accordingly, you will have the right to vote the Restricted Shares and to receive any cash dividends paid with respect to the Restricted Shares.
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Withholding Taxes and
Stock
Withholding
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Regardless of any action the Company and/or the Subsidiary or Affiliate employing you (“
Employer
”) takes with respect to any
or all income tax, social insurance, payroll tax, payment on account or other
tax-related
withholding (“
Tax-Related
Items
”), you acknowledge that the
ultimate liability for all
Tax-Related
Items legally due by you is and remains your responsibility and that the Company and/or your Employer (1) make no representations or undertakings regarding the
treatment of any
Tax-Related
Items in connection with any aspect of the Shares received under this Award, including the award or vesting of such Shares, the subsequent sale of Shares under this Award and the
receipt of any dividends; and (2) do not commit to structure the terms of the award to reduce or eliminate your liability for
Tax-Related
Items.
No stock certificates will be released to you or no notations on any Restricted Shares
issued in book-entry form will be removed, as applicable, unless you have paid or made adequate arrangements satisfactory to the Company and/or your Employer to satisfy all withholding and payment on account obligations of the Company and/or your
Employer. In this regard, you authorize the Company and/or your Employer to withhold all applicable
Tax-Related
Items legally payable by you from your wages or other cash compensation paid to you by the
Company and/or your Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be delivered to you when they vest having a Fair Market Value equal
to the amount necessary to satisfy the maximum legally required tax withholding, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the
Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company. The Fair Market Value of the Shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied
as a credit against the withholding taxes. Finally, you will pay to the Company or your Employer any amount of
Tax-Related
Items that the Company or
your
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3
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Employer may be required to withhold as a result of your participation in the Plan or your acquisition of Shares that cannot be satisfied by the means previously described. The Company may refuse to deliver the Shares if you fail to
comply with your obligations in connection with the
Tax-Related
Items as described in this section.
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Restrictions on Resale
|
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You agree not to sell any Shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such
period of time after the termination of your Service as the Company may specify.
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No Retention Rights
|
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Neither this Award nor this Agreement gives you the right to be employed or retained by the Company or any Subsidiary or Affiliate of the Company in any capacity. The Company and its Subsidiaries and Affiliates reserve the right to
terminate your Service at any time, with or without cause.
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Adjustments
|
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The number of Restricted Shares covered by this Award will be subject to adjustment in the event of a stock split, a stock dividend or a similar change in Shares, and in other circumstances, as set forth in the Plan. The forfeiture
provisions and restrictions described above will apply to all new, substitute or additional restricted shares or securities to which you are entitled by reason of this Award.
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Successors and Assigns
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Except as otherwise provided in the Plan or this Agreement, every term of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective heirs, legatees, legal representatives, successors,
transferees and assigns.
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Notice
|
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Any notice required or permitted under this Agreement will be given in writing and will be deemed effectively given upon the earliest of personal delivery, receipt or the third (3rd) full day following mailing with postage and fees
prepaid, addressed to the other party hereto at the address last known in the Company’s records or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.
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Applicable Law and
Choice of
Venue
|
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This Agreement will be interpreted and enforced under the State of Delaware as to matters within the scope thereof, and as to all other
matters, the internal laws of the State of California, without regard to the laws of any other jurisdiction that might be applied because of the conflicts of laws principles of any state.
For purposes of litigating any dispute that arises directly or indirectly from the
relationship of the parties evidenced by this Award or this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation will be conducted only in the courts of Santa
Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.
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4
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Miscellaneous
|
|
You understand and acknowledge that (1) the Plan is entirely discretionary, (2) the Company and your Employer have reserved the
right to amend, suspend or terminate the Plan at any time, (3) the grant of this Award does not in any way create any contractual or other right to receive additional grants of awards (or benefits in lieu of awards) at any time or in any amount
and (4) all determinations with respect to any additional grants, including (without limitation) the times when awards will be granted, the number of Shares subject to awards, the purchase price and the vesting schedule, will be at the sole
discretion of the Company.
The value of this Award will be an extraordinary item of
compensation outside the scope of your employment contract, if any, and will not be considered a part of your normal or expected compensation for purposes of calculating severance, resignation, redundancy or
end-of-service
payments, bonuses, long-service awards, pension or retirement benefits or similar payments.
You understand and acknowledge that participation in the Plan ceases upon termination of your Service for any reason, except as may explicitly be provided
otherwise in the Plan or this Agreement.
You hereby authorize and direct your Employer
to disclose to the Company or any Subsidiary or Affiliate any information regarding your employment, the nature and amount of your compensation and the fact and conditions of your participation in the Plan, as your Employer deems necessary or
appropriate to facilitate the administration of the Plan.
You consent to the
collection, use and transfer of personal data as described in this subsection. You understand and acknowledge that the Company, your Employer and the Company’s other Subsidiaries and Affiliates hold certain personal information regarding you
for the purpose of managing and administering the Plan, including (without limitation) your name, home address, telephone number, date of birth, social insurance or other government identification number, salary, nationality, job title, any Shares
or directorships held in the Company and details of all awards or any other entitlements to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor (the “
Data
”). You further understand and acknowledge that
the Company, its Subsidiaries and/or its Affiliates will transfer Data among themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan and that the Company and/or any Subsidiary may
each further transfer Data to any third party assisting the Company in the implementation, administration and management of the Plan. You understand and acknowledge that the recipients of Data may be located in the United States or elsewhere, and
that the laws of a recipient’s country of operation (e.g., the United States) may not have equivalent privacy protections as local laws where you reside or work. You authorize such recipients to receive, possess, use, retain and transfer Data,
in electronic or other form, for the purpose of administering your participation in the Plan, including a transfer to any broker or other third party with whom you elect to deposit
Shares
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5
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acquired under the Plan of such Data as may be required for the administration of the Plan and/or the subsequent holding of Shares on your behalf. You may, at any time, view the Data, require any necessary modifications of Data,
make inquiries about the treatment of Data or withdraw the consents set forth in this subsection by contacting the Human Resources Department of the Company in writing.
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BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF
THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
6
TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK UNIT AWARD
You have been granted the following Restricted Stock Units (the “
Restricted Stock Units
” or this “
Award
”)
representing shares of Common Stock of Techpoint, Inc. (the “
Company
”) under the Techpoint, Inc. 2017 Stock Incentive Plan (as may be amended from time to time, the “
Plan
”):
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Name of Recipient:
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[Name of Recipient]
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Grant Date:
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[Date of Grant]
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Total Number of Shares Subject to Restricted Stock Units:
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[Total Shares]
1
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Vesting Commencement Date:
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[Vesting Commencement Date]
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Vesting Schedule:
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[The RSUs vest when you complete [●] months of continuous Service as an Employee or a Consultant from the Vesting Commencement Date.
Actual vesting schedule to be inserted.
]
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By your written signature below (or your electronic acceptance) and the signature of the Company’s
representative below, you and the Company agree that the RSUs are granted under and governed by the term and conditions of the Plan and the Restricted Stock Unit Agreement (this “
Agreement
”), both of which are attached
to and made a part of this document.
By your written signature below (or your electronic acceptance), you further agree that the
Company may deliver by
e-mail
all documents relating to the Plan or this Award (including without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the
Company is required to deliver to its security holders (including without limitation, annual reports and proxy statements). You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a
third party under contract with the Company. If the Company posts these documents on a website, it will notify you by
e-mail.
Should you electronically accept this Agreement, you agree to the following:
“This electronic contract contains my electronic signature, which I have executed with the intent to sign this Agreement.”
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RECIPIENT
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TECHPOINT, INC.
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By:
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Recipient’s Signature
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Title:
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Recipient’s Printed Name
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1
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Indicate whether reference to a “Share” shall mean a JDR.
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TECHPOINT, INC.
2017 STOCK INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
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The Plan and Other
Agreements
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The RSUs that you are receiving are granted pursuant and subject in all respects to the applicable provisions of the Plan, which is
incorporated herein by reference. Capitalized terms not defined in this Agreement will have the meanings ascribed to them in the Plan.
The attached Notice, this Agreement and the Plan constitute the entire understanding between you and the Company regarding this Award. Any prior agreements,
commitments or negotiations concerning this Award are superseded. This Agreement may be amended by the Committee without your consent; however, if any such amendment would materially impair your rights or obligations under this Agreement, this
Agreement may be amended only by another written agreement, signed by you and the Company.
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Payment for RSUs
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No cash payment is required for the RSUs you receive. You are receiving the RSUs in consideration for Services rendered by you.
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Vesting
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The RSUs that you are receiving will vest in installments, as shown in the Notice of RSU Award. No additional RSUs vest after your Service as an Employee or a Consultant has terminated for any reason.
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Forfeiture
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If your Service terminates for any reason, then this Award expires immediately as to the number of RSUs that have not vested before the termination date and do not vest as a result of termination. This means that the unvested RSUs
will immediately be cancelled. You receive no payment for RSUs that are forfeited. The Company determines when your Service terminates for this purpose and all purposes under the Plan and its determinations are conclusive and binding on all
persons.
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Leaves of Absence
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For purposes of this Award, your Service does not terminate when you go on a military leave, a sick leave or another
bona fide
leave of absence, if the leave of absence was approved by the Company in writing and if continued
crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work.
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If you go on a leave of absence, then the vesting schedule specified in the Notice of Restricted Stock Unit Award may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave. If you
commence working on a part-time basis, then the vesting schedule specified in the Notice of Restricted Stock Unit Award may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the
Company pertaining to your part-time schedule.
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Nature of RSUs
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Your RSUs are mere bookkeeping entries. They represent only the Company’s unfunded and unsecured promise to issue Shares on a future date. As a holder of RSUs, you have no rights other than the rights of a general creditor of
the Company.
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2
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No Voting Rights or
Dividends
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Your RSUs carry neither voting rights nor rights to dividends. You, or your estate or heirs, have no rights as a stockholder of the Company unless and until your RSUs are settled by issuing Shares. No adjustments will be made for
dividends or other rights if the applicable record date occurs before your Shares are issued, except as described in the Plan.
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RSUs Nontransferable
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You may not sell, transfer, assign, pledge or otherwise dispose of any RSUs. For instance, you may not use your RSUs as security for a loan. If you attempt to do any of these things, your RSUs will immediately become
invalid.
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Settlement of RSUs
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Each of your vested RSUs will be settled when it vests; provided, however, that settlement of each RSU will be deferred to the first
permissible trading day for the Shares, if later than the applicable vesting date, but in no event later than December 31 of the calendar year in which the applicable vesting date occurs.
For purposes of this Agreement, “
permissible trading day
” means a day
that satisfies all of the following requirements: (1) the exchange on which the Shares are traded is open for trading on that day; (2) you are permitted to sell Shares on that day without incurring liability under Section 16(b) of the
Exchange Act; (3) either (a) you are not in possession of material
non-public
information that would make it illegal for you to sell Shares on that day under Rule
10b-5
under the Exchange Act or (b) Rule
10b5-1
under the Exchange Act would apply to the sale; (4) you are permitted to sell Shares on that day under such
written insider trading policy as may have been adopted by the Company; and (5) you are not prohibited from selling Shares on that day by a written agreement between you and the Company or a third party.
At the time of settlement, you will receive one Share for each vested RSU; provided,
however, that no fractional Shares will be issued or delivered pursuant to the Plan or this Agreement, and the Committee will determine whether cash will be paid in lieu of any fractional Share or whether such fractional Share and any rights thereto
will be canceled, terminated or otherwise eliminated. In addition, the Shares are issued to you subject to the condition that the issuance of the Shares not violate any law or regulation.
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Withholding Taxes
and Stock
Withholding
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Regardless of any action the Company and/or the Subsidiary or Affiliate employing you (“
Employer
”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other
tax-related
withholding (“
Tax-Related
Items
”), you acknowledge that the ultimate liability for all
Tax-Related
Items
legally due by you is and remains your responsibility and that the Company and/or your Employer (1) make no representations or undertakings regarding the treatment of any
Tax-Related
Items in connection
with any aspect of this Award, including the award, vesting or settlement of the RSUs, the subsequent sale of Shares acquired pursuant to settlement and the receipt of any dividends; and (2) do not commit to structure the terms of the award or
any aspect of the RSUs to reduce or eliminate your liability for
Tax-Related
Items.
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3
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Prior to the settlement of the RSUs, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or your Employer. In
this regard, you authorize the Company and/or your Employer to withhold all applicable
Tax-Related
Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or your
Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when the RSUs are settled, provided that the Company only withholds
Shares having a Fair Market Value equal to the amount necessary to satisfy the maximum legally required tax withholding, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or
through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company. The Fair Market Value of the Shares, determined as of the effective date when taxes
otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. Finally, you will pay to the Company or your Employer any amount of
Tax-Related
Items that the Company or
your Employer may be required to withhold as a result of your participation in the Plan or your acquisition of Shares that cannot be satisfied by the means previously described. The Company may refuse to deliver the Shares if you fail to comply with
your obligations in connection with the
Tax-Related
Items as described in this section, and your rights to the Shares will be forfeited if you do not comply with such obligations on or before December 31
of the calendar year in which the applicable vesting date for the RSUs occurs.
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Restrictions on Resale
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You agree not to sell any Shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such
period of time after the termination of your Service as the Company may specify.
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No Retention Rights
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Neither this Award nor this Agreement gives you the right to be employed or retained by the Company or any Subsidiary or Affiliate of the Company in any capacity. The Company and its Subsidiaries and Affiliates reserve the right to
terminate your Service at any time, with or without cause.
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Adjustments
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The number of RSUs covered by this Award will be subject to adjustment in the event of a stock split, a stock dividend or a similar change in Shares, and in other circumstances, as set forth in the Plan. The forfeiture provisions
and restrictions described above will apply to all new, substitute or additional restricted stock units or securities to which you are entitled by reason of this Award.
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Successors and Assigns
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Except as otherwise provided in the Plan or this Agreement, every term of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective heirs, legatees, legal representatives, successors,
transferees and assigns.
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Notice
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Any notice required or permitted under this Agreement will be given in writing and will be deemed effectively given upon the earliest of personal delivery, receipt or the third (3rd) full day following mailing with postage and fees
prepaid, addressed to the other party hereto at the address last known in the Company’s records or at such other address as such party may designate by ten (10) days’ advance written notice to the other party
hereto.
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4
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Section 409A of the Code
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To the extent this Agreement is subject to, and not exempt from, Section 409A of the Code, this Agreement is intended to comply with Section 409A, and its provisions will be interpreted in a manner consistent with such
intent. You acknowledge and agree that changes may be made to this Agreement to avoid adverse tax consequences to you under Section 409A.
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Applicable Law and
Choice of
Venue
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This Agreement will be interpreted and enforced under the laws of the State of Delaware as to matters within the scope thereof, and as to all
other matters, the internal laws of the State of California, without regard to the laws of any other jurisdiction that might be applied because of the conflicts of laws principles of any state.
For purposes of litigating any dispute that arises directly or indirectly from the
relationship of the parties evidenced by this Award or this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation will be conducted only in the courts of Santa
Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.
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Miscellaneous
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You understand and acknowledge that (1) the Plan is entirely discretionary, (2) the Company and your Employer have reserved the
right to amend, suspend or terminate the Plan at any time, (3) the grant of this Award does not in any way create any contractual or other right to receive additional grants of awards (or benefits in lieu of awards) at any time or in any amount
and (4) all determinations with respect to any additional grants, including (without limitation) the times when awards will be granted, the number of Shares subject to awards and the vesting schedule, will be at the sole discretion of the
Company.
The value of this Award will be an extraordinary item of compensation outside
the scope of your employment contract, if any, and will not be considered a part of your normal or expected compensation for purposes of calculating severance, resignation, redundancy or
end-of-service
payments, bonuses, long-service awards, pension or retirement benefits or similar payments.
You understand and acknowledge that participation in the Plan ceases upon termination of your Service for any reason, except as may explicitly be provided
otherwise in the Plan or this Agreement.
You hereby authorize and direct your Employer
to disclose to the Company or any Subsidiary or Affiliate any information regarding your employment, the nature and amount of your compensation and the fact and conditions of your participation in the Plan, as your Employer deems necessary or
appropriate to facilitate the administration of the Plan.
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5
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You consent to the collection, use and transfer of personal data as described in this subsection. You understand and acknowledge that the Company, your Employer and the Company’s other Subsidiaries and Affiliates hold certain
personal information regarding you for the purpose of managing and administering the Plan, including (without limitation) your name, home address, telephone number, date of birth, social insurance or other government identification number, salary,
nationality, job title, any Shares or directorships held in the Company and details of all awards or any other entitlements to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor (the “
Data
”). You
further understand and acknowledge that the Company, its Subsidiaries and/or its Affiliates will transfer Data among themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan and that
the Company and/or any Subsidiary may each further transfer Data to any third party assisting the Company in the implementation, administration and management of the Plan. You understand and acknowledge that the recipients of Data may be located in
the United States or elsewhere, , and that the laws of a recipient’s country of operation (e.g., the United States) may not have equivalent privacy protections as local laws where you reside or work. You authorize such recipients to receive,
possess, use, retain and transfer Data, in electronic or other form, for the purpose of administering your participation in the Plan, including a transfer to any broker or other third party with whom you elect to deposit Shares acquired under the
Plan of such Data as may be required for the administration of the Plan and/or the subsequent holding of Shares on your behalf. You may, at any time, view the Data, require any necessary modifications of Data, make inquiries about the treatment of
Data or withdraw the consents set forth in this subsection by contacting the Human Resources Department of the Company in writing.
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BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF
THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
6
Exhibit 10.4
LEASE
BETWEEN
SILICON VALLEY CENTER OFFICE LLC
AND
TECHPOINT, INC.
LEASE
THIS LEASE is made as of
September 22, 2014, by and between
SILICON VALLEY
CENTER OFFICE LLC,
a Delaware limited
liability company, hereafter called
“
Landlord
,
”
and
TECHPOINT, INC.
,
a California corporation, hereafter called
“
Tenant
.
”
ARTICLE 1. BASIC LEASE PROVISIONS
Each reference in this Lease to the
“
Basic Lease Provisions
”
shall mean and refer to the following collective
terms, the application of which shall be governed by the provisions in the remaining Articles of this Lease.
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1.
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Tenant’s Trade Name:
N/A
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2.
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Premises:
Suite No. 400 (The Premises are more particularly described in Section 2.1).
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Address of Building:
2550 N. First Street., San Jose, CA 95131
Project Description
Silicon Valley Center (as shown on
Exhibit Y
to this Lease)
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3.
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Use of Premises:
General office and R&D
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4.
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Commencement Date:
October 1, 2014
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5.
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Expiration Date:
October 31, 2016
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Months of Term
or Period
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Monthly Rate Per Rentable
Square Foot
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Monthly Basic Rent
(rounded to the nearest
dollar)
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Commencement Date to October 31, 2015
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$
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2.50
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$
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16,383.00
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November 1, 2015 to Expiration Date
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$
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2.58
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$
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16,907.00
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Notwithstanding the above schedule of Basic Rent to the contrary, as long as Tenant is not in Default (as
defined in Section 14.1) under this Lease, Tenant shall be entitled to an abatement of one (1) full calendar month of Basic Rent in the aggregate amount of $16,383.00 (the
“
Abated Basic Rent
”
)
due and
payable for the month of November, 2014 (the
“
Abatement Period
”
)
.
In the event Tenant Defaults at any time during the Term beyond any applicable “cure” period with
the result that Tenant’s right to possession of the Premises is terminated, then unamortized Abated Basic Rent to the date of such termination (amortized over the initial 24 months of the Term) shall immediately become due and payable. The
payment by Tenant of the unamortized Abated Basic Rent in the event of a Default shall not limit or affect any of Landlord’s other rights, pursuant to this Lease or at law or in equity. Only Basic Rent shall be abated during the Abatement
Period and all other additional rent and other costs and charges specified in this Lease shall remain as due and payable pursuant to the provisions of this Lease.
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7.
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Expense Recovery Period:
Every twelve month period during the Term (or portion thereof during the first and last Lease years) ending June 30.
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Project Cost Base:
Project Costs incurred by Landlord during the Expense Recovery Period ended June 30, 2015.
Property Tax Base:
Property Taxes incurred by Landlord during the Expense Recovery Period ended June 30, 2015.
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8.
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Floor Area of Premises:
approximately 6,553 rentable square feet
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Floor Area
of Building:
approximately 70,981 rentable square feet
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9.
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Security Deposit:
$18,597.00
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10.
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Broker(s):
Irvine Realty Company and CBRE, Inc. (collectively,
“
Landlord’s Broker
”
)
and Colliers International
(
“
Tenant’s
Broker
”
)
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1
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11.
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Parking:
22 parking spaces in accordance with the provisions set forth in
Exhibit F
to this Lease.
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12.
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Address for Payments and Notices:
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LANDLORD
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TENANT
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Payment Address:
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SILICON VALLEY CENTER OFFICE LLC
P.O. Box
#39000
San Francisco, CA 94139-1143
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TECHPOINT, INC.
2550 N First St., 400
San Jose, CA 95131
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Notice Address:
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THE IRVINE COMPANY LLC
550 Newport Center
Drive
Newport Beach, CA 92660
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Attn: Senior Vice President, Property Operations
Irvine Office
Properties
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with a copy of notices to:
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THE IRVINE COMPANY LLC
P.O. Box 39000
San Francisco, CA, 94139-0001
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Attn: Senior Vice President, Property Operations
Irvine Office
Properties
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LIST OF LEASE EXHIBITS
(All exhibits, riders and addenda attached to this Lease are hereby incorporated into and made a
part of this Lease):
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Exhibit A
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Description of Premises
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Exhibit B
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Operating Expenses
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Exhibit C
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Utilities and Services
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Exhibit D
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Tenant’s Insurance
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Exhibit E
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Rules and Regulations
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Exhibit F
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Parking
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Exhibit G
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Additional Provisions
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Exhibit H
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Hazardous Materials Disclosure Statement
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Exhibit Y
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Project Description
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2
ARTICLE 2. PREMISES
2.1. LEASED PREMISES.
Landlord leases to Tenant and Tenant leases from Landlord the Premises shown in
Exhibit A
(the
“
Premises
”
)
,
containing approximately the floor area set forth in Item 8 of the Basic Lease Provisions (the
“
Floor
Area
”
)
.
The Premises are located in the building identified in Item 2 of the Basic Lease Provisions (the
“
Building
”
)
,
which is a portion of the
project described in Item 2 (the
“
Project
”
)
.
Landlord and Tenant stipulate and agree that the Floor Area of Premises set forth in Item 8 of the Basic Lease Provisions is correct.
2.2. ACCEPTANCE OF PREMISES.
Tenant’s lease of the Premises shall be on an “as is” basis without further alteration,
addition or improvement to the Premises whatsoever, except Landlord shall install new building standard VCT flooring in the large conference room portion of the Premises. Tenant acknowledges that neither Landlord nor any representative of Landlord
has made any representation or warranty with respect to the Premises, the Building or the Project or the suitability or fitness of either for any purpose, except as set forth in this Lease. Tenant acknowledges that the flooring materials which may
be installed within portions of the Premises located on the ground floor of the Building may be limited by the moisture content of the Building slab and underlying soils. The taking of possession or use of the Premises by Tenant shall conclusively
establish that the Premises and the Building were in satisfactory condition and in conformity with the provisions of this Lease in all respects.
ARTICLE 3. TERM
3.1.
GENERAL.
The Term of this Lease
(
“
Term
”
)
shall commence
(
“
Commencement Date
”
)
on the date set forth in Item 4 of the Basic Lease Provisions,
and shall expire on the date (the
“
Expiration Date
”
)
set forth in Item 5 of the Basic Lease Provisions.
3.2. DELAY IN POSSESSION.
If Landlord, for any reason whatsoever, cannot deliver possession of the Premises to Tenant on or before the
Commencement Date set forth in Item 4 of the Basic Lease Provisions, this Lease shall not be void or voidable nor shall Landlord be liable to Tenant for any resulting loss or damage. However, Tenant shall not be liable for any rent until the
Premises are actually delivered to Tenant, except that if Landlord’s failure to deliver possession of the Premises to Tenant is attributable to any action or inaction by Tenant, then the Premises shall be deemed ready for occupancy, and
Landlord shall be entitled to full performance by Tenant (including the payment of rent), as of the date Landlord would have been able to deliver the Premises to Tenant but for Tenant’s delay(s).
ARTICLE 4. RENT AND OPERATING EXPENSES
4.1.
BASIC RENT.
From and after the Commencement Date, Tenant shall pay to Landlord without deduction or offset a Basic Rent for
the Premises in the total amount shown (including subsequent adjustments, if any) in Item 6 of the Basic Lease Provisions (the
“
Basic
Rent
”
)
.
If the Commencement Date is other than the first day of a calendar month, any rental adjustment shown in Item 6 shall be deemed to occur on the first day of the next
calendar month following the specified monthly anniversary of the Commencement Date. The Basic Rent shall be due and payable in advance commencing on the Commencement Date and continuing thereafter on the first day of each successive calendar month
of the Term, as prorated for any partial month. No demand, notice or invoice shall be required. An installment in the amount of 1 full month’s Basic Rent at the initial rate specified in Item 6 of the Basic Lease Provisions shall be delivered
to Landlord concurrently with Tenant’s execution of this Lease and shall be applied against the Basic Rent first due hereunder; the next installment of Basic Rent shall be due on the first day of the third calendar month of the Term, which
installment shall, if applicable, be appropriately prorated to reflect the amount prepaid for that calendar month.
4.2.
OPERATING EXPENSES.
Tenant shall pay Tenant’s Share of Operating Expenses in accordance with
Exhibit B
of this Lease.
4.3.
SECURITY DEPOSIT.
Concurrently with Tenant’s delivery of this Lease, Tenant shall deposit with Landlord the sum, if
any, stated in Item 9 of the Basic Lease Provisions (the
“
Security Deposit
”
)
,
to be held by Landlord as security for the full and faithful performance of Tenant’s obligations under this
Lease, to pay any rental sums, including without limitation such additional rent as may be owing under any provision hereof, and to maintain the Premises as required by Sections 7.1 and 15.2 or any other provision of this Lease. Upon any breach of
the foregoing obligations by Tenant, Landlord may apply all or part of the Security Deposit as full or partial compensation. If any portion of the Security Deposit is so applied, Tenant shall within 5 days after written demand by Landlord deposit
cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount. Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the
Security Deposit. In no event may Tenant utilize all or any portion of the Security Deposit as a payment toward any rental sum due under this Lease. Any unapplied balance of the Security Deposit shall be returned to Tenant or, at Landlord’s
option, to the last assignee of Tenant’s interest in this Lease within 30 days following the termination of this Lease and Tenant’s vacation of the Premises. Tenant hereby waives the provisions of Section 1950.7 of the California
Civil Code, or any similar or successor laws now or hereafter in effect, in connection with Landlord’s application of the Security Deposit to prospective rent that would have been payable by Tenant but for the early termination due to
Tenant’s Default (as defined herein).
3
ARTICLE 5. USES
5.1. USE
.
Tenant shall use the Premises only for the purposes stated in Item 3 of the Basic Lease Provisions and for no other
use whatsoever. The uses prohibited under this Lease shall include, without limitation, use of the Premises or a portion thereof for (i) offices of any agency or bureau of the United States or any state or political subdivision thereof;
(ii) offices or agencies of any foreign governmental or political subdivision thereof; or (iii) schools, temporary employment agencies or other training facilities which are not ancillary to corporate, executive or professional office use.
Tenant shall not do or permit anything to be done in or about the Premises which will in any way interfere with the rights or quiet enjoyment of other occupants of the Building or the Project, or use or allow the Premises to be used for any unlawful
purpose, nor shall Tenant permit any nuisance or commit any waste in the Premises or the Project. Tenant shall not perform any work or conduct any business whatsoever in the Project other than inside the Premises. Tenant shall comply at its expense
with all present and future laws, ordinances and requirements of all governmental authorities that pertain to Tenant or its use of the Premises, and with all energy usage reporting requirements of Landlord. As of the date of this Lease, there has
been no inspection of the Building and Project by a Certified Access Specialist as referenced in Section 1938 of the California Civil Code.
5.2. SIGNS
.
Except for Landlord’s standard suite signage identifying Tenant’s name and/or logo, Tenant shall have no
right to maintain signs in any location in, on or about the Premises, the Building or the Project and shall not place or erect any signs that are visible from the exterior of the Building. The size, design, graphics, material, style, color and other
physical aspects of any permitted sign shall be subject to Landlord’s written determination, as determined solely by Landlord, prior to installation, that signage is in compliance with any covenants, conditions or restrictions encumbering the
Premises and Landlord’s signage program for the Project, as in effect from time to time and approved by the City in which the Premises are located
(
“
Signage Criteria
”
)
.
Prior to placing or erecting any such signs, Tenant shall obtain and deliver to Landlord a copy of any applicable municipal or other governmental permits and approvals, except to Landlord’s standard suite signage. Tenant shall be
responsible for all costs of any permitted sign, including, without limitation, the fabrication, installation, maintenance and removal thereof and the cost of any permits therefor, except that Landlord shall pay for the initial installation costs
only of the standard suite signage. If Tenant fails to maintain its sign in good condition, or if Tenant fails to remove same upon termination of this Lease and repair and restore any damage caused by the sign or its removal, Landlord may do so at
Tenant’s expense. Landlord shall have the right to temporarily remove any signs in connection with any repairs or maintenance in or upon the Building. The term
“
sign
”
as used in this Section shall include all
signs, designs, monuments, displays, advertising materials, logos, banners, projected images, pennants, decals, pictures, notices, lettering, numerals or graphics.
5.3 HAZARDOUS MATERIALS
.
Tenant shall not generate, handle, store or dispose of hazardous or toxic materials (as such materials
may be identified in any federal, state or local law or regulation) in the Premises or Project without the prior written consent of Landlord; provided that the foregoing shall not be deemed to proscribe the use by Tenant of customary office supplies
in normal quantities so long as such use comports with all applicable laws. Tenant acknowledges that it has read, understands and, if applicable, shall comply with the provisions of
Exhibit H
to this Lease, if that Exhibit is attached.
ARTICLE 6. LANDLORD SERVICES
6.1.
UTILITIES AND SERVICES
.
Landlord and Tenant shall be responsible to furnish those utilities and services to the
Premises to the extent provided in
Exhibit C
,
subject to the conditions and payment obligations and standards set forth in this Lease. Landlord shall not be liable for any failure to furnish any services or utilities when
the failure is the result of any accident or other cause beyond Landlord’s reasonable control, nor shall Landlord be liable for damages resulting from power surges or any breakdown in telecommunications facilities or services. Landlord’s
temporary inability to furnish any services or utilities shall not entitle Tenant to any damages, relieve Tenant of the obligation to pay rent or constitute a constructive or other eviction of Tenant, except that Landlord shall diligently attempt to
restore the service or utility promptly. Tenant shall comply with all rules and regulations which Landlord may reasonably establish for the provision of services and utilities, and shall cooperate with all reasonable conservation practices
established by Landlord. Landlord shall at all reasonable times have free access to all electrical and mechanical installations of Landlord.
6.2.
OPERATION AND MAINTENANCE OF COMMON AREAS
.
During the Term, Landlord shall operate all Common Areas within the
Building and the Project. The term
“
Common Areas
”
shall mean all areas within the Building and other buildings in the Project which are not held for exclusive use by persons entitled to occupy space, including without
limitation parking areas and structures, driveways, sidewalks, landscaped and planted areas, hallways and interior stairwells not located within the premises of any tenant, common electrical rooms, entrances and lobbies, elevators, and restrooms not
located within the premises of any tenant.
6.3.
USE OF COMMON AREAS
.
The occupancy by Tenant of the Premises shall
include the use of the Common Areas in common with Landlord and with all others for whose convenience and use the Common Areas may be provided by Landlord, subject, however, to compliance with Rules and Regulations described in Article 17 below.
Landlord shall at all times during the Term have exclusive control of the Common Areas, and may restrain or permit any use or occupancy, except as otherwise provided in this Lease or in Landlord’s rules and regulations. Tenant shall keep the
Common Areas clear of any obstruction or unauthorized use related to Tenant’s operations. Landlord may temporarily close
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any portion of the Common Areas for repairs, remodeling and/or alterations, to prevent a public dedication or the
accrual of prescriptive rights, or for any other reasonable purpose. Landlord’s temporary closure of any portion of the Common Areas for such purposes shall not deprive Tenant of reasonable access to the Premises.
6.4.
CHANGES AND ADDITIONS BY LANDLORD
.
Landlord reserves the right to make alterations or additions to the
Building or the Project or to the attendant fixtures, equipment and Common Areas, and such change shall not entitle Tenant to any abatement of rent or other claim against Landlord. No such change shall deprive Tenant of reasonable access to or use
of the Premises.
ARTICLE 7. REPAIRS AND MAINTENANCE
7.1. TENANT’S MAINTENANCE AND REPAIR
.
Subject to Articles 11 and 12, Tenant at its sole expense shall make all repairs
necessary to keep the Premises and all improvements and fixtures therein in good condition and repair, excepting ordinary wear and tear. Notwithstanding Section 7.2 below, Tenant’s maintenance obligation shall include without limitation
all appliances, interior glass, doors, door closures, hardware, fixtures, electrical, plumbing, fire extinguisher equipment and other equipment installed in the Premises and all Alterations constructed by Tenant pursuant to Section 7.3 below,
together with any supplemental HVAC equipment servicing only the Premises. All repairs and other work performed by Tenant or its contractors shall be subject to the terms of Sections 7.3 and 7.4 below. Alternatively, should Landlord or its
management agent agree to make a repair on behalf of Tenant and at Tenant’s request, Tenant shall promptly reimburse Landlord as additional rent for all reasonable costs incurred (including the standard supervision fee) upon submission of an
invoice.
7.2. LANDLORD’S MAINTENANCE AND REPAIR
.
Subject to Articles 11 and 12, Landlord shall provide service,
maintenance and repair with respect to the heating, ventilating and air conditioning (“
HVAC
”) equipment of the Building (exclusive of any supplemental HVAC equipment servicing only the Premises) and shall maintain in good repair the
Common Areas, roof, foundations, footings, the exterior surfaces of the exterior walls of the Building (including exterior glass), and the structural, electrical, mechanical and plumbing systems of the Building (including elevators, if any, serving
the Building), except to the extent provided in Section 7.1 above. Landlord need not make any other improvements or repairs except as specifically required under this Lease, and nothing contained in this Section 7.2 shall limit
Landlord’s right to reimbursement from Tenant for maintenance, repair costs and replacement costs as provided elsewhere in this Lease. Notwithstanding any provision of the California Civil Code or any similar or successor laws to the contrary,
Tenant understands that it shall not make repairs at Landlord’s expense or by rental offset. Except as provided in Section 11.1 and Article 12 below, there shall be no abatement of rent and no liability of Landlord by reason of any injury
to or interference with Tenant’s business arising from the making of any repairs, alterations or improvements to any portion of the Building, including repairs to the Premises, nor shall any related activity by Landlord constitute an actual or
constructive eviction; provided, however, that in making repairs, alterations or improvements, Landlord shall interfere as little as reasonably practicable with the conduct of Tenant’s business in the Premises. Tenant hereby waives any and all
rights under and benefits of subsection 1 of Section 1932, and Sections 1941 and 1942 of the California Civil Code, or any similar or successor laws now or hereafter in effect.
7.3. ALTERATIONS
.
Tenant shall make no alterations, additions, decorations, or improvements (collectively referred to as
“
Alterations
”) to the Premises without the prior written consent of Landlord. Landlord’s consent shall not be unreasonably withheld as long as the proposed Alterations do not affect the structural, electrical or mechanical
components or systems of the Building, are not visible from the exterior of the Premises, do not change the basic floor plan of the Premises, and utilize only Landlord’s building standard materials (“
Standard Improvements
”).
Landlord may impose, as a condition to its consent, any requirements that Landlord in its discretion may deem reasonable or desirable. Without limiting the generality of the foregoing, Tenant shall use Landlord’s designated mechanical and
electrical contractors for all Alterations work affecting the mechanical or electrical systems of the Building. Should Tenant perform any Alterations work that would necessitate any ancillary Building modification or other expenditure by Landlord,
then Tenant shall promptly fund the cost thereof to Landlord. Tenant shall obtain all required permits for the Alterations and shall perform the work in compliance with all applicable laws, regulations and ordinances with contractors reasonably
acceptable to Landlord, and except for cosmetic Alterations not requiring a permit, Landlord shall be entitled to a supervision fee in the amount of 5% of the cost of the Alterations. Any request for Landlord’s consent shall be made in writing
and shall contain architectural plans describing the work in detail reasonably satisfactory to Landlord. Landlord may elect to cause its architect to review Tenant’s architectural plans, and the reasonable cost of that review shall be
reimbursed by Tenant. Should the Alterations proposed by Tenant and consented to by Landlord change the floor plan of the Premises, then Tenant shall, at its expense, furnish Landlord with
as-built
drawings
and CAD disks compatible with Landlord’s systems. Alterations shall be constructed in a good and workmanlike manner using materials of a quality reasonably approved by Landlord Unless Landlord otherwise agrees in writing, all Alterations
affixed to the Premises, including without limitation all Tenant Improvements constructed pursuant to the Work Letter (except as otherwise provided in the Work Letter), but excluding moveable trade fixtures and furniture, shall become the property
of Landlord and shall be surrendered with the Premises at the end of the Term, except that Landlord may, by notice to Tenant given at least 30 days prior to the Expiration Date, require Tenant to remove by the Expiration Date, or sooner termination
date of this Lease, all or any Alterations (including without limitation all telephone and data cabling) installed either by Tenant or by Landlord at Tenant’s request (collectively, the “
Required Removables
”), and to replace
any
non-Standard
Improvements with the applicable Standard Improvements. Tenant, at the time it requests approval for a proposed Alteration, may request in writing that
5
Landlord advise Tenant whether the Alteration or any portion thereof, is a Required Removable. Within 10 days
after receipt of Tenant’s request, Landlord shall advise Tenant in writing as to which portions of the subject Alterations are Required Removables. In connection with its removal of Required Removables, Tenant shall repair any damage to the
Premises arising from that removal and shall restore the affected area to its
pre-existing
condition, reasonable wear and tear excepted.
7.4. MECHANIC’S LIENS.
Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished,
or obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly cause any such lien to be released by posting a bond in accordance with California Civil Code Section 8424 or any successor statute. In the event that
Tenant shall not, within 15 days following the imposition of any lien, cause the lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other available remedies, the right to cause the lien to
be released by any means it deems proper, including payment of or defense against the claim giving rise to the lien. All expenses so incurred by Landlord, including Landlord’s attorneys’ fees, shall be reimbursed by Tenant promptly
following Landlord’s demand, together with interest from the date of payment by Landlord at the maximum rate permitted by law until paid. Tenant shall give Landlord no less than 20 days’ prior notice in writing before commencing
construction of any kind on the Premises.
7.5. ENTRY AND INSPECTION.
Landlord shall at all reasonable times have the right to
enter the Premises to inspect them, to supply services in accordance with this Lease, to make repairs and renovations as reasonably deemed necessary by Landlord, and to submit the Premises to prospective or actual purchasers or encumbrance holders
(or, during the final twelve months of the Term or when an uncured Default exists, to prospective tenants), all without being deemed to have caused an eviction of Tenant and without abatement of rent except as provided elsewhere in this Lease. If
reasonably necessary, Landlord may temporarily close all or a portion of the Premises to perform repairs, alterations and additions. Except in emergencies or to provide Building services, Landlord shall provide Tenant with reasonable prior verbal
notice of entry and shall use reasonable efforts to minimize any interference with Tenant’s use of the Premises.
ARTICLE 8. SPACE
PLANNING AND SUBSTITUTION
Landlord shall have the right, upon providing not less than 45 days prior written notice, to move Tenant to
other space of comparable size in the Building or in the Project or, with Tenant’s reasonable approval, in other space owned by Landlord within 3 miles of the Building. The new space shall be provided with improvements of comparable quality to
those within the Premises. Landlord shall pay the reasonable
out-of-pocket
costs to relocate and reconnect Tenant’s personal property and equipment within the new
space; provided that Landlord may elect to cause such work to be done by its contractors. Landlord shall also reimburse Tenant for such other reasonable
out-of-pocket
costs that Tenant may incur in connection with the relocation, including without limitation necessary stationery revisions. Within 10 days following request by Landlord, Tenant shall execute an amendment to this Lease prepared by Landlord to
memorialize the relocation. Should Tenant fail timely to execute and deliver the amendment to Landlord, or should Tenant thereafter fail to comply with the terms thereof, then Landlord may at its option elect to terminate this Lease upon not less
than 60 days prior written notice to Tenant.
ARTICLE 9. ASSIGNMENT AND SUBLETTING
9.1. RIGHTS OF PARTIES.
(a) Except as otherwise specifically provided in this Article 9, Tenant may not, either voluntarily or by operation of law, assign, sublet,
encumber, or otherwise transfer all or any part of Tenant’s interest in this Lease, or permit the Premises to be occupied by anyone other than Tenant (each, a “
Transfer
”), without Landlord’s prior written consent, which
consent shall not unreasonably be withheld in accordance with the provisions of Section 9.1(b). For purposes of this Lease, references to any subletting, sublease or variation thereof shall be deemed to apply not only to a sublease effected
directly by Tenant, but also to a
sub-subletting
or an assignment of subtenancy by a subtenant at any level. Except as otherwise specifically provided in this Article 9, no Transfer (whether voluntary,
involuntary or by operation of law) shall be valid or effective without Landlord’s prior written consent and, at Landlord’s election, such a Transfer shall constitute a material default of this Lease.
(b) Except as otherwise specifically provided in this Article 9, if Tenant or any subtenant hereunder desires to transfer an interest in this
Lease, Tenant shall first notify Landlord in writing and shall request Landlord’s consent thereto. Tenant shall also submit to Landlord in writing: (i) the name and address of the proposed transferee; (ii) the nature of any proposed
subtenant’s or assignee’s business to be carried on in the Premises; (iii) the terms and provisions of any proposed sublease or assignment (including without limitation the rent and other economic provisions, term, improvement
obligations and commencement date); (iv) evidence that the proposed assignee or subtenant will comply with the requirements of
Exhibit D
to this Lease; and (v) any other information requested by Landlord and reasonably related to the
Transfer. Landlord shall not unreasonably withhold its consent, provided: (1) the use of the Premises will be consistent with the provisions of this Lease and with Landlord’s commitment to other tenants of the Building and Project;
(2) any proposed subtenant or assignee demonstrates that it is financially responsible by submission to Landlord of all reasonable information as Landlord may request concerning the proposed subtenant or assignee, including, but not limited to,
a balance sheet of the proposed subtenant or assignee as of a date within 90 days of the request for Landlord’s consent and statements of income or profit and loss of the proposed subtenant or assignee for the
two-year
period preceding the request for Landlord’s consent; (3) the proposed assignee or subtenant
6
is neither an existing tenant or occupant of the Building or Project nor a prospective tenant with whom Landlord
or Landlord’s affiliate has been actively negotiating to become a tenant at the Building or Project; and (4) the proposed transferee is not an SDN (as defined below) and will not impose additional burdens or security risks on Landlord. If
Landlord consents to the proposed Transfer, then the Transfer may be effected within 90 days after the date of the consent upon the terms described in the information furnished to Landlord; provided that any material change in the terms shall be
subject to Landlord’s consent as set forth in this Section 9.1(b). Landlord shall approve or disapprove any requested Transfer within 30 days following receipt of Tenant’s written notice and the information set forth above. Except in
connection with a Permitted Transfer (as defined below), if Landlord approves the Transfer Tenant shall pay a transfer fee of $1,000.00 to Landlord concurrently with Tenant’s execution of a Transfer consent prepared by Landlord.
(c) Notwithstanding the provisions of Subsection (b) above, and except in connection with a “
Permitted Transfer
” (as
defined below), in lieu of consenting to a proposed assignment or subletting, Landlord may elect to terminate this Lease in its entirety in the event of an assignment, or terminate this Lease as to the portion of the Premises proposed to be
subleased with a proportionate abatement in the rent payable under this Lease, such termination to be effective on the date that the proposed sublease or assignment would have commenced. Landlord may thereafter, at its option, assign or
re-let
any space so recaptured to any third party, including without limitation the proposed transferee identified by Tenant.
(d) Should any Transfer occur, Tenant shall, except in connection with a Permitted Transfer, promptly pay or cause to be paid to Landlord, as
additional rent, 50% of any amounts paid by the assignee or subtenant, however described and whether funded during or after the Lease Term, to the extent such amounts are in excess of the sum of (i) the scheduled Basic Rent payable by Tenant
hereunder (or, in the event of a subletting of only a portion of the Premises, the Basic Rent allocable to such portion as reasonably determined by Landlord) and (ii) the direct
out-of-pocket
costs, as evidenced by third party invoices provided to Landlord, incurred by Tenant to effect the Transfer, which costs shall be amortized over the
remaining Term of this Lease or, if shorter, over the term of the sublease.
(e) The sale of all or substantially all of the assets of
Tenant (other than bulk sales in the ordinary course of business), the merger or consolidation of Tenant, the sale of Tenant’s capital stock, or any other direct or indirect change of control of Tenant, including, without limitation, change of
control of Tenant’s parent company or a merger by Tenant or its parent company, shall be deemed a Transfer within the meaning and provisions of this Article. Notwithstanding the foregoing, Tenant may assign this Lease to a successor to Tenant
by merger, consolidation or the purchase of substantially all of Tenant’s assets, or assign this Lease or sublet all or a portion of the Premises to an Affiliate (defined below), without the consent of Landlord but subject to the provisions of
Section 9.2, provided that all of the following conditions are satisfied (a “
Permitted Transfer
”): (i) Tenant is not then in Default hereunder; (ii) Tenant gives Landlord written notice at least 10 business days before such
Permitted Transfer; and (iii) the successor entity resulting from any merger or consolidation of Tenant or the sale of all or substantially all of the assets of Tenant, has a net worth (computed in accordance with generally accepted accounting
principles, except that intangible assets such as goodwill, patents, copyrights, and trademarks shall be excluded in the calculation (“
Net Worth
”)) at the time of the Permitted Transfer that is at least equal to the Net Worth of
Tenant immediately before the Permitted Transfer. Tenant’s notice to Landlord shall include reasonable information and documentation evidencing the Permitted Transfer and showing that each of the above conditions has been satisfied. If
requested by Landlord, Tenant’s successor shall sign and deliver to Landlord a commercially reasonable form of assumption agreement. “
Affiliate
” shall mean an entity controlled by, controlling or under common control with
Tenant.
9.2.
EFFECT OF TRANSFER
.
No subletting or assignment, even with the consent of Landlord, shall relieve
Tenant, or any
successor-in-interest
to Tenant hereunder, of its obligation to pay rent and to perform all its other obligations under this Lease. Each assignee, other
than Landlord, shall be deemed to assume all obligations of Tenant under this Lease and shall be liable jointly and severally with Tenant for the payment of all rent, and for the due performance of all of Tenant’s obligations, under this Lease.
Such joint and several liability shall not be discharged or impaired by any subsequent modification or extension of this Lease. Consent by Landlord to one or more transfers shall not operate as a waiver or estoppel to the future enforcement by
Landlord of its rights under this Lease.
9.3.
SUBLEASE REQUIREMENTS
.
Any sublease, license, concession or other
occupancy agreement entered into by Tenant shall be subordinate and subject to the provisions of this Lease, and if this Lease is terminated during the term of any such agreement, Landlord shall have the right to: (i) treat such agreement as
cancelled and repossess the subject space by any lawful means, or (ii) require that such transferee attorn to and recognize Landlord as its landlord (or licensor, as applicable) under such agreement. Landlord shall not, by reason of such
attornment or the collection of sublease rentals, be deemed liable to the subtenant for the performance of any of Tenant’s obligations under the sublease. If Tenant is in Default (hereinafter defined), Landlord is irrevocably authorized to
direct any transferee under any such agreement to make all payments under such agreement directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such Default is cured. No collection or acceptance of
rent by Landlord from any transferee shall be deemed a waiver of any provision of Article 9 of this Lease, an approval of any transferee, or a release of Tenant from any obligation under this Lease, whenever accruing. In no event shall
Landlord’s enforcement of any provision of this Lease against any transferee be deemed a waiver of Landlord’s right to enforce any term of this Lease against Tenant or any other person.
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ARTICLE 10. INSURANCE AND INDEMNITY
10.1
.
TENANT’S INSURANCE.
Tenant, at its sole cost and expense, shall provide and maintain in effect the insurance
described in
Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the Commencement Date.
10.2.
LANDLORD’S INSURANCE.
Landlord shall provide the following types of insurance, with or without deductible and in amounts and coverages as may be determined by Landlord in its discretion: property insurance, subject to standard exclusions
(such as, but not limited to, earthquake and flood exclusions), covering the Building or Project. In addition, Landlord may, at its election, obtain insurance coverages for such other risks as Landlord or its Mortgagees may from time to time deem
appropriate, including earthquake and commercial general liability coverage. Landlord shall not be required to carry insurance of any kind on any tenant improvements or Alterations in the Premises installed by Tenant or its contractors or otherwise
removable by Tenant (collectively, “
Tenant Installations
”), or on any trade fixtures, furnishings, equipment, interior plate glass, signs or items of personal property in the Premises, and Landlord shall not be obligated to repair
or replace any of the foregoing items should damage occur. All proceeds of insurance maintained by Landlord upon the Building and Project shall be the property of Landlord, whether or not Landlord is obligated to or elects to make any repairs.
10.3. TENANT’S INDEMNITY.
To the fullest extent permitted by law, but subject to Section 10.5 below, Tenant shall defend,
indemnify and hold harmless Landlord and Landlord’s agents, employees, lenders, and affiliates, from and against any and all negligence, claims, liabilities, damages, costs or expenses arising either before or after the Commencement Date which
arise from or are caused by Tenant’s use or occupancy of the Premises, the Building or the Common Areas of the Project, or from the conduct of Tenant’s business, or from any activity, work, or thing done, permitted or suffered by Tenant or
Tenant’s agents, employees, subtenants, vendors, contractors, invitees or licensees in or about the Premises, the Building or the Common Areas of the Project, or from any Default in the performance of any obligation on Tenant’s part to be
performed under this Lease, or from any act, omission or negligence on the part of Tenant or Tenant’s agents, employees, subtenants, vendors, contractors, invitees or licensees. Landlord may, at its option, require Tenant to assume
Landlord’s defense in any action covered by this Section 10.3 through counsel reasonably satisfactory to Landlord. Notwithstanding the foregoing, Tenant shall not be obligated to indemnify Landlord against any liability or expense to the
extent it is ultimately determined that the same was caused by the sole negligence or willful misconduct of Landlord, its agents, contractors or employees.
10.4.
LANDLORD’S NONLIABILITY.
Landlord shall not be liable to Tenant, its employees, agents and invitees, and Tenant
hereby waives all claims against Landlord, its employees and agents for loss of or damage to any property, or any injury to any person, resulting from any condition including, but not limited to, acts or omissions (criminal or otherwise) of third
parties and/or other tenants of the Project, or their agents, employees or invitees, fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak or flow from or into any part of the Premises or from the breakage, leakage,
obstruction or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning, electrical works or other fixtures in the Building, whether the damage or injury results from conditions arising in the Premises or in other
portions of the Building, regardless of the negligence of Landlord, its agents or any and all affiliates of Landlord in connection with the foregoing. It is understood that any such condition may require the temporary evacuation or closure of all or
a portion of the Building. Should Tenant elect to receive any service from a concessionaire, licensee or third party tenant of Landlord, Tenant shall not seek recourse against Landlord for any breach or liability of that service provider.
Notwithstanding anything to the contrary contained in this Lease, in no event shall Landlord be liable for Tenant’s loss or interruption of business or income (including without limitation, Tenant’s consequential damages, lost profits or
opportunity costs), or for interference with light or other similar intangible interests.
10.5.
WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waives all rights of recovery against the other on account of loss and damage occasioned to the property of such waiving party to the extent that the waiving party is entitled to proceeds for such loss and damage
under any property insurance policies carried or otherwise required to be carried by this Lease; provided however, that the foregoing waiver shall not apply to the extent of Tenant’s obligation to pay deductibles under any such policies and
this Lease. By this waiver it is the intent of the parties that neither Landlord nor Tenant shall be liable to any insurance company (by way of subrogation or otherwise) insuring the other party for any loss or damage insured against under any
property insurance policies, even though such loss or damage might be occasioned by the negligence of such party, its agents, employees, contractors or invitees. The foregoing waiver by Tenant shall also inure to the benefit of Landlord’s
management agent for the Building.
ARTICLE 11. DAMAGE OR DESTRUCTION
11.1. RESTORATION.
(a)
If the Building of which the Premises are a part is damaged as the result of an event of casualty, then subject to the provisions below, Landlord shall repair that damage as soon as reasonably possible unless Landlord reasonably determines that:
(i) the Premises have been materially damaged and there is less than 1 year of the Term remaining on the date of the casualty; (ii) any Mortgagee (defined in Section 13.1) requires that the insurance proceeds be applied to the payment
of the mortgage debt; or (iii) proceeds necessary to pay the full cost of the repair are not available from Landlord’s insurance, including without limitation earthquake insurance. Should Landlord elect not to repair the damage for one of
the preceding reasons, Landlord shall so notify Tenant in the “Casualty Notice” (as defined below), and this Lease shall terminate as of the date of delivery of that notice.
8
(b) As soon as reasonably practicable following the casualty event but not later than 60 days
thereafter, Landlord shall notify Tenant in writing (“
Casualty Notice
”) of Landlord’s election, if applicable, to terminate this Lease. If this Lease is not so terminated, the Casualty Notice shall set forth the anticipated
period for repairing the casualty damage. If the anticipated repair period exceeds 270 days and if the damage is so extensive as to reasonably prevent Tenant’s substantial use and enjoyment of the Premises, then either party may elect to
terminate this Lease by written notice to the other within 10 days following delivery of the Casualty Notice.
(c) In the event that
neither Landlord nor Tenant terminates this Lease pursuant to Section 11.1(b), Landlord shall repair all material damage to the Premises or the Building as soon as reasonably possible and this Lease shall continue in effect for the remainder of
the Term. Upon notice from Landlord, Tenant shall assign or endorse over to Landlord (or to any party designated by Landlord) all property insurance proceeds payable to Tenant under Tenant’s insurance with respect to any Tenant Installations;
provided if the estimated cost to repair such Tenant Installations exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, the excess cost of such repairs shall be paid by Tenant to Landlord prior to
Landlord’s commencement of repairs. Within 15 days of demand, Tenant shall also pay Landlord for any additional excess costs that are determined during the performance of the repairs to such Tenant Installations.
(d) From and after the 6
th
business day following the casualty event, the rental to be
paid under this Lease shall be abated in the same proportion that the Floor Area of the Premises that is rendered unusable by the damage from time to time bears to the total Floor Area of the Premises.
(e) Notwithstanding the provisions of subsections (a), (b) and (c) of this Section 11.1, but subject to Section 10.5, the cost
of any repairs shall be borne by Tenant, and Tenant shall not be entitled to rental abatement or termination rights, if the damage is due to the fault or neglect of Tenant or its employees, subtenants, contractors, invitees or representatives. In
addition, the provisions of this Section 11.1 shall not be deemed to require Landlord to repair any Tenant Installations, fixtures and other items that Tenant is obligated to insure pursuant to
Exhibit D
or under any other provision of
this Lease.
11.2. LEASE GOVERNS.
Tenant agrees that the provisions of this Lease, including without limitation Section 11.1,
shall govern any damage or destruction and shall accordingly supersede any contrary statute or rule of law.
ARTICLE 12. EMINENT DOMAIN
Either party may terminate this Lease if any material part of the Premises is taken or condemned for any public or quasi-public use
under Law, by eminent domain or private purchase in lieu thereof (a “
Taking
”). Landlord shall also have the right to terminate this Lease if there is a Taking of any portion of the Building or Project which would have a material
adverse effect on Landlord’s ability to profitably operate the remainder of the Building. The termination shall be effective as of the effective date of any order granting possession to, or vesting legal title in, the condemning authority. If
this Lease is not terminated, Basic Rent and Tenant’s Share of Operating Expenses shall be appropriately adjusted to account for any reduction in the square footage of the Building or Premises. All compensation awarded for a Taking shall be the
property of Landlord and the right to receive compensation or proceeds in connection with a Taking are expressly waived by Tenant; provided, however, Tenant may file a separate claim for Tenant’s personal property and Tenant’s reasonable
relocation expenses, provided the filing of the claim does not diminish the amount of Landlord’s award. If only a part of the Premises is subject to a Taking and this Lease is not terminated, Landlord, with reasonable diligence, will restore
the remaining portion of the Premises as nearly as practicable to the condition immediately prior to the Taking. Tenant agrees that the provisions of this Lease shall govern any Taking and shall accordingly supersede any contrary statute or rule of
law.
ARTICLE 13. SUBORDINATION; ESTOPPEL CERTIFICATE
13.1. SUBORDINATION.
Tenant accepts this Lease subject and subordinate to any mortgage(s), deed(s) of trust, ground lease(s) or other
lien(s) now or subsequently arising upon the Premises, the Building or the Project, and to renewals, modifications, refinancings and extensions thereof (collectively referred to as a “
Mortgage
”). The party having the benefit of a
Mortgage shall be referred to as a “
Mortgagee
”. This clause shall be self-operative, but upon request from a Mortgagee, Tenant shall execute a commercially reasonable subordination and attornment agreement in favor of the Mortgagee,
provided such agreement provides a
non-disturbance
covenant benefiting Tenant. Alternatively, a Mortgagee shall have the right at any time to subordinate its Mortgage to this Lease. Upon request, Tenant,
without charge, shall attorn to any successor to Landlord’s interest in this Lease in the event of a foreclosure of any mortgage. Tenant agrees that any purchaser at a foreclosure sale or lender taking title under a deed in lieu of foreclosure
shall not be responsible for any act or omission of a prior landlord, shall not be subject to any offsets or defenses Tenant may have against a prior landlord, and shall not be liable for the return of the Security Deposit not actually recovered by
such purchaser nor bound by any rent paid in advance of the calendar month in which the transfer of title occurred; provided that the foregoing shall not release the applicable prior landlord from any liability for those obligations. Tenant
acknowledges that Landlord’s Mortgagees and their
successors-in-interest
are intended third party beneficiaries of this Section 13.1.
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13.2. ESTOPPEL CERTIFICATE.
Tenant shall, within 10 days after receipt of a written
request from Landlord, execute and deliver a commercially reasonable estoppel certificate in favor of those parties as are reasonably requested by Landlord (including a Mortgagee or a prospective purchaser of the Building or the Project).
ARTICLE 14. DEFAULTS AND REMEDIES
14.1.
TENANT’S DEFAULTS.
In addition to any other event of default set forth in this Lease, the occurrence of any one or
more of the following events shall constitute a “
Default
” by Tenant:
(a) The failure by Tenant to make any payment of
Rent required to be made by Tenant, as and when due, where the failure continues for a period of 3 days after written notice from Landlord to Tenant. The term “
Rent
” as used in this Lease shall be deemed to mean the Basic Rent and
all other sums required to be paid by Tenant to Landlord pursuant to the terms of this Lease.
(b) The assignment, sublease, encumbrance
or other Transfer of the Lease by Tenant, either voluntarily or by operation of law, whether by judgment, execution, transfer by intestacy or testacy, or other means, without the prior written consent of Landlord unless otherwise authorized in
Article 9 of this Lease.
(c) The discovery by Landlord that any financial statement provided by Tenant, or by any affiliate, successor or
guarantor of Tenant, was materially false.
(d) Except where a specific time period is otherwise set forth for Tenant’s performance
in this Lease (in which event the failure to perform by Tenant within such time period shall be a Default), the failure or inability by Tenant to observe or perform any of the covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in any other subsection of this Section 14.1, where the failure continues for a period of 30 days after written notice from Landlord to Tenant. However, if the nature of the failure is such that more than 30 days
are reasonably required for its cure, then Tenant shall not be deemed to be in Default if Tenant commences the cure within 30 days, and thereafter diligently pursues the cure to completion.
The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law, and Landlord shall not be
required to give any additional notice under California Code of Civil Procedure Section 1161, or any successor statute, in order to be entitled to commence an unlawful detainer proceeding.
14.2. LANDLORD’S REMEDIES.
(a) Upon the occurrence of any Default by Tenant, then in addition to any other remedies available to Landlord, Landlord may exercise the
following remedies:
(i) Landlord may terminate Tenant’s right to possession of the Premises by any lawful means, in which case this
Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. Such termination shall not affect any accrued obligations of Tenant under this Lease. Upon termination, Landlord shall have the right to reenter the
Premises and remove all persons and property. Landlord shall also be entitled to recover from Tenant:
(1) The worth at the time of award
of the unpaid Rent which had been earned at the time of termination;
(2) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such loss that Tenant proves could have been reasonably avoided;
(3) 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 loss that Tenant proves could be reasonably avoided;
(4) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result from Tenant’s default, including, but not limited to, the cost of recovering
possession of the Premises, commissions and other expenses of reletting, including necessary repair, renovation, improvement and alteration of the Premises for a new tenant, reasonable attorneys’ fees, and any other reasonable costs; and
(5) At Landlord’s election, all other amounts in addition to or in lieu of the foregoing as may be permitted by law. Any sum, other than
Basic Rent, shall be computed on the basis of the average monthly amount accruing during the 24 month period immediately prior to Default, except that if it becomes necessary to compute such rental before the 24 month period has occurred, then the
computation shall be on the basis of the average monthly amount during the shorter period. As used in subparagraphs (1) and (2) above, the “worth at the time of award” shall be computed by allowing interest at the rate of 10% per
annum. As used in subparagraph (3) above, the “worth at the time of award” shall be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus 1%.
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(ii) Landlord may elect not to terminate Tenant’s right to possession of the Premises, in
which event Landlord may continue to enforce all of its rights and remedies under this Lease, including the right to collect all rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet the Premises, or the appointment of a
receiver to protect the Landlord’s interests under this Lease, shall not constitute a termination of the Tenant’s right to possession of the Premises. In the event that Landlord elects to avail itself of the remedy provided by this
subsection (ii), Landlord shall not unreasonably withhold its consent to an assignment or subletting of the Premises subject to the reasonable standards for Landlord’s consent as are contained in this Lease.
(b) The various rights and remedies reserved to Landlord in this Lease or otherwise shall be cumulative and, except as otherwise provided by
California law, Landlord may pursue any or all of its rights and remedies at the same time. No delay or omission of Landlord to exercise any right or remedy shall be construed as a waiver of the right or remedy or of any breach or Default by Tenant.
The acceptance by Landlord of rent shall not be a (i) waiver of any preceding breach or Default by Tenant of any provision of this Lease, other than the failure of Tenant to pay the particular rent accepted, regardless of Landlord’s
knowledge of the preceding breach or Default at the time of acceptance of rent, or (ii) a waiver of Landlord’s right to exercise any remedy available to Landlord by virtue of the breach or Default. The acceptance of any payment from a
debtor in possession, a trustee, a receiver or any other person acting on behalf of Tenant or Tenant’s estate shall not waive or cure a Default under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser amount than the
rent required by this Lease shall be deemed to be other than a partial payment on account of the earliest due stipulated rent, nor shall any endorsement or statement on any check or letter be deemed an accord and satisfaction and Landlord shall
accept the check or payment without prejudice to Landlord’s right to recover the balance of the rent or pursue any other remedy available to it. Tenant hereby waives any right of redemption or relief from forfeiture under California Code of
Civil Procedure Section 1174 or 1179, or under any successor statute, in the event this Lease is terminated by reason of any Default by Tenant. No act or thing done by Landlord or Landlord’s agents during the Term shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. No employee of Landlord or of Landlord’s agents shall have any power to accept the keys to the Premises
prior to the termination of this Lease, and the delivery of the keys to any employee shall not operate as a termination of the Lease or a surrender of the Premises.
14.3.
LATE PAYMENTS.
Any Rent due under this Lease that is not paid to Landlord within 5 days of the date when due shall bear
interest at the maximum rate permitted by law from the date due until fully paid. The payment of interest shall not cure any Default by Tenant under this Lease. In addition, Tenant acknowledges that the late payment by Tenant to Landlord of rent
will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Those costs may include, but are not limited to, administrative, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any ground lease, mortgage or trust deed covering the Premises. Accordingly, if any rent due from Tenant shall not be received by Landlord or Landlord’s designee within
5 days after the date due, then Tenant shall pay to Landlord, in addition to the interest provided above, a late charge for each delinquent payment equal to the greater of (i) 5% of that delinquent payment or (ii) $100.00. Acceptance of a late
charge by Landlord shall not constitute a waiver of Tenant’s Default with respect to the overdue amount, nor shall it prevent Landlord from exercising any of its other rights and remedies.
14.4
.
RIGHT OF LANDLORD TO PERFORM.
If Tenant is in Default of any of its obligations under the Lease, Landlord shall
have the right to perform such obligations. Tenant shall reimburse Landlord for the cost of such performance upon demand together with an administrative charge equal to 10% of the cost of the work performed by Landlord.
14.5.
DEFAULT BY LANDLORD.
Landlord shall not be deemed to be in default in the performance of any obligation under this Lease
unless and until it has failed to perform the obligation within 30 days after written notice by Tenant to Landlord specifying in reasonable detail the nature and extent of the failure; provided, however, that if the nature of Landlord’s
obligation is such that more than 30 days are required for its performance, then Landlord shall not be deemed to be in default if it commences performance within the 30 day period and thereafter diligently pursues the cure to completion. Tenant
hereby waives any right to terminate or rescind this Lease as a result of any default by Landlord hereunder or any breach by Landlord of any promise or inducement relating hereto, and Tenant agrees that its remedies shall be limited to a suit for
actual damages and/or injunction and shall in no event include any consequential damages, lost profits or opportunity costs.
14.6.
EXPENSES AND LEGAL FEES.
Should either Landlord or Tenant bring any action in connection with this Lease, the prevailing party shall be entitled to recover as a part of the action its reasonable attorneys’ fees, and all other reasonable
costs. The prevailing party for the purpose of this paragraph shall be determined by the trier of the facts.
14.7. WAIVER OF JURY
TRIAL/JUDICIAL REFERENCE.
(a)
LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL
OF ITS CHOICE WITH RESPECT TO ITS RIGHT TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE
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ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO
AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, TENANT’S USE OR OCCUPANCY OF THE PREMISES,
AND/OR ANY CLAIM OF INJURY OR DAMAGE.
(b) In the event that the jury waiver provisions of Section 14.7 (a) are not enforceable
under California law, then, unless otherwise agreed to by the parties, the provisions of this Section 14.7 (b) shall apply. Landlord and Tenant agree that any disputes arising in connection with this Lease (including but not limited to a
determination of any and all of the issues in such dispute, whether of fact or of law) shall be resolved (and a decision shall be rendered) by way of a general reference as provided for in Part 2, Title 8, Chapter 6 (§§ 638 et. seq.) of
the California Code of Civil Procedure, or any successor California statute governing resolution of disputes by a court appointed referee. Nothing within this Section 14.7 shall apply to an unlawful detainer action.
14.8. SATISFACTION OF JUDGMENT.
The obligations of Landlord do not constitute the personal obligations of the individual partners,
trustees, directors, officers, members or shareholders of Landlord or its constituent partners or members. Should Tenant recover a money judgment against Landlord, such judgment shall be satisfied only from the interest of Landlord in the Project
and out of the rent or other income from such property receivable by Landlord, and no action for any deficiency may be sought or obtained by Tenant.
ARTICLE 15. END OF TERM
15.1.
HOLDING OVER.
If Tenant holds over for any period after the Expiration Date (or earlier termination of the Term) without
the prior written consent of Landlord, such tenancy shall constitute a tenancy at sufferance only and a Default by Tenant; such holding over with the prior written consent of Landlord shall constitute a
month-to-month
tenancy commencing on the 1
st
day following the termination of this Lease and terminating 30 days following delivery of written notice of
termination by either Landlord or Tenant to the other. In either of such events, possession shall be subject to all of the terms of this Lease, except that the monthly rental shall be 150% of the total monthly rental for the month immediately
preceding the date of termination, subject to the right of either party to terminate any such
month-to-month
holdover tenancy by giving 30 days prior written notice to the other party. The acceptance by
Landlord of monthly hold-over rental in a lesser amount shall not constitute a waiver of Landlord’s right to recover the full amount due unless otherwise agreed in writing by Landlord. If Tenant fails to surrender the Premises upon the
expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claims made by any succeeding tenant relating to such failure to surrender.
The foregoing provisions of this Section 15.1 are in addition to and do not affect Landlord’s right of
re-entry
or any other rights of Landlord under this Lease or at law.
15.2.
SURRENDER OF PREMISES; REMOVAL OF PROPERTY.
Upon the Expiration Date or upon any earlier termination of this Lease, Tenant
shall quit and surrender possession of the Premises to Landlord in as good order, condition and repair as when received or as hereafter may be improved by Landlord or Tenant, reasonable wear and tear and repairs which are Landlord’s obligation
excepted, and shall remove or fund to Landlord the cost of removing all wallpapering, voice and/or data transmission cabling installed by or for Tenant and Required Removables, together with all personal property and debris, and shall perform all
work required under Section 7.3 of this Lease. If Tenant shall fail to comply with the provisions of this Section 15.2, Landlord may effect the removal and/or make any repairs, and the cost to Landlord shall be additional rent payable by
Tenant upon demand.
ARTICLE 16. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction or offset, in lawful money of the United States to Landlord at its
address set forth in Item 12 of the Basic Lease Provisions, or at any other place as Landlord may designate in writing. Unless this Lease expressly provides otherwise, as for example in the payment of rent pursuant to Section 4.1, all payments
shall be due and payable within 5 days after demand. All payments requiring proration shall be prorated on the basis of the number of days in the pertinent calendar month or year, as applicable. Any notice, election, demand, consent, approval or
other communication to be given or other document to be delivered by either party to the other may be delivered to the other party, at the address set forth in Item 12 of the Basic Lease Provisions, by personal service, or by any courier or
“overnight” express mailing service. Either party may, by written notice to the other, served in the manner provided in this Article, designate a different address. The refusal to accept delivery of a notice, or the inability to deliver
the notice (whether due to a change of address for which notice was not duly given or other good reason), shall be deemed delivery and receipt of the notice as of the date of attempted delivery. If more than one person or entity is named as Tenant
under this Lease, service of any notice upon any one of them shall be deemed as service upon all of them.
ARTICLE 17. RULES AND
REGULATIONS
Tenant agrees to comply with the Rules and Regulations attached as
Exhibit E,
and any reasonable and
nondiscriminatory amendments, modifications and/or additions as may be adopted and published by written notice to tenants by Landlord for the safety, care, security, good order, or cleanliness of the Premises, Building, Project and/or Common Areas.
Landlord shall not be liable to Tenant for any
12
violation of the Rules and Regulations or the breach of any covenant or condition in any lease or any other act
or conduct by any other tenant, and the same shall not constitute a constructive eviction hereunder. One or more waivers by Landlord of any breach of the Rules and Regulations by Tenant or by any other tenant(s) shall not be a waiver of any
subsequent breach of that rule or any other. Tenant’s failure to keep and observe the Rules and Regulations shall constitute a default under this Lease. In the case of any conflict between the Rules and Regulations and this Lease, this Lease
shall be controlling.
ARTICLE 18. BROKER’S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the firm(s) whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of brokerage commissions to those broker(s) unless otherwise provided in this Lease. It is understood that Landlord’s Broker represents only Landlord in this transaction
and Tenant’s Broker (if any) represents only Tenant. Each party warrants that it has had no dealings with any other real estate broker or agent in connection with the negotiation of this Lease, and agrees to indemnify and hold the other party
harmless from any cost, expense or liability (including reasonable attorneys’ fees) for any compensation, commissions or charges claimed by any other real estate broker or agent employed or claiming to represent or to have been employed by the
indemnifying party in connection with the negotiation of this Lease. The foregoing agreement shall survive the termination of this Lease.
ARTICLE 19. TRANSFER OF LANDLORD’S INTEREST
In the event of any transfer of Landlord’s interest in the Premises, the transferor shall be automatically relieved of all obligations on
the part of Landlord accruing under this Lease from and after the date of the transfer, provided that Tenant is duly notified of the transfer. Any funds held by the transferor in which Tenant has an interest, including without limitation, the
Security Deposit, shall be turned over, subject to that interest, to the transferee. No Mortgagee to which this Lease is or may be subordinate shall be responsible in connection with the Security Deposit unless the Mortgagee actually receives the
Security Deposit. It is intended that the covenants and obligations contained in this Lease on the part of Landlord shall, subject to the foregoing, be binding on Landlord, its successors and assigns, only during and in respect to their respective
successive periods of ownership.
ARTICLE 20. INTERPRETATION
20.1. NUMBER.
Whenever the context of this Lease requires, the words “Landlord” and “Tenant” shall include the
plural as well as the singular.
20.2. HEADINGS.
The captions and headings of the articles and sections of this Lease are for
convenience only, are not a part of this Lease and shall have no effect upon its construction or interpretation.
20.3. JOINT AND
SEVERAL LIABILITY.
If more than one person or entity is named as Tenant, the obligations imposed upon each shall be joint and several and the act of or notice from, or notice or refund to, or the signature of, any one or more of them shall be
binding on all of them with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, termination or modification of this Lease.
20.4. SUCCESSORS.
Subject to Sections 13.1 and 22.3 and to Articles 9 and 19 of this Lease, all rights and liabilities given to or
imposed upon Landlord and Tenant shall extend to and bind their respective heirs, executors, administrators, successors and assigns. Nothing contained in this Section 20.4 is intended, or shall be construed, to grant to any person other than
Landlord and Tenant and their successors and assigns any rights or remedies under this Lease.
20.5.
TIME OF ESSENCE.
Time
is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.
20.6.
CONTROLLING LAW/VENUE.
This Lease shall be governed by and interpreted in accordance with the laws of the State of California. Should any litigation be commenced between the parties in connection with this Lease, such action shall be
prosecuted in the applicable State Court of California in the county in which the Building is located.
20.7.
SEVERABILITY.
If any term or provision of this Lease, the deletion of which would not adversely affect the receipt of any material benefit by either party or the deletion of which is consented to by the party adversely affected, shall be held invalid or
unenforceable to any extent, the remainder of this Lease shall not be affected and each term and provision of this Lease shall be valid and enforceable to the fullest extent permitted by law.
20.8. WAIVER.
One or more waivers by Landlord or Tenant of any breach of any term, covenant or condition contained in this Lease shall
not be a waiver of any subsequent breach of the same or any other term, covenant or condition. Consent to any act by one of the parties shall not be deemed to render unnecessary the obtaining of that party’s consent to any subsequent act. No
breach of this Lease shall be deemed to have been waived unless the waiver is in a writing signed by the waiving party.
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20.9. INABILITY TO PERFORM.
In the event that either party shall be delayed or hindered in
or prevented from the performance of any work or in performing any act required under this Lease by reason of any cause beyond the reasonable control of that party, then the performance of the work or the doing of the act shall be excused for the
period of the delay and the time for performance shall be extended for a period equivalent to the period of the delay. The provisions of this Section 20.9 shall not operate to excuse Tenant from the prompt payment of Rent.
20.10.
ENTIRE AGREEMENT.
This Lease and its exhibits and other attachments cover in full each and every agreement of every kind
between the parties concerning the Premises, the Building, and the Project, and all preliminary negotiations, oral agreements, understandings and/or practices, except those contained in this Lease, are superseded and of no further effect. Tenant
waives its rights to rely on any representations or promises made by Landlord or others which are not contained in this Lease. No verbal agreement or implied covenant shall be held to modify the provisions of this Lease, any statute, law, or custom
to the contrary notwithstanding.
20.11. QUIET ENJOYMENT.
Upon the observance and performance of all the covenants, terms and
conditions on Tenant’s part to be observed and performed, and subject to the other provisions of this Lease, Tenant shall have the right of quiet enjoyment and use of the Premises for the Term without hindrance or interruption by Landlord or
any other person claiming by or through Landlord.
20.12. SURVIVAL.
All covenants of Landlord or Tenant which reasonably would be
intended to survive the expiration or sooner termination of this Lease, including without limitation any warranty or indemnity hereunder, shall so survive and continue to be binding upon and inure to the benefit of the respective parties and their
successors and assigns.
ARTICLE 21. EXECUTION AND RECORDING
21.1. COUNTERPARTS; DIGITAL SIGNATURES.
This Lease may be executed in one or more counterparts, each of which shall constitute an
original and all of which shall be one and the same agreement. The parties agree to accept a digital image (including but not limited to an image in the form of a PDF, JPEG, GIF file, or other
e-signature)
of
this Lease, if applicable, reflecting the execution of one or both of the parties, as a true and correct original.
21.2. CORPORATE AND
PARTNERSHIP AUTHORITY.
If Tenant is a corporation, limited liability company or partnership, each individual executing this Lease on behalf of the entity represents and warrants that such individual is duly authorized to execute and deliver this
Lease and that this Lease is binding upon the corporation, limited liability company or partnership in accordance with its terms. Tenant shall, at Landlord’s request, deliver a certified copy of its organizational documents or an appropriate
certificate authorizing or evidencing the execution of this Lease.
21.3. EXECUTION OF LEASE; NO OPTION OR OFFER.
The submission of
this Lease to Tenant shall be for examination purposes only, and shall not constitute an offer to or option for Tenant to lease the Premises. Execution of this Lease by Tenant and its return to Landlord shall not be binding upon Landlord,
notwithstanding any time interval, until Landlord has in fact executed and delivered this Lease to Tenant, it being intended that this Lease shall only become effective upon execution by Landlord and delivery of a fully executed counterpart to
Tenant.
21.4.
RECORDING.
Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the
request of Landlord, shall execute and acknowledge a “short form” memorandum of this Lease for recording purposes.
21.5.
AMENDMENTS.
No amendment or mutual termination of this Lease shall be effective unless in writing signed by authorized signatories of Tenant and Landlord, or by their respective successors in interest. No actions, policies, oral or informal
arrangements, business dealings or other course of conduct by or between the parties shall be deemed to modify this Lease in any respect.
ARTICLE 22. MISCELLANEOUS
22.1.
NONDISCLOSURE OF LEASE TERMS.
Tenant acknowledges that the content of this Lease and any related documents are
confidential information. Except to the extent disclosure is required by law, Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant’s
financial, legal and space-planning consultants, provided, however, that Tenant may disclose the terms to prospective subtenants or assignees under this Lease or pursuant to legal requirement.
22.2.
TENANT’S FINANCIAL STATEMENTS.
The application, financial statements and tax returns, if any, submitted and certified
to by Tenant as an accurate representation of its financial condition have been prepared, certified and submitted to Landlord as an inducement and consideration to Landlord to enter into this Lease. Tenant shall during the Term furnish Landlord with
current annual financial statements accurately reflecting Tenant’s financial condition upon written request from Landlord within 10 days following Landlord’s request; provided, however, that so long as Tenant is a publicly traded
corporation on a nationally recognized stock exchange, the foregoing obligation to deliver the statements shall be waived.
22.3.
MORTGAGEE PROTECTION.
No act or failure to act on the part of Landlord which would otherwise entitle Tenant to be relieved of its obligations hereunder or to terminate this Lease shall result in such a release or termination unless
(a) Tenant has given notice by registered or certified mail to any
14
Mortgagee of a Mortgage covering the Building whose address has been furnished to Tenant and (b) such Mortgagee is afforded a reasonable opportunity to cure the default by Landlord (which
shall in no event be less than 60 days), including, if necessary to effect the cure, time to obtain possession of the Building by power of sale or judicial foreclosure provided that such foreclosure remedy is diligently pursued. Tenant shall comply
with any written directions by any Mortgagee to pay Rent due hereunder directly to such Mortgagee without determining whether a default exists under such Mortgagee’s Mortgage.
22.4. SDN LIST.
Tenant hereby represents and warrants that neither Tenant nor any officer, director, employee, partner, member or other
principal of Tenant (collectively,
“
Tenant Parties
”)
is listed as a Specially Designated National and Blocked Person
(“
SDN
”)
on the list of such persons and
entities issued by the U.S. Treasury Office of Foreign Assets Control (OFAC). In the event Tenant or any Tenant Party is or becomes listed as an SDN, Tenant shall be deemed in breach of this Lease and Landlord shall have the right to terminate this
Lease immediately upon written notice to Tenant.
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LANDLORD:
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TENANT:
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SILICON VALLEY CENTER OFFICE LLC
a Delaware limited liability company
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TECHPOINT, INC.,
a California,
corporation
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By
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/s/ Steven M. Case
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By
/s/ F.
Kozato
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Steven M. Case
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Executive Vice President
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Printed Name
F.
Kozato
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Office Properties
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Title
President &
CEO
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By
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/s/ Michael T. Bennett
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By
/s/ Feng
Kuo
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Michael T. Bennett
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Senior Vice President, Property Operations
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Printed Name
Feng
Kuo
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Office Properties
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Title
CTO
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15
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (“
Amendment
”) dated
October 31, 2016, (“
Effective Date
”) is hereby entered into by and between
SILICON VALLEY CENTER OFFICE LLC
, a Delaware limited liability company (“
Landlord
”), and
TECHPOINT, INC.
, a California
corporation (“
Tenant
”).
On September 22, 2014, Landlord and Tenant entered into a Lease
(“
Lease
”) for space in a building located at 2550 N. First Street, Suite 400, San Jose, California (“
Suite 400
”).
Landlord and Tenant each desire to modify the Lease to terminate Tenant’s leasing of Suite 400 in exchange for leasing approximately
8,512 rentable square feet of space in the Building, which space is shown on
EXHIBIT A
attached to this Amendment and herein referred to as “Suite 550”, to extend the Lease Term as to Suite 550, to adjust the Basic Rent and to make
such other modifications as are set forth in “III. MODIFICATIONS” next below.
A.
Premises
. Effective as of the “Commencement Date for
Suite 550” (as hereinafter defined), the “Premises” under the Lease shall consist of Suite 550.
B.
Termination as to
Suite 400
. The parties agree that Tenant’s lease as to Suite 400 shall terminate 2 business days following the Commencement Date for Suite 550 (the “
Suite 400 Termination Date
”), provided that such termination shall not
relieve Tenant of (i) any rent or other charges owed by Tenant, or other obligations required of Tenant, as are set forth in the Lease from and after the date of this Amendment through and including the Suite 400 Termination Date, (ii) any
obligations which are set forth in this Amendment, and (iii) any indemnity or hold harmless obligations set forth in the Lease as to Suite 400. Tenant shall quit and surrender possession of Suite 400 to Landlord on or before the Suite 400
Termination Date as required by the provisions of Section 15.2 of the Lease, provided that Landlord shall provide Tenant with at least 7 business days prior written notice of the estimated Commencement Date for Suite 550. In the event that the
Commencement Date for Suite 550 has not occurred prior to October 31, 2016, Tenant shall not be responsible to pay any holdover “premium” under Section 15.1 of the Lease. It is further understood and agreed that in the event the
Commencement Date for Suite 550 has not occurred within 10 days from and after the Effective Date of this Amendment, Tenant shall have the right to continue to lease Suite 400 on a
month-to-month
tenancy on
the same terms and conditions of the Lease, including base rent, except, notwithstanding anything contrary provided in Section 15.1 of the Lease, Landlord shall provide Tenant with 90 days’ prior written notice of any election to terminate
such
month-to-month
tenancy, and Tenant shall provide Landlord with 30 days’ prior written notice of any election to terminate such
month-to-month
tenancy.
C.
Basic Lease Provisions
.
The Basic Lease Provisions are hereby amended as follows:
1. Effective as of the Commencement Date for Suite 550, Item 2 shall be deleted
in its entirety and substituted therefore shall be the following:
“2. Premises: Suite No. 550 (the Premises are more
particularly described in Section 2.1).
Address of Building: 2550 N. First Street, San Jose, CA
Project: Silicon Valley Center”
2. Item 4 is hereby amended by adding the following:
“
Commencement Date for Suite 550
”
shall mean the earlier of (a) Landlord’s tender of possession of Suite 550
to Tenant with the “Tenant improvements” (as hereinafter defined) for Suite 550 substantially completed but for minor punch list items, or (b) the date Tenant commences its business operations in Suite 550. Prior to Tenant’s
taking possession of Suite 550, the parties shall memorialize on a form provided by Landlord the actual Commencement Date for Suite 550, provided that Tenant’s failure to execute that form shall not affect the
1
validity of Landlord’s determination of said Date. The acknowledgments by Tenant contained in the second and third sentences of Section 2.2 of the Lease shall be applicable and binding
with respect to Tenant’s lease of Suite 550. As of the Commencement Date for Suite 550, Tenant shall be conclusively deemed to have accepted that Suite 550 is in satisfactory condition and in conformity with the provisions of the Lease, subject
only to those defective or incomplete portions of the Tenant Improvements for Suite 550, which Tenant shall have itemized on a written punch list and delivered to Landlord within thirty (30) days after the Commencement: Date for Suite
550.”
3. Item 5 is hereby deleted in its entirety and substituted therefor shall be the following:
“5. Lease Term: The Term of the Lease shall be extended for a period of 37 months from and after the Commencement Date for Suite 550,
plus such additional days as may be required to cause the Lease to expire on the final day of the calendar month.”
4. Item 6 is
hereby amended by adding the following:
“Basic Rent for Suite 550:
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Months of Term or Period for Suite 550
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Monthly Rate Per
Rentable Square
Foot for Suite 550
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Monthly Basic Rent
(rounded to the
nearest dollar)
for Suite 550
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Commencement Date for Suite 550 to 12
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$
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3.20
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$
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27,238.00
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13 to 24
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$
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3.30
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$
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28,090.00
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25 to 36
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$
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3.39
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$
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28,856.00
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37
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$
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3.50
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$
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29,792.00
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Notwithstanding the above schedule of Basic Rent to the contrary, as long as
Tenant
is not in Default (as defined in Section 14.1) under this Lease, Tenant shall be entitled to an abatement of one (1) full calendar month of Basic Rent as to Suite 550 in the aggregate amount of $27,238,00 (the
“
Abated Basic
Rent
”)
for the initial first full calendar month of the Term as to Suite 550 (the
“
Abatement Period
”).
In the event Tenant Defaults at any time during the Term, all Abated
Basic Rent shall immediately become due and payable. The payment by Tenant of the Abated Basic Rent in the event of a Default shall not limit or affect any of Landlord’s other rights, pursuant to this Lease or at law or in equity. Only Basic
Rent shall be abated during the Abatement Period and all other additional rent and other costs and charges specified in this Lease shall remain as due and payable pursuant to the provisions of this Lease.
5. Effective as of the Commencement Date for Suite 550, Item 7 shall be deleted in its entirety and substituted therefor shall be the
following:
“
7.
Expense
Recovery
Period:
Every twelve month period during the Term (or
portion thereof during the first and last Lease years) ending June 30.
Project Cost
Base:
Project Costs
incurred by Landlord during the Expense Recovery Period ended June 30, 2017.
Property Tax Base:
Property Taxes incurred by
Landlord during the Expense Recovery Period ended June 30, 2017.
2
6. Effective as of the Commencement Date for Suite 550, Item 8 shall be deleted in its entirety
and substituted therefore shall be the following:
“8. Floor Area of Premises: Approximately 8,512 rentable square feet
Floor Area of Building: Approximately 70,981 rentable square feet”
7. Item 9 is hereby deleted in its entirety and substituted therefor shall be the following;
“9. Security Deposit: $32,771,00”
8. Effective as of the Commencement Date for Suite 550, Item 11 shall be deleted in its entirety and substituted therefor shall be the
following:
“11. Vehicle Parking Spaces: 30 parking spaces in accordance with the provisions set forth in
Exhibit F
to the
Lease”
9. Item 12 is hereby amended by deleting Tenant’s address for payments and notices and substituted therefor shall be the
following:
“TENANT
TECHPOINT, INC.
2550 N. First
Street, Suite 550
San Jose, CA 95131”
D.
Security Deposit
. Concurrently with Tenant’s delivery of this Amendment, Tenant shall deliver the sum of $14,174.00 to
Landlord, which sum shall be added to the Security Deposit presently being held by Landlord in accordance with Section 4.3 of the Lease.
E.
Existing FF&E
. Tenant’s lease as to Suite 550 includes the furniture, fixtures and equipment, installed in Suite 550 as of
the Commencement Date for Suite 550 and described on Exhibit B attached to this Amendment (the “
FF&E
”), which FF&E shall be leased to Tenant in an
“as-is”
condition without
additional leasing charges. It is understood and agreed that Landlord shall transfer title to the FF&E to Tenant upon the Expiration Date pursuant to a bill of sale in form and substance mutually acceptable to Landlord and Tenant, and that
Tenant shall remove the FF&E upon the Expiration Date pursuant to the terms and conditions of Section 15.2 of the Lease.
F.
Good Working Order Warranty
. Landlord warrants to Tenant that the windows and seals, fire sprinkler system, lighting, heating, ventilation and air conditioning systems and all plumbing and electrical systems serving the Building and Suite 550
(collectively, the “
Building Systems
”) shall be in good operating condition on the Commencement Date for Suite 550. Provided that Tenant shall notify Landlord that the Building Systems are not in good operating condition within 30
days following the Commencement Date for Suite 550, then Landlord shall, except as otherwise provided in the Lease, promptly after receipt of such notice from Tenant setting forth the nature and extent of such noncompliance, rectify same at
Landlord’s sole cost and expense and not as part of the Operating Expenses described in
Exhibit B
of the lease.
G.
Contingency
. Tenant understands and agrees that the effectiveness of this Lease is contingent upon the mutual execution of a lease surrender and termination agreement for Suite 550 between Landlord and Rasa Networks/Aruba Networks, the
current tenant(s) in possession of Suite 550.
H.
Brokers
. Article 18 of the Lease is amended to provide that the parties recognize
the following parties as the brokers who negotiated this Amendment, and agree that Landlord shall be responsible for payment of brokerage commissions to such brokers pursuant to its separate agreements with such brokers: Irvine Realty Company and
CBRE, Inc. (collectively, “
Landlord’s Broker
”) is the agent of Landlord exclusively and Colliers International (“
Tenant’s Broker
”) is the agent of Tenant exclusively. By the execution of this Amendment,
each of Landlord and Tenant hereby acknowledge and confirm (a) receipt of a copy of a Disclosure Regarding Real Estate Agency Relationship conforming to the requirements of California Civil Code 2079.16, and (b) the agency relationships
specified herein, which acknowledgement and confirmation is expressly made for the benefit of Tenant’s Broker. If there is no Tenant’s Broker so identified herein, then such acknowledgement and confirmation is expressly made for the
benefit of Landlord’s Broker. By the execution of this Amendment, Landlord and Tenant are executing the confirmation of the agency relationships set forth herein. The warranty and indemnity provisions of Article 18 of the Lease, as amended
hereby, shall be binding and enforceable in connection with the negotiation of this Amendment.
3
I.
Acceptance of Suite 550
. Tenant acknowledges that the lease of Suite 550 pursuant to
this Amendment shall be on an
“as-is”
basis without further obligation on Landlord’s part as to improvements whatsoever, except that Landlord shall, at Landlord’s sole cost and expense:
(i) remove the existing lab and existing conference room in Suite 550 to create a builpen area, (ii) construct one (1) conference room in Suite 550 with standard sidelight, (iii) relocate the interior office door adjacent to the
large conference room in Suite 550, (iv) steam clean the existing carpet in Suite 550 and replace carpet where needed with building standard carpet, (v) construct one (1) pony wall at the entry to Suite 550 for Tenant’s signage,
(vi) install building standard laminate hardwood in the lobby portion of Suite 550, (vii) repaint Suite 550 utilizing one (1) building standard base paint color and one (1) building standard accent paint color, and (viii) replace
damaged and stained ceiling tiles in Suite 550 where needed (collectively,
“Tenant Improvements”)
.
Landlord shall cause the Tenant improvements to be completed in a good and workmanlike manner and in compliance with
applicable law. Landlord shall give Tenant 2 business days’ prior written notice of the day by which Landlord anticipates the Tenant Improvements shall be substantially completed. The taking of possession or use of Suite 550 by Tenant for any
purpose other than construction shall conclusively establish that Suite 550 was in satisfactory condition and in conformity with the provisions of the Lease, as extended by this Amendment, in all respects, except for those matters which Tenant shall
have brought to Landlord’s attention on a written punch list. The punch list shall be limited to any items required to be accomplished by Landlord under this Section III.I, and shall be delivered to Landlord within 30 days after the
Commencement Date for Suite 550.
A.
Effect of Amendments
. The Lease shall remain in full force and
effect and unmodified except to the extent that it is modified by this Amendment.
B.
Entire Agreement
. This Amendment embodies the
entire understanding between Landlord and Tenant with respect to the modifications set forth in “III. MODIFICATIONS” above and can be changed only by a writing signed by Landlord and Tenant.
C.
Defined Terms
. All words commencing with initial capital letters in this Amendment and defined in the Lease shall have the same
meaning in this Amendment as in the Lease, unless they are otherwise defined in this Amendment.
D.
Corporate and Partnership
Authority
. If Tenant is a corporation or partnership, or is comprised of either or both of them, each individual executing this Amendment for the corporation or partnership represents that he or she is duly authorized to execute and deliver this
Amendment on behalf of the corporation or partnership and that this Amendment is binding upon the corporation or partnership in accordance with its terms.
E.
Counterparts; Digital Signatures.
If this Amendment is executed in counterparts, each is hereby declared to be an original; all,
however, shall constitute but one and the same amendment. In any action or proceeding, any photographic, photostatic, or other copy of this Amendment may be introduced into evidence without foundation. The parties agree to accept a digital image
(including but not limited to an image in the form of a PDF, JPEG, GIF file, or other
e-signature)
of this Amendment, if applicable, reflecting the execution of one or both of the parties, as a true and
correct original.
F.
Certified Access Specialist
. As of the date of this Amendment, there has been no inspection of the Building
and Project by a Certified Access Specialist as referenced in Section 1938 of the California Civil Code.
4
IN WITNESS WHEREOF, Landlord and Tenant executed this Amendment on the date
as set forth in “I. PARTIES AND DATE.” above.
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LANDLORD:
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TENANT:
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SILICON VALLEY CENTER OFFICE LLC,
a
Delaware limited liability company
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TECHPOINT, INC.,
a California
corporation
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/s/ Steven M. Case
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By
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/s/ F. Kozato
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By
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Printed Name
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F. Kozato
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Steven M. Case
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Title
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President and CEO
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Executive Vice President
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Office Properties
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By
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By
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/s/ Michael T. Bennett
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Printed Name
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Michael T. Bennett
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Title
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Senior Vice President, Property Operations
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Office Properties
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5
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
Techpoint, Inc.
San Jose, California
We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated March 7, 2017, relating to the
consolidated financial statements of Techpoint, Inc., which is contained in that Prospectus.
We also consent to the reference to us under the caption
“Experts” in the Prospectus.
/s/ BDO USA, LLP
San Jose, California
August 31, 2017