REGISTRATION AND SHAREHOLDERS RIGHTS AGREEMENT
MARCH 7,1997
The parties to this Registration Rights Agreement (the "Agreement") are
Faroudja, Inc., a Delaware corporation ("FI"), Yves Faroudja and Xxxxxxx
Faroudja (collectively, "Y&I" or "Shareholder") and Xxxxxxx Investors, LLC,
Images Partners, LP and Faroudja Images Investors, LLC (collectively, the "Other
FI Shareholders").
WHEREAS, pursuant to the merger of Faroudja Research Enterprises, Inc., a
California corporation ("FRE") with and into Faroudja Laboratories, Inc., a
California corporation ("FLI"), and the subsequent merger of Faroudja
Acquisition, Inc., a California corporation and indirect wholly-owned subsidiary
of FLI, with and into FLI (collectively, the "Mergers"), with FLI surviving the
mergers as a wholly-owned subsidiary of FI, Y&I, FRE, FLI and Faroudja Images,
Inc., a Delaware corporation ("FII") entered into that certain Mutual
Termination of Shareholders Agreement, dated December 31, 1996, terminating that
certain Shareholders Agreement entered into on March 8, 1996, by and between
FII, FLI, FRE and Y&I ("Shareholders Agreements");
WHEREAS, FII liquidated effective December 31, 1996 and the assets of FII,
including options to purchase certain shares of FLI and FRE of Y&I, were
distributed to Xxxxx X. Xxxxxxxxxx as liquidating trustee for Faroudja Images,
Inc. ("Liquidating Trustee"), which were subsequently transferred at a later
date to the Other FI Shareholders of FII;
WHEREAS, Y&I, FI, FII and each of the three Other FI Shareholders entered
into an Amended and Restated Option to Purchase Shares of Common Stock of
Faroudja, Inc. ("FI Options") as of March 7, 1997, restating certain rights of
FII and Y&I, and confirming the transfer by FII to the Liquidating Trustee and
subsequently to the Other FI Shareholders; and
WHEREAS, the parties desire to enter into this Agreement to restate and
amend certain registration and other rights granted to Y&I, which rights were
originally set forth in the Shareholders Agreement;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. REGISTRATION RIGHTS.
1.1 DEFINITIONS. As used in this Section 1, the following terms shall
have the following meanings:
(a) "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
statements or similar documents in compliance
with the Securities Act and the declaration or ordering of effectiveness of such
registration statement or document by the SEC;
(b) "Registrable Securities" means (i) the Common Stock held by Y&I,
and (ii) any Common Stock of FI issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of such Common Stock, excluding
in all cases, however, any Registrable Securities sold by a Shareholder in a
transaction in which its registration rights under this Agreement are not
assigned;
(c) "SEC" shall mean the Securities and Exchange Commission; and
(d) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time.
1.2 REGISTRATION.
(a) FI shall use all reasonable efforts to effect an initial
registered public offering of its stock pursuant to a registration statement
filed with the SEC under the Securities Act ("IPO"), and the parties shall
cooperate in structuring any such public offering.
(b) In the event that any FI shareholders are permitted to sell stock
in any registered public offering that is proposed at any time during the
five-year period commencing 6 months after the effective date of an IPO, FI
shall promptly give Y&I written notice thereof and shall allow Y&I to have
included in such registration all the Registrable Securities Y&I specify in a
written request within thirty (30) days following notice; PROVIDED that, if the
total number of shares requested to be registered for sale by FI shareholders,
including Y&I, to be included in the offering exceeds the number of shares to be
included other than by FI that the underwriters reasonably believe compatible
with the success of the offering, then the number of selling shareholders'
shares that may be included in the offering shall be apportioned pro rata among
the selling shareholders according to the total number of shares entitled to be
included in the offering owned by each selling shareholder pursuant to
registration rights granted by FI to such selling shareholder.
(c) If any officers or directors are permitted to sell any shares in
the IPO, Shareholder will be provided a right to sell shares on the same basis,
subject to the other terms of this Agreement.
(d) In connection with an IPO, the Shareholder agrees that, without
the prior written consent of FI, the Shareholder shall not offer, sell, contract
to sell or otherwise dispose of any Registrable Securities for and during the
period beginning on the date that an underwriting agreement is executed with
respect to such offering and continuing to and including 180 days after the date
of the prospectus included in the registration statement under the
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Securities Act for such offering; provided that all officers, directors and
Shareholders owning 1% or more of FI's shares enter into a similar agreement.
1.3 OBLIGATIONS OF FI. When required under this Agreement to effect the
registration of the Registrable Securities, FI shall, as expeditiously as
reasonably possible:
(a) prepare and file with the SEC a registration statement or similar
documents (the "Registration Statement') with respect to all Registrable
Securities, other than any Registrable Securities excluded pursuant to section
1.2(b), and use its best efforts to keep the Registration Statement effective
for a period of the earlier of One Hundred Twenty (120) days or until Y&I have
completed the distribution described in the Registration Statement, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(b) prepare and file with the SEC such amendments (including post
effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective during the period
required by Section 1.3(a), and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by the
Registration Statement;
(c) furnish promptly to the Shareholder such numbers of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto, in conformity with the requirements of the Securities Act,
and such other documents as the Shareholder may reasonably request in writing in
order to facilitate the disposition of the Registrable Securities;
(d) use its best efforts to register and qualify the securities
covered by the Registration Statement under such securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Shareholder, and to
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements and to take such other actions as may
be necessary to maintain such registration and qualification in effect at all
times during the period required by Section 1.3(a), and to take all other
actions necessary or advisable to enable the disposition of such securities in
such jurisdictions, provided that FI shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions or to
provide any undertaking or make any change in its charter or bylaws that its
Board of Directors determines to be contrary to the best interests of FI and its
stockholders;
(e) enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering. The Shareholder
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hereby agrees to enter into and perform its customary obligations under any such
agreement, including, without limitation, customary indemnification and
contribution obligations;
(f) notify the Shareholder, at any time when a prospectus relating to
Registrable Securities covered by the Registration Statement is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in the 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 light of the circumstances then existing. FI shall promptly
amend or supplement the Registration Statement to correct any such untrue
statement or omission;
(g) notify the Shareholder of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. FI shall make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the holders of a majority in interest of the
Registrable Securities and other FI shares included in such registration to
review the Registration Statement and all amendments and supplements thereto a
reasonable period of time prior to their filing, and shall not file any document
in a form to which such counsel reasonably objects;
(i) at the request of the Shareholder, furnish on the date that
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Subscription Agreement (i) an opinion,
dated such date, of the counsel representing FI for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters and (ii) a
letter, dated such date, from the independent certified public accountants of
FI, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters;
(j) make available for inspection by the Shareholder, any
underwriters participating in the offering pursuant to the registration and the
counsel, accountants or other agents retained by the Shareholder or any such
underwriter, all pertinent financial and other records, corporate documents and
properties of FI and cause FI's officers, directors and employees to supply all
information reasonably requested by the Shareholder or any such underwriters in
connection with the registration;
(k) if the Common Stock is then listed on a national securities
exchange, use its best efforts to cause the Registrable Securities to be listed
on such exchange. If the Common Stock is not then listed on a national
securities exchange, use its best efforts to facilitate the reporting of the
Registrable Securities on NASDAQ;
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(l) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(m) take all actions reasonably necessary to facilitate the timely
preparation and delivery of certificates (not bearing any legend restricting the
sale or transfer of such securities) representing the Registrable Securities to
be sold pursuant to the Registration Statement and to enable such certificates
to be in such denominations and registered in such names as the Shareholder or
any underwriters may reasonably request; and
(n) take all other reasonable actions necessary to expedite and
facilitate the registration of the Registrable Securities pursuant to the
Registration Statement.
1.4 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of FI to take any action pursuant to this Section 1 with respect to
the Shareholder that the Shareholder shall furnish to FI 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 the Registrable Securities and shall execute such documents in
connection with such registration as FI may reasonably request.
1.5 EXPENSES OF REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registration, filings or
qualifications pursuant to this Section 1, including, without limitation, all
registration, listing, filing and qualification fees, printers and accounting
fees, the fees and disbursements of counsel for FI and the reasonable fees and
disbursements of the firm of counsel designated in accordance with Section
1.3(h) shall be borne by FI.
1.6 INDEMNIFICATION. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, FI shall indemnify and hold
harmless the Shareholder, the directors, if any, of the Shareholder, the
officers, if any, of the Shareholder who sign the Registration Statement, each
person, if any, who controls the Shareholder, any underwriter (as defined in the
Securities Act) for the Shareholder and each person, if any, who controls any
such underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934 (the "1934 Act"), against any losses, claims, damages,
expenses or liabilities (joint or several) to which any of them many become
subject under the Securities Act, the 1934 Act or otherwise, insofar as such
losses, claims, damages, expenses or liabilities (or actions or proceedings,
whether commenced or threatened, 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 the 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, in light of the circumstances in which they were made, not misleading
or (iii) any violation or
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alleged violation by FI of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law, and FI shall reimburse the Shareholder
and each such underwriter or controlling person, promptly as such expenses are
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Section 1.6(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 FI, which consent shall not be unreasonably
withheld, conditioned or delayed, nor shall FI 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 written information furnished expressly for use in connection
with such registration by the Shareholder, directors and officers of the
Shareholder or any such underwriter or controlling person, as the case may be.
Such indemnify shall remain in full force and effect regardless of any
investigation made by or on behalf of the Shareholder or any such underwriter or
controlling person or FI and shall survive the transfer of the Registrable
Securities by the Shareholder.
(b) To the extent permitted by law, the Shareholder shall indemnify
and hold harmless FI, each of its directors, each of its officers who have
signed the Registration Statement, each person, if any, who controls FI within
the meaning of the Securities Act or the 1934 Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such holder or underwriter,
against any losses, claims, damages or liabilities (jointly or severally) to
which any of them may become subject under the Securities Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Shareholder expressly for use in connection with such
registration; and the Shareholder shall reimburse any legal or other expense
reasonably incurred by any of 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 1.6(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 Shareholder, which consent
shall not be unreasonably withheld, conditioned or delayed; and PROVIDED
FURTHER, that the Shareholder shall be liable under this Section 1.6(b) for only
that amount of losses, claims, damages and liabilities as does not exceed the
proceeds to the Shareholder as a result of the sale of Registrable Securities
pursuant to such registration.
(c) Promptly after receipt by an indemnified party under this Section
1.6 of notice of the commencement of any action (including any governmental
action), such indemnified party shall, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.6, 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
that the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to
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assume control of the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel for the
indemnifying party, 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 shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.6 only to the extent prejudicial to its
ability to defend such action, but the omission so to deliver written notice to
the indemnifying party shall not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 1.6. The
indemnification required by this Section 1.6 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense,
promptly as such expense, loss, damage or liability is incurred, and upon
receipt by the indemnifying party of such documentation as it may reasonably
request.
(d) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 1.6 to the extent permitted by law, PROVIDED that (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in this
Section 1.6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (iii) contribution by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
1.7 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause FI to register
securities and related rights granted Shareholder under this Section 1 may not
be assigned except: (i) to a purchaser of more than 100,000 shares of the
Common Stock of FI (as adjusted for stock splits and the like) purchased from
Shareholder ,(ii) to an entity controlled by Shareholder, or (iii) to any donees
or heirs of Shareholder pursuant to gift, will or otherwise; provided, that the
FI receives notice within twenty (20) days following such assignment.
2. SHARE CAPITALIZATION. Prior to an IPO by FI, the parties hereto agree that
the capitalization of FI and the respective share ownership of the parties to
this Agreement shall remain the same as set forth in Exhibit "A" attached
hereto, except that the three (3) FI Options may be exercised. The parties to
this Agreement further agree that prior to an initial public offering of the
common stock of FI, at some later date, the share capitalization of FI cannot be
changed without the prior written consent of FI and Yves Faroudja.
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3. ELECTION OF DIRECTORS.
3.1 Until the fifth anniversary of this Agreement, the Other FI
Shareholders shall use their reasonable efforts (including, without limitation,
(i) requesting management and the directors of the Company to nominate such
party for election as a director and (ii) voting all their shares for such
person) (a) to cause Yves Faroudja to be elected to the board of directors of FI
and (b) to cause Xxxxxxx Faroudja to be elected to fill any vacancy in the board
of directors of FI that is created by the resignation, incapacity or death of
Yves Faroudja.
3.2 Until the fifth anniversary of this Agreement, FI shall allow Xxxxxxx
Faroudja to attend as a non-voting observer each meeting of FI's board of
directors.
3.3 Sections 3.1 and 3.2 above shall only remain in effect so long as Y&I
beneficially own at least 5% of the issued and outstanding common stock of FI.
4. NOTICES. All notices and other communications under this agreement shall
be in writing and may be given by any of the following methods: (a) personal
delivery, (b) facsimile transmission, (c) registered or certified mail, postage
prepaid, return receipt requested or (d) overnight delivery service. Notices
shall be sent to the appropriate party at its, his or her address or facsimile
number given below (or at such other address or facsimile number for that party
as shall be specified by notice given under this section 2):
if to FI, to it at:
Faroudja, Inc.
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxx, President
Fax: (000) 000-0000
with a copy to:
Buchalter, Nemer, Fields & Younger
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxxx, Esq.
Fax: (000) 000-0000
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if to Y&I, to him or her at:
Yves Faroudja
c/o Faroudja, Inc.
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
with a copy to:
Coudert Brothers
Xxxx Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxx
Fax: (000) 000-0000
if to any of the Other FI Shareholders, to it at:
the address of such party set forth on the
signature page of this Agreement
All such notices and communications shall be deemed received upon (a) actual
receipt by the addressee, (b) actual delivery to the appropriate address or (c)
in the case of a facsimile transmission, upon transmission by the sender and
issuance by the transmitting machine of a confirmation slip confirming that the
number of pages constituting the notice have been transmitted without error. In
the case of notices sent by facsimile transmission, the sender shall
contemporaneously mail a copy of the notice to the addressee at the address
provided for above. However, such mailing shall in no way alter the time at
which the facsimile notice is deemed received.
5. GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the law of the State of California applicable to agreements made
and to be performed wholly in California.
6. SEPARABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of this agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
7. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be considered an original, but all of which together shall
constitute the same instrument.
8. BINDING. To the extent permitted by applicable law, Sections 2 and 3 of
this Agreement shall be binding upon any person who acquires any shares of FI
from the Other FI Shareholders (and successor shareholders) by any means other
than by sale to the public in open market
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transactions. The Other FI Shareholders (and successor shareholders) shall take
all reasonable steps to inform such persons of the provisions of Sections 2 and
3 and obtain their written agreement and/or consent to be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
FAROUDJA, INC.,
a Delaware corporation
By: /s/ Xxxxxxx Xxxxx
---------------------------------------
Xxxxxxx Xxxxx,
President
/s/ Yves Faroudja
---------------------------------------
Yves Faroudja
/s/ Xxxxxxx Faroudja
---------------------------------------
Xxxxxxx Faroudja
XXXXXXX INVESTORS, LLC
By: /s/ Xxxx Xxxxx
---------------------------------------
Address:
00000 Xxxxxxxx Xxxx., #000
Xxx Xxxxxxx, XX 00000
Fax: (000) 000-0000
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IMAGES PARTNERS, LP
By: /s/ Xxxxx Xxxxxxxxx
---------------------------------------
Address:
000 Xxxxxxx Xxx.
00xx Xxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
FAROUDJA IMAGES INVESTORS, LLC
By: /s/ Xxxxx X. Xxxxxxxxxx
---------------------------------------
Address:
000 Xxxxxxx Xxx.
00xx Xxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
00
XXXXXXX "X"
XX CAPITALIZATION
SECURITY HOLDER FI C/S PERCENT
--------------- ------ -------
Stock Option Plans(1) 1,800,000 17.86%
Y&I Direct Ownership 2,050,000 20.34%
Y&I Option Shares 1,537,500
Xxxxxxx Investors, LLC 486,875 4.83%
Images Partners, LP 384,375 3.81%
Faroudja Images Investors, LLC 666,250 6.61%
FII Direct Ownership 4,612,500 45.76%
Xxxxxxx Contingent Warrant 65,152 0.65%
Xxxx Sie Warrant 14,449 0.14%
---------- -----
TOTAL 10,079,960 100%
(1)The Stock Option Plans for FI break down as follows:
STOCK OPTION PLAN RESERVED C/S GRANTED OPTIONS
----------------- ------------ ---------------
1995 Stock Option Plan 1,400,000 1,386,578
1997 Performance Stock Option Plan 300,000 0
1997 Non-Employee Director Stock 100,000 26,060
Option Plan
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