-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KmdCCoM4kzW+uHufF3QOUFElVdI1w9OfiULIU/8mD830qtpqaanVFi7lOiQVw7e5 bT50+5dbR5VMNHMwuZE3ow== 0000950005-02-000265.txt : 20020414 0000950005-02-000265.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950005-02-000265 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA MICRO DEVICES CORP CENTRAL INDEX KEY: 0000800460 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 942672609 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15449 FILM NUMBER: 02550102 BUSINESS ADDRESS: STREET 1: 215 TOPAZ ST CITY: MILPITAS STATE: CA ZIP: 95035-5430 BUSINESS PHONE: 4082633214 MAIL ADDRESS: STREET 1: 215 TOPAZ STREET STREET 2: 215 TOPAZ STREET CITY: MILPITAS STATE: CA ZIP: 95035-5430 10-Q 1 p15016_10q.txt QUARTERLY REPORT United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ x ] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For the Period Ended December 31, 2001 or [ ] Transition Report Pursuant To Section 10 Or 15(d) Of The Securities Exchange Act Of 1934 For The Transition Period From ____________ To ___________ Commission File Number 0-15449 CALIFORNIA MICRO DEVICES CORPORATION ------------------------------------ (Exact name of registrant as specified in its charter) California 94-2672609 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 215 Topaz Street, Milpitas, California 95035-5430 - -------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (408) 263-3214 -------------- (Registrant's telephone number, including area code) Not applicable -------------- (Former name, former address, and former fiscal year if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No _____ Applicable Only to Corporate Issuers Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of December 31, 2001, there were outstanding 13,662,994 shares of Issuer's Common Stock. CALIFORNIA MICRO DEVICES CORPORATION INDEX PART I. FINANCIAL INFORMATION Page Number Item 1. Condensed Financial Statements Condensed Statements of Operations Three and Nine Months Ended December 31, 2001 and 2000 2 Condensed Balance Sheets December 31, 2001 and March 31, 2001 3 Condensed Statements of Cash Flows Nine Months Ended December 31, 2001 and 2000 4 Notes to Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities and Use of Proceeds 13 Item 6. Exhibits and Reports on Form 8-K 14 Signature 15 ITEM 1. Financial Statements. CALIFORNIA MICRO DEVICES CORPORATION CONDENSED STATEMENTS OF OPERATIONS (Amounts in Thousands, Except Per Share Data) (Unaudited)
Three Months Ended Nine Months Ended December 31, December 31, -------------------- -------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Net sales $ 7,045 $ 14,507 $ 21,788 $ 45,495 Cost and expenses: Cost of sales 12,676 9,076 28,320 29,401 Research and development 993 892 2,918 2,603 Selling, general, and administrative 2,876 3,031 8,053 8,695 Special charges 45 -- 4,155 -- -------- -------- -------- -------- Total costs and expenses 16,590 12,999 43,446 40,699 -------- -------- -------- -------- Operating income (loss) (9,545) 1,508 (21,658) 4,796 Other expense, net 162 170 601 711 -------- -------- -------- -------- Income (loss) before income taxes (9,707) 1,338 (22,259) 4,085 Income taxes -- 28 -- 83 -------- -------- -------- -------- Net income (loss) $ (9,707) $ 1,310 $(22,259) $ 4,002 ======== ======== ======== ======== Net income (loss) per share - basic $ (0.79) $ 0.12 $ (1.89) $ 0.36 ======== ======== ======== ======== Weighted average common shares outstanding -basic 12,264 11,302 11,771 11,212 ======== ======== ======== ======== Net income (loss) per fully diluted share $ (0.79) $ 0.11 $ (1.89) $ 0.32 ======== ======== ======== ======== Weighted average fully diluted common shares outstanding 12,264 12,261 11,771 12,453 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. 2 CALIFORNIA MICRO DEVICES CORPORATION CONDENSED BALANCE SHEETS (Amounts in Thousands, Except Share Data) December 31, March 31, 2001 2001* -------- -------- (Unaudited) ASSETS: Current assets: Cash and cash equivalents $ 8,486 $ 2,309 Short-term investments 1,567 4,288 Accounts receivable, net of allowance for doubtful accounts of $154 and $279 3,016 8,068 Inventories 4,254 11,716 Prepaid expenses and other assets 829 1,451 -------- -------- Total current assets 18,152 27,832 Property, plant & equipment, net 10,233 14,372 Restricted cash 1,202 914 Other long term assets 1,147 1,151 -------- -------- Total assets $ 30,734 $ 44,269 ======== ======== LIABILITIES & SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable $ 3,031 $ 3,471 Accrued salaries and benefits 733 1,135 Other accrued liabilities 2,933 657 Deferred margin on shipments to distributors 325 772 Current maturities of long-term debt and capital lease obligations 1,376 1,594 -------- -------- Total current liabilities 8,398 7,629 Long-term debt, less current maturities 8,389 8,947 Other long-term liabilities and capital leases less current maturities 536 533 -------- -------- Total liabilities 17,323 17,109 Shareholders' equity: Common stock - no par value; authorized 25,000,000; issued and outstanding: 13,662,994 as of December 31, 2001 and 11,459,503 as of March 31, 2001 67,019 58,509 Accumulated deficit (53,608) (31,349) -------- -------- Total shareholders' equity 13,411 27,160 -------- -------- Total liabilities and shareholders' equity $ 30,734 $ 44,269 ======== ======== * Derived from audited financial statements. The accompanying notes are an integral part of these financial statements. 3 CALIFORNIA MICRO DEVICES CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited)
Nine Months Ended December 31, -------------------- 2001 2000 -------- -------- Cash flows from operating activities: Net income (loss) $(22,259) $ 4,002 Adjustments to reconcile net income (loss) to net cash provided by/(used in) operating activities: Non-cash portion of special charges 3,395 -- Write-off of discontinued inventory 3,783 -- Provision for distributor discontinued inventory 1,125 -- Depreciation and amortization 2,315 2,209 Change in assets and liabilities: Inventories 3,679 (2,228) Accounts receivable 5,052 69 Prepaid expenses and other current assets 622 (439) Trade accounts payable and other current liabilities 309 (12) Other long term assets (8) 46 Other long term liabilities 3 (24) Deferred margin on distributor sales (447) 84 -------- -------- Net cash (used in)/provided by operating activities (2,431) 3,707 -------- -------- Cash flows from investing activities: Short-term investment purchases (4,772) (7,841) Short-term investment sales 7,493 7,714 Capital expenditures (1,559) (4,919) Net change in restricted cash (288) (310) -------- -------- Net cash provided by/(used in) investing activities 874 (5,356) -------- -------- Cash flows from financing activities: Repayments of capital lease obligations (170) (306) Repayments of long-term debt (1,105) (263) Borrowing of long-term debt 499 2,260 Proceeds from private placement offering of common stock, net 7,610 -- Proceeds from issuance of common stock under employee benefit plans 900 1,149 -------- -------- Net cash provided by financing activities 7,734 2,840 -------- -------- Net increase in cash and cash equivalents 6,177 1,191 Cash and cash equivalents at beginning of period 2,309 1,490 -------- -------- Cash and cash equivalents at end of period $ 8,486 $ 2,681 ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 687 $ 723
The accompanying notes are an integral part of these financial statements. 4 CALIFORNIA MICRO DEVICES CORPORATION Notes to Condensed Financial Statements (unaudited) 1. Basis of Presentation In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments necessary to present fairly California Micro Devices Corporation's (the "Company", "we", "us" or "our") financial position as of December 31, 2001, results of operations for the three and nine months ended December 31, 2001 and 2000, and cash flows for the nine-month periods ended December 31, 2001 and 2000. Results for the quarter are not necessarily indicative of fiscal year results. The condensed financial statements should be read in conjunction with the financial statements included with our annual report on Form 10-K for the fiscal year ended March 31, 2001. 2. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Inventories The components of inventory consist of the following (amounts in thousands): December 31, March 31, 2001 2001 ------- ------- Raw materials $ 288 $ 574 Work-in-process 2,719 6,337 Finished goods 1,247 4,805 ------- ------- $ 4,254 $11,716 ======= ======= 4. Litigation We are a party to lawsuits, claims, investigations, and proceedings, including commercial and employment matters, which are being handled and defended in the ordinary course of business. We are not aware of any pending or threatened legal proceedings against us that, individually or in the aggregate, we would expect to have a material adverse effect on our business, operating results, or financial condition. 5 5. Net Income (Loss) Per Share The following table sets forth the computation of basic and diluted income (loss) per share: (In thousands, except per share amounts)
Three Months Ended Nine Months Ended ------------------ ----------------- December 31, December 31, ------------ ------------ 2001 2000 2001 2000 -------- -------- -------- -------- Numerator: Numerator for basic and diluted net income per share - net income (loss) $ (9,707) $ 1,310 $(22,259) $ 4,002 Denominator for basic net income (loss) per share: Weighted average common shares used in computing basic net income (loss) per share 12,264 11,302 11,771 11,212 -------- -------- -------- -------- Basic net income (loss) per share $ (0.79) $ 0.12 $ (1.89) $ 0.36 -------- -------- -------- -------- Denominator for diluted net income per share: Weighted average common shares 12,264 11,302 11,771 11,212 Employee stock options to purchase common stock -- 959 -- 1,241 -------- -------- -------- -------- Shares used in computing diluted net income per Share 12,264 12,261 11,771 12,453 -------- -------- -------- -------- Diluted net income (loss) per share $ (0.79) $ 0.11 $ (1.89) $ 0.32 -------- -------- -------- --------
Options to purchase 1,929,923 and 1,644,871 shares of common stock were outstanding during the three and nine months ended December 31, 2001, respectively, but were not included in the computation of diluted net income per share because we incurred a net loss. Options to purchase 275,115 and 425,466 shares of common stock were outstanding during the three and nine months ended December 31, 2000 but were not included in the computation of diluted net income per share because the options' exercise price was greater than the average market price of the common stock and, therefore, the effect of including these options would be antidilutive. 6. Comprehensive Income/(Loss) Comprehensive income/(loss) is principally comprised of net income (loss) and unrealized gains or losses on the Company's available-for-sale securities. Comprehensive loss for the three and nine months ended December 31, 2001 was $9.7 million and $22.3 million, respectively. Comprehensive income for the three and nine months ended December 31, 2000 was $1.3 million and $4.0 million, respectively. 7. Income Taxes For the three- and nine-month periods ended December 31, 2001, there was no provision for income taxes due to the net loss for the period. For the three and nine months ended December 31, 2000, we recorded provisions for income taxes of $28,000 and $83,000, respectively, based on the projected effective annual tax rate of 2%, substantially below the federal statutory rate of 35% due to the utilization of federal and state tax loss and credit carryforwards. The fiscal 2001 tax provisions consisted of federal and state alternative minimum taxes. 8. Restructuring & Impairment Charges 6 In September 2001, our board of directors approved a detailed plan for the implementation of our strategy to outsource a significant portion of our wafer manufacturing. The plan calls for the consolidation of all of our internal wafer fabrication activities into our Tempe, AZ facility with selected high-value backend manufacturing operations continuing at our Milpitas headquarters. As a result of the plan, we recorded restructuring and impairment charges of $4.6 million and $4.8 million in the quarters ended September 30, 2001 and December 31, 2001 respectively. Of the $4.6 million charge in the quarter ended September 30, 2001, $0.5 million was recorded in cost of goods sold and $4.1 million was included in operating expenses under the caption "Special Charges." Of the $4.8 million charged, $4.4 million was recorded as cost of goods sold and $332,000 as sales provisions for product returns and $45,000 was recorded as "Special Charges." The following table describes the nature of the restructuring and impairment charges (in thousands): Total Cash Non-Cash Restructuring Liability Charge Payments Charges at December 31, 2001 ------ -------- ------- -------------------- Severance & benefits $ 438 $ -- $ -- $ 438 Facilities and equipment 3,717 41 3,395 281 ------ ------ ------ ------ Special charges $4,155 $ 41 $3,395 $ 719 ====== ====== ====== ====== In connection with the restructuring program, we will reduce our headcount by approximately 40 employees, primarily in the manufacturing functions and located at the Milpitas facility. The workforce reduction resulted in a $438,000 charge relating to severance and fringe benefits. Prior to the end of the our quarter ended September 30, 2001, our management with the proper level of authority, approved and committed us to the plan of termination, determined the benefits the terminated employees would receive and communicated the benefit package to employees in enough detail that they could determine their type and amount of benefit. No employees had been terminated as of December 31, 2001. Our management anticipates that the termination of the majority of the impacted employees will be completed by June 30, 2002. The restructuring program calls for us to relocate from our Milpitas facility once all internal wafer fabrication activities have been consolidated in our Tempe, AZ facility. As required by the lease for the Milpitas facility, we are obligated to restore the Milpitas facility to its pre-lease condition. Accordingly, we recorded $251,000 in estimated renovation costs related to the Milpitas facility. In addition, we recorded an asset impairment charge of $3.4 million related to the write-down of equipment that will be located in Tempe and continue to be used to produce approximately 25% of the Company's products. The restructuring plan calls for a decrease in the number and volume of products generated with these assets and as a result, we determined that these assets were impaired, and accordingly, we wrote-down the value of the assets to their estimated fair value. Fair value was estimated as the amounts for which the assets could be purchased in an arms-length transaction. In connection with our revised manufacturing strategy, we discontinued certain older products and wrote-off the related discontinued manufacturing and distributor inventory. The $4.9 million charge related to the write-off of the inventory has been classified as costs of goods sold in the condensed statement of operations for the nine months ended December 31, 2001. 9. Secured Line of Credit In the quarter ended December 31, 2001, we reduced our secured line of credit from $3.0 million to $1.0 million. This line of credit agreement expires on June 30, 2002. Under the terms of the line of credit, we can borrow at prime plus one-half percent, collateralized by eligible receivables. We have made no borrowings against this line. 10. Common Stock 7 On December 3, 2001, we sold 2,000,000 shares of our no par value common stock at $4.11 per share, yielding gross cash proceeds of $8.2 million, in a private placement. Offering expenses of $600,000 were offset against the proceeds for net proceeds of $7.6 million. Needham & Company, Inc. served as the placement agent and, in addition to cash fees, received five-year warrants to purchase approximately 60,000 shares of our common stock with an exercise price of $4.11 per share, which are immediately exercisable. 8 11. Recent Accounting Pronouncements In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for Impairment or Disposal of Long-Lived Assets." SFAS 144 supercedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" and is effective for years beginning after December 15, 2001. SFAS 144 provides accounting and reporting standards for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS 144 establishes one accounting model to be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired and resolves significant implementation issues that existed in SFAS 121. We expect that adoption of SFAS 144 will not have a material impact on our financial statements. 9 ITEM 2. Management's Discussion And Analysis of Financial Condition and Results of Operations. Results of Operations Sales. Product sales decreased by $7.5 million or 51%, for the quarter ended December 31, 2001 compared to the quarter ended December 31, 2000, and decreased by $23.7 million or 52% for the nine months ended December 31, 2001 compared with same period in the prior year. The largest component of these decreases is in products for the communications infrastructure market followed by lower sales into the computer market. Also contributing to the decrease in product sales is our foundry business in which product sales decreased from $289,000 and $1.9 million for the three and nine months ended December 31, 2000, respectively, to $50,000 and $529,000 in the three and nine months ended December 31, 2001, respectively. These declines were partially offset by higher sales into the medical and other markets. Sales in the medical market increased $527,000 or 110% and $1.2 million or 89% for the three and nine months ended December 31, 2001, respectively, as compared to the same periods in the prior year. Sales in the other market increased $260,000 and $1.2 million for the three and nine months ended December 31, 2001, respectively as compared to the same periods in the prior year due to increased sales into a lighting application. Unit shipments decreased 40% to 20.0 million units in the December 31, 2001 quarter compared to 33.3 million units in the year-earlier quarter and decreased 39% to 59.9 million units in the nine months ended December 31, 2001 compared to 98.1 million units in the year-earlier period. Gross Margin. Gross margin, as a percentage of sales, decreased to a negative 80.0% in the December 31, 2001 quarter compared to positive 37.4% in the year-earlier period and to a negative 30.0% for the nine months ended December 31, 2001 compared to positive 35.4% in the year-earlier period. These decreases were the result of decreased manufacturing efficiencies on lower production volume as sales decreased and charges of $4.4 million for the three-month period and $4.9 million for the nine-month period related inventory write-offs in connection with our strategy to outsource a significant portion of our wafer manufacturing. Research and Development. Research and development (R&D) expense was $993,000 and $892,000 for the quarters ended December 31, 2001 and 2000, respectively. The increase in research and development expense was due to increased personnel costs. R&D expense for the nine months ended December 31, 2001 and 2000 was $2.9 million and $2.6 million, respectively, with the increase due to increased personnel costs and the costs of opening the new design center in Austin, Texas. Selling, General and Administrative. Selling, general, and administrative (SG&A) expenses were $2.9 million and $3.0 million for the quarters ended December 31, 2001 and 2000, respectively, and $8.1 million and $8.7 million for the nine months ended December 31, 2001 and 2000, respectively. These decreases are primarily due to decreased commissions expense, decreased personnel costs and decreased advertising, partially offset by increased legal costs. Special Charges. For the three and nine months ended December 31, 2001, we recorded restructuring and other charges totaling $4.8 million and $9.4 million respectively, related to our strategy to outsource a significant portion of our wafer manufacturing. As part of this strategy, we plan to consolidate all of our internal wafer fabrication activities into our Tempe, AZ facility with selected high-value backend manufacturing operations continuing at our Milpitas, CA headquarters. Of the $4.8 million charge for the three months ended December 31, 2001, $4.4 million was recorded as costs of goods sold, $45,000 was included in operating expenses as "Special Charges", and $332,000 was recorded as a sales provision for distributor inventory returns. Of the $9.4 million charge for the nine months ended December 31, 2001, $4.9 million was recorded as costs of goods sold and $4.2 million was included in operating expenses as "Special Charges", and $332,000 was recorded as sales provision for distributor inventory returns. Of the total restructuring and other charges, $8.6 million of the charges are non-cash in nature and the remaining approximately $800,000 is expected to be paid in cash in the first half of calendar 2002. 10 The following table describes the nature of the restructuring and impairment charges (in thousands): Total Cash Non-Cash Restructuring Liability Charge Payments Charges at December 31, 2001 ------ -------- ------- -------------------- Severance & benefits $ 438 $ -- $ -- $ 438 Facilities and equipment 3,717 41 3,395 281 ------ ------ ------ ------ Special charges $4,155 $ 41 $3,395 $ 719 Operating Income/(Loss). As a result of the factors discussed above, operating loss for the quarter ended December 31, 2001, was $9.5 million compared to operating income of $1.5 million in the year-earlier quarter and operating loss for the nine months ended December 31, 2001 was $21.7 million compared to operating income of $4.8 million for the year-earlier period. Other Expense, Net. Other expense, net, for the quarter ended December 31, 2001 and 2000, was $162,000 and $170,000, respectively, and for the nine months ended December 31, 2001 and 2000, was $601,000 and $711,000, respectively. The decreases in the fiscal 2002 periods were primarily due to reduced interest expense as a result of expiring capital leases. Income Taxes. For the three-months and nine-months ended December 31, 2001, there was no provision for income taxes due to the net loss for the period. For the three and nine months ended December 31, 2000, we recorded provisions for income taxes of $28,000 and $83,000, respectively, based on the projected effective annual tax rate of 2%, substantially below the federal statutory rate of 35% due to the utilization of federal and state tax loss and credit carryforwards. The fiscal 2000 tax provisions consisted of federal and state alternative minimum taxes. Recent Accounting Pronouncements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for Impairment or Disposal of Long-Lived Assets." SFAS 144 supercedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" and is effective for years beginning after December 15, 2001. SFAS 144 provides accounting and reporting standards for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS 144 establishes one accounting model to be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired and resolves significant implementation issues that existed in SFAS 121. We expect that adoption of SFAS 144 will not have a material impact on our financial statements. Liquidity and Capital Resources We have historically financed our operations through a combination of debt and equity financing and cash generated from operations. Total cash, cash equivalents and short-term investments as of December 31, 2001, was $10.1 million compared to $6.6 million on March 31, 2001. Receivables decreased to $3.0 million at December 31, 2001 compared to $8.1 million nine months earlier, primarily as a result of lower sales. Receivables days-sales-outstanding were 42 days as of December 31, 2001 as compared to 49 days at March 31, 2001. Inventories decreased $7.6 million from March 31, 2001 to $4.3 million at December 31, 2001, in part due to the write-off of discontinued inventory of $3.8 million and in part due to lower levels of production in response to decreased sales activity. Inventory turn at December 31, 2001 are 4.2 as compared to 3.4 at March 31, 2001. Capital expenditures for the nine months ended December 31, 2001, totaled $1.6 million, reflecting primarily our investment in new equipment to support our production of chip scale products, which are expected to ramp up later this year. Operating activities used $2.4 million of cash during the nine months ended December 31, 2001. For the nine months ended December 31, 2001, our use of cash consisted primarily of net loss before non-cash expenses, including depreciation, of $11.6 million. Increases in long-term assets and decreases in deferred margin used an additional $455,000 of cash. These cash uses were offset by decreases in accounts 11 receivable, inventories prepaid expenses and other current assets and increases in accounts payable and other current liabilities, net, and long-term liabilities which provided $9.7 million of cash for operations. We generated $874,000 of cash from investing activities for the nine months ended December 31, 2001, which was the result of net proceeds from the sale of investments of $2.7 million, partially offset by cash used to purchase capital equipment. Net cash provided by financing activities was $7.7 million for the nine months ended December 31, 2001, and was primarily the result of $7.6 million received from the private placement offering of our common stock. In the third quarter of fiscal 2002, we sold approximately two million shares of our common stock to several institutional investors and certain of our directors for gross proceeds of $8.2 million, offset by offering expenses of $600,000. In addition, we received $900,000 from the issuance of our common stock under our employee benefit plans and $499,000 from long-term borrowings. Repayments of capital lease obligations and long-term debt of $1.3 million partially offset these proceeds. We have a $1.0 million revolving secured line of credit agreement that expires on June 30, 2002. Under the terms of the line of credit, we can borrow at prime plus one-half percent, collateralized by eligible receivables. We have made no borrowings against this line. In the second quarter of fiscal 2002, we announced and began to implement a restructuring program aimed at bringing our costs more in line with the current revenue levels and restoring our long-term profitability. We believe that these actions will reduce our operating costs beginning in the second half of calendar 2002. Operating and capital requirements depend on many factors, including the levels at which we maintain revenue, margins, inventory, accounts receivable and operating expenses. We believe that we have sufficient financial resources to fund our operations for at least the next 12 months. However, to the extent that existing cash balances and available financing sources are insufficient to support our activities, we may need to raise additional funds through public or private equity or debt financing. These funds may not be available to us, or if available, we may not be able to obtain them on terms favorable to us. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. No material changes have occurred from our report on Form 10-K for the period ending March 31, 2001. 12 Cautionary Statement This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are not historical facts and are based on current expectations, estimates, and projections about our industry; our beliefs and assumptions; and our goals and objectives. Words such as "anticipates", "expects", "intends", "plans "believes", "seeks", and "estimates", and variations of these words and similar expressions are intended to identify forward-looking statements. Examples of the kinds of forward-looking statements in this report include statements regarding the following (1) our expectation that our production of chip scale products will ramp up later this year, (2) our expectation that our manufacturing restructuring program will reduce our operating expenses beginning in the second half of calendar 2002, (3) our belief that we have sufficient financial resources to fund operations for at least 12 months (4) our expectation that pending litigation will not have a material adverse affect on our business, operating results, or financial condition, and (5) our plan to outsource a significant portion of our wafer manufacturing and to consolidate all of our internal wafer fabrication activities into our Tempe, AZ facility, with selected high-value backend manufacturing operations continuing at our Milpitas, CA headquarters. These statements are only predictions, are not guarantees of future performance, and are subject to risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those set forth in this report and in our other SEC filings, in particular our annual report on Form 10-K for fiscal 2001 ended March 31, 2001. Also, due to plans to outsource a significant portion of our wafer manufacturing to one or more third parties, additional risks are encountered due to such factors as potential inability to secure adequate and cost-effective capacity during periods when demand outstrips capacity, reduced control over delivery schedules and quality, dependence upon one, or possibly more, contractors to supply us with wafers, potential misappropriation of our intellectual property, and exposure to political and economic instability in the country or countries where our third party fabrication facilities are located. In addition, litigation against us which had been dormant has become active with discovery ongoing, and therefore adverse facts could be learned which could affect our expected liability or lack of liability and, if trials occur, unexpected judgments could result. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise. 13 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. We are a party to lawsuits, claims, investigations, and proceedings, including commercial and employment matters, which are being handled and defended in the ordinary course of business. We are not aware of any pending or threatened legal proceedings against us that, individually or in the aggregate, we would expect to have a material adverse effect on our business, operating results, or financial condition. ITEM 2. Changes in Securities and Use of Proceeds. On December 3, 2001, we sold 2,000,000 shares of our no par value common stock at $4.11 per share, yielding gross cash proceeds of $8.22 million, in a private placement. Needham & Company, Inc. served as the placement agent and, in addition to cash fees, received five-year warrants to purchase approximately 60,000 shares of our common stock with an exercise price of $4.11 per share. The private placement and the warrant issuance were made to accredited investors and were conducted in reliance upon the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 506 of Regulation D. The participants in the private placement were predominantly institutional investors, with our officers and directors purchasing the balance of the shares. 14 ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits 4.3 Stock Purchase Agreement dated November 21, 2001 between the Company and Investors. 10.12 Letter Agreement between the Company and Neeham & Company, Inc. dated October 23, 2001. (b) Form 8-K On November 5, 2001, the Company filed a Form 8-K, under Item 5, reporting the election of David Witkowski as Vice President of Sales. On December 5, 2001, the Company filed a Form 8-K, under Item 5, reporting the private placement of 2,000,000 shares of the Company's common stock. 15 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CALIFORNIA MICRO DEVICES CORPORATION (Registrant) Date: February 14, 2002 /s/Kenneth E. Thornbrugh --------------------------------------------- Kenneth E. Thornbrugh Vice President Finance & Administration Chief Financial Officer 16 EX-4.3 3 p15016_ex4-3.txt STOCK PURCHASE AGREEMENT Exhibit 4.3 CALIFORNIA MICRO DEVICES CORPORATION STOCK PURCHASE AGREEMENT November 21, 2001 Exhibit 4.3 TABLE OF CONTENTS Page ---- 1. Purchase and Sale of Stock..............................................1 1.1 Sale and Issuance of Common Stock..........................1 1.2 Closings...................................................1 2. Representations and Warranties of the Company...........................1 2.1 Corporate Existence and Power..............................1 2.2 Authorization; No Contravention............................2 2.3 Governmental Authorization; Third Party Consents...........2 2.4 Binding Effect.............................................2 2.5 Litigation.................................................3 2.6 Compliance with Laws.......................................3 2.7 Capitalization.............................................3 2.8 No Default or Breach; Contractual Obligations..............4 2.9 Title to Properties........................................4 2.10 Reports; Financial Statements..............................4 2.11 Taxes......................................................5 2.12 No Material Adverse Change; Ordinary Course of Business....6 2.13 Private Offering...........................................6 2.14 Labor Relations............................................6 2.15 Employee Benefit Plans.....................................6 2.16 Liabilities................................................7 2.17 Intellectual Property......................................8 2.18 Potential Conflicts of Interest............................9 2.19 Trade Relations............................................9 2.20 Outstanding Borrowing.....................................10 2.21 Broker's, Finder's or Similar Fees........................10 2.22 Disclosure................................................10 3. Representations and Warranties of the Investors........................10 3.1 Authorization.............................................10 3.2 Purchase Entirely for Own Account.........................10 3.3 Reliance Upon Investor's Representations..................11 3.4 Receipt of Information....................................11 3.5 Investment Experience.....................................11 3.6 Accredited Investor.......................................11 3.7 Restricted Securities.....................................11 3.8 Legends...................................................12 4. Registration of the Shares; Compliance with the Securities Act.........12 4.1 Registration Procedures and Expenses......................12 4.2 Transfer of Shares After Registration; Suspension.........13 4.3 Indemnification...........................................14 4.4 Termination of Conditions and Obligations.................17 5. Conditions of each Investor's Obligations at Closing...................17 5.1 Representations and Warranties............................17 5.2 Performance...............................................17 5.3 Compliance Certificate....................................17 5.4 Qualifications............................................17 5.5 Opinion of Counsel........................................18 -i- Exhibit 4.3 6. Conditions of the Company's Obligations at Closing.....................18 6.1 Representations and Warranties............................18 6.2 Qualifications............................................18 7. Miscellaneous..........................................................18 7.1 Entire Agreement..........................................18 7.2 Survival..................................................18 7.3 Successors and Assigns....................................18 7.4 Governing Law.............................................19 7.5 Counterparts..............................................19 7.6 Titles and Subtitles......................................19 7.7 Notices...................................................19 7.8 Expenses..................................................19 7.9 Attorneys' Fees...........................................19 7.10 Amendments and Waivers....................................20 7.11 Severability..............................................20 7.12 Rights of the Investor....................................20 Exhibits Exhibit A - Certificate of Subsequent Sale Exhibit B - Form of Opinion of Company's counsel* Exhibit C - Schedule of Exceptions* o The following exhibits to the Stock Purchase Agreement have been omitted. o The Company will funish copies of the omitted exhibits to the Commission upon request: o Exhibit B - Form of Opinion of Company's counsel o Exhibit C - Schedule of Exceptions CALIFORNIA MICRO DEVICES CORPORATION STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 21st day of November, 2001, by and among CALIFORNIA MICRO DEVICES CORPORATION, a California corporation (the "Company"), and each of the persons listed on the signature pages hereto (each of whom is herein referred to individually as an "Investor" and collectively as the "Investors"). The parties hereto agree as follows: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Common Stock. Subject to the terms and conditions of this Agreement, each Investor severally (and not jointly and severally) agrees to purchase at the Closing (as defined below), and the Company agrees to issue and sell to each Investor at the Closing, that number of shares (the "Shares") of common stock, no par value, of the Company (the "Common Stock") set forth above such Investor's name on the signature pages hereto at a price per Share equal to $4.11 (the "Purchase Price"), up to an aggregate of 2,000,000 shares of Common Stock. 1.2 Closing. The purchase and sale of the Shares (the "Closing") shall occur no later than December 3, 2001 at a place and time to be specified by the Company and Needham & Company (the "Placement Agent"), and of which the Investors will be notified in not less than two (2) business days in advance by the Placement Agent. At the Closing, after receipt of payment therefor, the Company shall arrange delivery to each Investor of one or more stock certificates representing the number of Shares set forth above such Investor's name on the signature pages hereto, each such certificate to be registered in the name of the Investor. The parties acknowledge that the schedule of Investors attached hereto as Schedule A is a preliminary schedule of investors. As soon as practicable after the Closing, the Company shall deliver to each Investor a completed Schedule A, listing each Investor and the amount of Shares purchased by such Investor hereunder. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to each Investor that, except as set forth on a Schedule of Exceptions attached hereto as Exhibit C, specifically identifying the relevant subparagraph(s) hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Corporate Existence and Power. The Company, and each of the corporations or other entities of which the Company holds a majority of the voting power of the outstanding voting equity securities or a majority of the economic equity interest of such corporation or entity (collectively, the "Subsidiaries") (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged; (c) is duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction in which its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a material adverse effect on the Condition of the Company and (d) has the corporate power and authority to execute, deliver and perform its obligations under this Agreement. 2.2 Authorization; No Contravention. The execution, delivery and performance by the Company of this Agreement and the transactions contemplated hereby and thereby (a) have been duly authorized by all necessary corporate action of the Company; (b) do not contravene the terms of the Articles of Incorporation or the By-laws; (c) do not violate, conflict with or result in any breach, default or contravention of (or with due notice or lapse of time or both would result in any breach, default or contravention of), or the creation of any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or otherwise) or preference, priority, right or other security interest or preferential arrangement (a "Lien") under, any provision of any agreement, undertaking, contract, indenture, mortgage, deed of trust, or other instrument to which the Company is a party or by which its property is bound (a "Contractual Obligation") of the Company or any law, statute, treaty, rule, regulation, right, privilege, qualification, license or franchise (a "Requirement of Law") applicable to the Company except such -1- violations or conflicts that would not reasonably be expected to have a material adverse effect on the Condition of the Company; and (d) do not violate any judgment, injunction, writ, award, decree or order of any nature (collectively, "Orders") of the government of any nation, state, city, locality or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, (a "Governmental Authority") against, or binding upon, the Company or any of its Subsidiaries. 2.3 Governmental Authorization; Third Party Consents. No approval, consent, compliance, exemption, authorization or other action by, or notice to, or filing with, any Governmental Authority or any other individual, firm, corporation, partnership, trust, association, joint venture, limited liability company, or other entity of any kind (a "Person"), and no lapse of a waiting period under a Requirement of Law, is necessary or required in connection with the execution, delivery or performance (including, without limitation, the sale, issuance and delivery of the Shares) by, or enforcement against, the Company of this Agreement and the transactions contemplated hereby and thereby. 2.4 Binding Effect. This Agreement has been duly executed and delivered by the Company, and this Agreement constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity). 2.5 Litigation. Except as set forth on Section 2.5 of the Schedule of Exceptions, or as disclosed in all reports, registration statements and other filings, together with any amendments thereto, filed by the Company with the Commission since November 15, 2001 (the "SEC Reports"), there are no actions, suits, proceedings, claims, complaints, disputes, arbitrations or investigations (collectively, "Claims") pending or, to the Knowledge of the Company's executive officers (the "Knowledge") of the Company, threatened, at law, in equity, in arbitration or before any Governmental Authority against the Company or any of its Subsidiaries that seeks in excess of $75,000 in damages nor is the Company aware that there is any basis for any of the foregoing. The foregoing includes, without limitation, Claims pending or, to the Knowledge of the Company, threatened or any basis therefor known by the Company involving the prior employment of any employee of the Company or any of its Subsidiaries, their use in connection with the business of the Company or any of its Subsidiaries of any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers. No Order has been issued by any court or other Governmental Authority against the Company or any of its Subsidiaries purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any of the other Transaction Documents. 2.6 Compliance with Laws. The Company and each of its Subsidiaries is in compliance in all material respects with all Requirements of Law and all Orders issued by any court or Governmental Authority against the Company in all respects. To the Company's Knowledge, there are no Requirements of Law which could reasonably be expected to prohibit or restrict the Company or any of its Subsidiaries from, or otherwise materially adversely effect the Company or any of its Subsidiaries in, conducting its business in any jurisdiction in which it now conducts its business. 2.7 Capitalization. (a) The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, of which 11,614,100 shares (the "Issued Stock") were issued and outstanding as of September 30, 2001, and 10,000,000 shares of preferred stock, of which 400,000 have been designated as "Series A Participating Preferred Stock", none of which was issued or outstanding as of September 30, 2001. As of September 30, 2001, 3,655,000 shares of Common Stock were reserved for issuance under the Company's 1995 Employee Stock Option Plan, as amended, and 390,000 shares of Common Stock were reserved for issuance under the Company's Non-Employee Directors' Stock Option Plan, as amended. As of September 30, 2001, 2,205,189 shares of Common Stock were issuable upon the exercise of stock options under the Company's 1995 Employee Stock Option Plan, and 241,620 shares of Common Stock were issuable upon the exercise of stock options under the Company's 1995 Non-Employee Directors' Stock Option Plan. The Issued Stock represents all of the issued and outstanding shares of -2- capital stock of the Company and all shares of Issued Stock have been duly authorized and validly issued and are fully paid and nonassessable. All of the shares of Issued Stock and other securities of the Company have been offered, issued and sold by the Company in compliance in all material respects with the Securities Act of 1933, as amended ("the Securities Act") and applicable state securities laws. There are no contracts or other agreements relating to the issuance, sale or transfer of Issued Stock or any equity or other securities of the Company other than pursuant to the 1995 Employee Stock Option Plan, as amended, the 1995 Non-Employee Directors' Stock Option Plan, as amended, and this Agreement. (b) The Shares are duly authorized, and when issued and delivered to the Purchasers after payment therefor, will be validly issued, fully paid and non-assessable, and assuming the accuracy of the representations and warranties of the Purchasers set forth in Section 3 of this Agreement, will be issued in compliance with the registration and qualification requirements of all applicable federal, state and foreign securities laws and will be free and clear of all other Liens. None of the issued and outstanding shares of Common Stock were issued in violation of any preemptive rights. 2.8 No Default or Breach; Contractual Obligations. All of the Contractual Obligations to which the Company or any of its Subsidiaries is a party, whether written or oral, which are required by the Exchange Act to be disclosed in the SEC Reports (collectively, "Material Contractual Obligations") are valid, subsisting, in full force and effect and binding upon the Company or its Subsidiary, as the case may be, and, to the Knowledge of the Company, the other parties thereto, and the Company or its Subsidiary, as the case may be, has paid in full or accrued all amounts due thereunder and has satisfied in full or provided for all of its liabilities and obligations thereunder, except for such amounts as are being contested by the Company in good faith. Neither the Company nor any of its Subsidiaries has received notice of a default and is not in default under, or with respect to, any Material Contractual Obligation nor, to the Knowledge of the Company, does any condition exist that with notice or lapse of time or both would constitute a default thereunder. To the Knowledge of the Company, no other party to any such Contractual Obligation is in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default by such other party thereunder. 2.9 Title to Properties. The Company and each of its Subsidiaries has good, record and marketable title in fee simple to, or holds interests as lessee under leases in full force and effect in, all real property used in connection with its business or otherwise owned or leased by it, in each case free and clear of all Liens, except for Liens that would required to be described in the notes to the Financial Statements. The Company and each of its Subsidiaries owns and has good, valid and marketable title to all of its properties and assets used in its business or reflected as owned on the Financial Statements, in each case free and clear of all Liens, except for Liens that would required to be described in the notes to the Financial Statements. 2.10 Reports; Financial Statements. (a) As of the respective dates of their filing with the Commission, the SEC Reports, complied in all material respects with the applicable requirements of the Securities Act, the Exchange Act, and the rules and regulations of the Commission promulgated thereunder, except as disclosed in the SEC Reports. Except as disclosed in the SEC Reports, the SEC Reports did not at the time they were filed with the Commission, or will not at the time they are filed with the Commission, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Company is not aware of any issues raised by the Commission with respect to any of the SEC Reports, other than those disclosed in the SEC Reports. (b) Except as disclosed in the SEC Reports, the consolidated financial statements (including, in each case, any related schedules or notes thereto) contained in or incorporated by reference in the SEC Reports and any such reports, registration statements and other filings to be filed by the Company with the Commission prior to the Closing Date (the "Financial Statements") (i) have been or will be prepared in accordance with the published rules and regulations of the Commission and GAAP consistently applied during the periods involved (except as may be indicated in the notes thereto) and (ii) fairly present or will fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated results of operations, statements of stockholders' equity and cash flows for the periods indicated, except that any unaudited -3- interim financial statements were or will be subject to normal and recurring year-end adjustments and may omit footnote disclosure as permitted by regulations of the Commission. 2.11 Taxes. (a) The Company and each of its Subsidiaries has paid all federal, state, provincial, county, local, foreign and other taxes (the "Taxes") which have come due and are required to be paid by it through the date hereof, and all deficiencies or other additions to Tax, interest and penalties owed by it in connection with any such Taxes, other than Taxes being disputed by the Company in good faith for which adequate reserves have been made in accordance with GAAP; (b) the Company and each of its Subsidiaries has timely filed or caused to be filed all returns for Taxes that it is required to file on and through the date hereof (including all applicable extensions), and all such Tax returns are accurate and complete in all material respects; (c) with respect to all Tax returns of the Company and each of its Subsidiaries, (i) there is no unassessed Tax deficiency proposed or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries and (ii) no audit is in progress with respect to any return for Taxes, no extension of time is in force with respect to any date on which any return for Taxes was or is to be filed and no waiver or agreement is in force for the extension of time for the assessment or payment of any Tax; (d) all provisions for Tax liabilities of the Company and each of its Subsidiaries have been disclosed in the Financial Statements and made in accordance with GAAP consistently applied, and all liabilities for Taxes of the Company and each of its Subsidiaries attributable to periods prior to or ending on the Closing Date have been adequately disclosed in the Financial Statements; and (e) there are no Liens for Taxes on the assets of the Company or any of its Subsidiaries. 2.12 No Material Adverse Change; Ordinary Course of Business. Since September 30, 2001, except as disclosed in or incorporated by reference in the SEC Reports, (a) there has not been any material adverse change, in the Condition of the Company, (b) neither the Company nor any of its Subsidiaries has participated in any transaction material to the Condition of the Company, including, without limitation, declaring or paying any dividend or declaring or making any distribution to its stockholders except out of the earnings of the Company or its Subsidiary, as the case may be, (c) neither the Company nor any of its subsidiaries has entered into any Material Contractual Obligation, other than in the ordinary course of business and (d) there has not occurred a material change in the accounting principles or practice of the Company or any of its Subsidiaries except as required by reason of a change in GAAP. 2.13 Private Offering. Neither the Company nor any authorized Person acting on its behalf has, in connection with the offer, sale, exchange or issuance of the Shares, engaged in (i) any form of general solicitation or general advertising (as those terms are used within the meaning of Rule 502(c) under the Securities Act), (ii) any action involving a public offering within the meaning of Section 4(2) of the Securities Act, or (iii) any action that would require the registration under the Securities Act of the offering, sale, exchange or issuance of the Shares pursuant to this Agreement or that would violate applicable state securities or "blue sky" laws. The Company has not made and will not prior to the Closing Date make, directly or indirectly, any offer or sale of the Shares or of securities of the same or similar class as the Shares if, as a result, the offer and sale contemplated hereby would fail to be entitled to exemption from the registration requirements of the Securities Act. As used herein, the terms "offer" and "sale" have the meanings specified in Section 2(3) of the Securities Act.. 2.14 Labor Relations. Except as could not reasonably be expected to have a material adverse effect on the Condition of the Company: (a) neither the Company nor any of its Subsidiaries is engaged in any unfair labor practice; (b) there is no strike, labor dispute, slowdown or stoppage pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries ; (c) neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or contract; and (d) no union organizing activities are taking place. To the Knowledge of the Company, each of the officers and key employees of the Company and each of its Subsidiaries spends all, or substantially all, of his business time on the business of the Company or its Subsidiary, as the case may be. To the Knowledge of the Company, none of the employees of the Company or any of its Subsidiaries is resident in the United States in violation of any Requirement of Law. 2.15 Employee Benefit Plans. (a) The SEC Reports list or describe each Plan that the Company or any of its Subsidiaries maintains or to which the Company or any of its Subsidiaries contributes (the "Company Plans"). Neither the Company nor -4- any of its Subsidiaries has any liability under any Plans other than the Company Plans. Except as described in or incorporated by reference in the SEC Reports, neither the Company nor any Commonly Controlled Entity maintains or contributes to, or has within the preceding six years maintained or contributed to, or may have any liability with respect to any Plan subject to Title IV of ERISA or Section 412 of the Code or any "multiple employer plan" within the meaning of the Code or ERISA. Each Company Plan (and related trust, insurance contract or fund) has been established and administered in accordance with its terms, and complies in form and in operation with the applicable requirements of ERISA and the Code and other applicable Requirements of Law. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Company Plan. (b) No Claim with respect to the administration or the investment of the assets of any Company Plan (other than routine claims for benefits) is pending. (c) Except as could not reasonably be expected to have a material adverse effect on the Condition of the Company, each Company Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and has been so qualified during the period since its adoption; each trust created under any such Plan is exempt from tax under Section 501(a) of the Code and has been so exempt since its creation. (d) No Company Plan is a welfare plan (as defined in Section (3)(l) of ERISA) that provides benefits to current or former employees beyond their retirement or other termination of service (other than coverage mandated by Section 4980A of the Code, commonly referred to as "COBRA", the cost of which is fully paid by the current or former employee or his or her dependents). (e) Neither the consummation of the transactions contemplated by this Agreement nor any termination of employment following such transactions will accelerate the time of the payment or vesting of, or increase the amount of, compensation due to any employee or former employee whether or not such payment would constitute an "excess parachute payment" under Section 280G of the Code. (f) There are no unfunded obligations under any Company Plan which are not fully reflected in the Financial Statements. (g) Except as could not reasonably be expected to have a material adverse effect on the Condition of the Company, the Company has no liability, whether absolute or contingent, including any obligations under any Company Plan, with respect to any misclassification of any person as an independent contractor rather than as an employee. 2.16 Liabilities. Neither the Company nor any of its Subsidiaries has any direct or indirect obligation or liability (the "Liabilities") which are not fully reflected or reserved against in the Financial Statements, other than Liabilities not exceeding $250,000 in the aggregate incurred since September 30, 2001 in the ordinary course of business. The Company has no Knowledge of any circumstance, condition, event or arrangement that could reasonably be expected to give rise hereafter to any Liabilities of the Company or any of its Subsidiaries that, individually or in the aggregate, could have a material adverse effect on the Condition of the Company. 2.17 Intellectual Property. (a) (i) The Company and each of its Subsidiaries is the owner of all, or has the license or right to use, sell and license all of, the copyrights, patents, trade secrets, trademarks, internet assets, software and other proprietary rights (collectively, "Intellectual Property") that are used in connection with its business as presently conducted, free and clear of all Liens. (ii) None of the Intellectual Property is subject to any outstanding Order, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to the Knowledge of the Company, threatened, which challenges the validity, enforceability, use or ownership of the item. -5- (iii) The Company and each of its Subsidiaries has substantially performed all obligations imposed upon it under all Intellectual Property licenses, sublicenses, distributor agreements and other agreements under which the Company or any of its Subsidiaries is either a licensor, licensee or distributor, except such licenses, sublicenses and other agreements relating to off-the-shelf software which is commercially available on a retail basis and used solely on the computers of the Company or its Subsidiaries (collectively, the "IP Agreements"). The Company and each of its Subsidiaries is not, nor to the Knowledge of the Company is any other party thereto, in breach of or default thereunder in any respect, nor is there any event which with notice or lapse of time or both would constitute a default thereunder. All of the IP Agreements are valid, enforceable and in full force and effect, and will continue to be so on identical terms immediately following the Closing except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity). (iv) To the Knowledge of the Company, none of the Intellectual Property currently sold or licensed by the Company or any of its Subsidiaries to any Person or used by or licensed to the Company or any of its Subsidiaries by any Person infringes upon or otherwise violates any Intellectual Property rights of others, except as could not reasonably be expected to have a material adverse effect on the Condition of the Company. (b) No litigation is pending and no Claim has been made against the Company or any of its Subsidiaries or, to the Knowledge of the Company, is threatened, contesting the right of the Company or any of its Subsidiaries to sell or license to any Person or use the Intellectual Property presently sold or licensed to such Person or used by the Company or any of its Subsidiaries. To the Knowledge of the Company, no Person is infringing upon or otherwise violating the Intellectual Property rights of the Company or any of its Subsidiaries. (c) No former employer of any employee of the Company or any of its Subsidiaries has made a claim against the Company or any of its Subsidiaries or, to the Knowledge of the Company, against any other Person, that such employee or such consultant is utilizing Intellectual Property of such former employer. (d) To the Knowledge of the Company, none of the trade secrets, wherever located, the value of which is contingent upon maintenance of confidentiality thereof, has been disclosed to any Person other than employees, representatives and agents of the Company or any of its Subsidiaries, except as required pursuant to the filing of a patent application by the Company or any of its Subsidiaries. (e) It is not necessary for the business of the Company or any of its Subsidiaries to use any Intellectual Property owned by any director, officer, employee or consultant of the Company or any of its Subsidiaries (or persons the Company or any of its Subsidiaries presently intends to hire). To the Company's Knowledge, at no time during the conception or reduction to practice of any of the Intellectual Property of the Company or any of its Subsidiaries was any developer, inventor or other contributor to such Intellectual Property operating under any grants from any Governmental Authority or subject to any employment agreement, invention assignment, nondisclosure agreement or other Contractual Obligation with any Person that could materially adversely affect the rights of the Company or any of its Subsidiaries to its Intellectual Property. 2.18 Potential Conflicts of Interest. No officer, director or stockholder beneficially owning more than 5% of the outstanding shares of Common Stock, to the Knowledge of the Company, no spouse of any such officer, director or stockholder, and, to the Knowledge of the Company, no affiliate (as defined in Rule 12b-2 of the Exchange Act) of any of the foregoing (a) owns, directly or indirectly, any interest in (excepting less than one percent (1%) stock holdings for investment purposes in securities of publicly held and traded companies), or is an officer, director, employee or consultant of, any Person which is, or is engaged in business as, a competitor, lessor, lessee, supplier, distributor, or customer of, or lender to or borrower from, the Company or any of its Subsidiaries; (b) owns, directly or indirectly, in whole or in part, any tangible or intangible property that the Company or any of its Subsidiaries use, in the conduct of business; or (c) has any cause of action or other claim whatsoever against, or -6- owes or has advanced any amount to, the Company, except for claims in the ordinary course of business such as for accrued vacation pay, accrued benefits under employee benefit plans, and similar matters and agreements existing on the date hereof. 2.19 Trade Relations. There exists no actual or, to the Knowledge of the Company, threatened termination, cancellation or limitation of, or any material adverse modification or change in, the business relationship of the Company or any of its subsidiaries, or the business of the Company or any of its subsidiaries, with any customer or supplier or any group of customers or suppliers whose purchases or inventories provided to the business of the Company or any of its subsidiaries are individually or in the aggregate material to the Condition of the Company. 2.20 Outstanding Borrowing. Section 2.20 of the Schedule of Exceptions sets forth the amount of all indebtedness of the Company and each of its Subsidiaries as of the date hereof, the Liens that relate to such indebtedness and that encumber the assets and the name of each lender thereof. No indebtedness is entitled to any voting rights in any matters voted upon by the holders of the Common Stock. 2.21 Broker's, Finder's or Similar Fees. Except for fees payable to Needham & Company, there are no brokerage commissions, finder's fees or similar fees or commissions payable by the Company or any of its Subsidiaries in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Company or any of its Subsidiaries or any action taken by any such Person. 2.22 Disclosure. This Agreement and the documents and certificates furnished to the Purchasers by the Company do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. 3. Representations and Warranties of the Investors. Each Investor hereby represents and warrants to the Company that, solely as to such Investor: 3.1 Authorization. The Investor has all requisite corporate power and authority to enter into this Agreement and that this Agreement constitutes a valid and legally binding obligation of the Investor, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the enforcement of creditors' rights generally, (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, and (c) to the extent the indemnification provisions contained in this Agreement may be limited by applicable federal or state securities laws. 3.2 Purchase Entirely for Own Account. The Shares to be purchased by the Investor will be acquired for investment for the Investor's own account, and not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Investor is not a party to any contract, undertaking, agreement or arrangement with any person to sell, transfer or otherwise dispose of any of the Shares purchased by it. 3.3 Reliance Upon Investor's Representations. The Investor understands that the issuance and sale of the Shares to it will not be registered under the Securities Act on the ground that such issuance and sale will be exempt from registration under the Securities Act pursuant to section 4(2) thereof, and that the Company's reliance on such exemption is based on each Investor's representations set forth herein. The Investor realizes that the basis for the exemption may not be present if, notwithstanding such representations, any Investor has in mind merely acquiring the securities for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. Such Investor has no such present intention. 3.4 Receipt of Information. The Investor has received the Private Placement Memorandum dated October 23, 2001 (the "PPM") and has had an opportunity to ask questions and receive answers from the Company regarding the PPM and the terms and conditions of the issuance and sale of the Shares and the business, properties, prospects and financial condition of the Company and to obtain additional information (to the extent the Company -7- possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to it or to which it had access. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investor to rely thereon. No person other than the Company has been authorized to give any information other than the PPM or to give any representation not contained in this Agreement in connection with the Offering and, if given or made, such information or representation must not be relied upon as having been authorized by the Company. 3.5 Investment Experience. The Investor is experienced in evaluating and investing in securities of companies and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Shares. 3.6 Accredited Investor. The Investor is an "accredited investor" as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act, for the reason indicated on the signature page of this Agreement. 3.7 Restricted Securities. The Investor understands that the Shares may not be sold, transferred or otherwise disposed of without registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Shares or an available exemption from registration under the Securities Act, the Shares must be held indefinitely. In particular, the Investor is aware that the Shares may not be sold pursuant to Rule 144 promulgated under the Securities Act unless all of the conditions of that Rule are met. Among the conditions for use of Rule 144 is the availability of current information to the public about the Company. 3.8 Legends. To the extent applicable, each certificate or other document evidencing any of the Shares shall be endorsed with the legends set forth below, and the Investor covenants that, except to the extent such restrictions are waived by the Company, the Investor shall not transfer the shares represented by any such certificate without complying with the restrictions on transfer described in the legends endorsed on such certificate: (a) The following legend under the Act: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR ELSE UPON AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO CALIFORNIA MICRO DEVICES CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT OR ANOTHER APPLICABLE EXEMPTION." (b) Such other legends as may be required under state securities laws. 3.9 Broker's, Finder's or Similar Fees. There are no brokerage commissions, finder's fees or similar fees or commissions payable by the Investor in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Investor or any action taken by any such Person. 4. Registration of the Shares; Compliance with the Securities Act. 4.1 Registration Procedures and Expenses. The Company hereby agrees that it shall: (a) subject to receipt of necessary information from the Investors, prepare and file with the SEC on or before the date three (3) weeks from the Closing Date a registration statement on Form S-3 (the "Registration Statement") to enable the resale of the Shares by the Investors from time to time on Nasdaq and use reasonable best efforts to respond to comments from the SEC promptly and cause such Registration Statement to be declared -8- effective as promptly as practicable after filing and to remain continuously effective until the earlier of (i) the second anniversary of the Closing, or (ii) such time as all Shares purchased by the Investors pursuant to this Agreement have been sold thereunder (the "Registration Period"); (b) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep the Registration Statement effective until the end of the Registration Period; (c) furnish to the Investors with respect to the Shares registered under the Registration Statement such reasonable number of copies of the Registration Statement, prospectuses and preliminary prospectuses in conformity with the requirements of the Securities Act and such other documents as the Investor may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Shares by the Investor; (d) file documents required of the Company for normal blue sky clearance in states specified in writing by the Investor, provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; (e) use its reasonable best efforts to cause the Shares to be listed on Nasdaq in connection with the filing of the Registration Statement under Section 4.1(a); (f) bear all expenses in connection with the procedures in paragraph (a) through (e) of this Section 4.1 and the registration of the Shares pursuant to the Registration Statement other than fees and expenses, if any, of counsel or other advisers to the Investors or underwriting discounts, brokerage fees and commissions incurred by the Investors, if any. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 4.1 that the Investor shall furnish to the Company such information regarding itself, the Shares to be sold by the Investor, and the intended method of disposition of such securities as shall be required to effect the registration of the Shares. 4.2 Transfer of Shares After Registration; Suspension. (a) Subject to Section 4.4, the Investors agree that they will not offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any right (each, a "Disposition") with respect to the Shares that would constitute a sale within the meaning of the Securities Act except pursuant to the Registration Statement referred to in Section 4.1, and that they will promptly notify the Company of any changes in the information set forth in the Registration Statement after it is prepared regarding the Investor or its plan of distribution. (b) In addition to any suspension rights under paragraph (c) below, the Company may, upon the happening of any event, that, in the judgment of Company's board of directors, renders it advisable to suspend use of the prospectus for no more than sixty (60) days in the aggregate in any twelve (12) month period of time due to pending corporate developments, public filings with the SEC or similar events, suspend use of the prospectus on written notice to each Investor, in which case each Investor shall discontinue disposition of Shares covered by the Registration Statement or prospectus until copies of a supplemented or amended prospectus are distributed to the Investors or until the Investors are advised in writing by the Company that the use of the applicable prospectus may be resumed. (c) Subject to paragraph (d) below, in the event of: (i) any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or related prospectus or for additional information, (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iii) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares -9- for sale in any jurisdiction or the initiation of any proceeding for such purpose, (iv) any event or circumstance which necessitates the making of any changes in the Registration Statement or prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, then the Company shall deliver a certificate in writing to the Investors (the "Suspension Notice") to the effect of the foregoing and, upon receipt of such Suspension Notice, the Investors will refrain from selling any Shares pursuant to the Registration Statement (a "Suspension") until the Investors' receipt of copies of a supplemented or amended prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the current prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such prospectus. In the event of any Suspension, the Company will use its reasonable best efforts to cause the use of the prospectus so suspended to be resumed as soon as possible after delivery of a Suspension Notice to the Investors. (d) Provided that a Suspension is not then in effect, the Investors may sell Shares under the Registration Statement, provided that the selling Investor arranges for delivery of a current prospectus to the transferee of such Shares. (e) In the event of a sale of Shares by an Investor, such Investor must also deliver to the Company's transfer agent, with a copy to the Company, a Certificate of Subsequent Sale substantially in the form attached hereto as Exhibit A, so that ownership of the Shares may be properly transferred. (f) For so long as the Company will have a class of securities registered under Section 12(b) or Section 12(g) of the Exchange Act, the Company covenants that it will file, on a timely basis, any reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the SEC thereunder and keep all such reports and public information current to the extent required by Rule 144 under the Securities Act for a period of two (2) years after the Closing. 4.3 Indemnification. For the purpose of this Section 4.3 only, (i) the term "Registration Statement" shall include any final prospectus, exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 4.1(a); and (ii) the term "untrue statement" shall include any untrue statement or any omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (a) The Company agrees to indemnify and hold harmless each Investor (and each person, if any, who controls such Investor within the meaning of section 15 of the Securities Act) from and against any losses, claims, damages or liabilities to which such Investor (or such person, if any, who controls such Investor within the meaning of section 15 of the Securities Act) may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or (ii) any failure by the Company to fulfill any undertaking included in the Registration Statement, and the Company will reimburse such Investor (and each person, if any, who controls such Investor within the meaning of section 15 of the Securities Act) for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Investor specifically for use in preparation of the Registration Statement or the failure of such Investor to comply with its covenants and agreements contained in Section 3 or 4.2 hereof or any statement or omission in any prospectus that is corrected in any subsequent prospectus that was delivered to the Investor prior to the pertinent sale or sales by the Investor. (b) Each Investor agrees to indemnify and hold harmless the Company (and each person, if any, who controls the Company within the meaning of section 15 of the Securities Act, each officer of the Company who -10- signs the Registration Statement and each director of the Company) and each other Investor from and against any losses, claims, damages or liabilities to which the Company (or any such officer, director or controlling person) or other Investor may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon a breach of its covenants and agreements contained in Section 3 or 4.2 hereof or any statement or omission in any prospectus that is corrected in any subsequent prospectus that was delivered to the Investor prior to the pertinent sale or sales by the Investor or any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement if such untrue statement was made in reliance upon and in conformity with information furnished by or on behalf of the indemnifying Investor in writing specifically for use in preparation of the Registration Statement, and the indemnifying Investor will reimburse the Company (or such officer, director or controlling person) or other Investor, as the case may be, for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim. (c) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 4.3, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party under this Section 4.3 (except to the extent that such omission materially and adversely affects the indemnifying party's ability to defend such action) or from any liability otherwise than under this Section 4.3. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding. (d) If the indemnification provided for in this Section 4.3 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Investors on the other in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Company on the one hand or an Investor on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Company and the Investors agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Investors were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Investor shall be required to contribute any amount in excess of the amount by which the gross amount received by the Investor from the sale of the Shares to which such loss relates exceeds the amount of any damages which such Investor has otherwise been required to pay by reason of such untrue statement. No person guilty of fraudulent misrepresentation (within the meaning of section 11(f) of the Securities Act) shall be -11- entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Investors' obligations in this subsection to contribute are several in proportion to their sales of Shares to which such loss relates and not joint. 4.4 Termination of Conditions and Obligations. The conditions precedent imposed by Section 4 upon the transferability of the Shares shall cease and terminate as to any particular number of the Shares when such Shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering such Shares or at such time as an opinion of counsel or other evidence reasonably satisfactory to the Company shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act. 5. Conditions of each Investor's Obligations at Closing. The obligations of each Investor under subparagraph 1.1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 5.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with on or before the Closing. 5.3 Compliance Certificate. The Chief Executive Officer of the Company shall have delivered to the Investor at the Closing a certificate certifying that the conditions specified in Sections 5.1, 5.2 and 5.4 have been fulfilled. 5.4 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the shares of Common Stock pursuant to this Agreement shall be duly obtained and effective as of the Closing. The Company shall have obtained all necessary blue sky permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Shares. 5.5 Opinion of Counsel. Investors shall have received the opinion of Pillsbury Winthrop LLP, counsel to the Company, in substantially the form of Exhibit B, attached hereto. 6. Conditions of the Company's Obligations at Closing. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment (or waiver) on or before the Closing of each of the following conditions by the Investor: 6.1 Representations and Warranties. The representations and warranties of such Investor contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 6.2 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Common Stock pursuant to this Agreement shall be duly obtained and effective as of the Closing. 7. Miscellaneous. 7.1 Entire Agreement. This Agreement and the documents referred to herein and all Schedules and Exhibits thereto constitute the entire agreement among the parties 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. -12- 7.2 Survival . The parties agree that, regardless of any investigation made by the parties, the warranties, representations and covenants of the Company and the Investors contained in or made pursuant to this Agreement (including, without limitation, the provisions of Section 4) shall survive the execution and delivery of this Agreement and the Closing. 7.3 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 permitted transferees of any Shares). 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. 7.4 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 7.5 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. 7.6 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. 7.7 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed given and effective when delivered personally, by telex or telecopier, or by overnight express at the following addresses or to such other address as such party may designate by written notice to the other party in accordance with the provisions of this Section: If to the Company: California Micro Devices Corporation 215 Topaz Street Milpitas, CA 95035-5430 Attention: Robert V. Dickinson Fax: (408) 934-2990 With a copy to: Pillsbury Winthrop LLP 2550 Hanover Street Palo Alto, CA 94304 Attention: Stephen M. Wurzburg Fax: (650) 233-4545 If to an Investor: See the signature pages hereto 7.8 Expenses. Each party will bear its own expenses related to this Agreement and the transactions contemplated therein. 7.9 Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and disbursements in addition to any other relief to which such party may be entitled. 7.10 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 more than a majority of the Shares sold hereunder. -13- 7.11 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 this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 7.12 Rights of the Investor. Each holder of the Shares shall have the absolute right to exercise or refrain from exercising any right or rights that such holder may have by reason of this Agreement or any Shares, including without limitation the right to consent to the waiver of any obligation of the Company under this Agreement and to enter into an agreement with the Company for the purpose of modifying this Agreement or any agreement effecting any such modification, and such holder shall not incur any liability to any other holder or holders of the Shares with respect to exercising or refraining from exercising any such right or rights. [REMAINDER OF PAGE INTENTIONALLY BLANK] -14- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. CALIFORNIA MICRO DEVICES CORPORATION By /s/ Robert V. Dickinson President and Chief Executive Officer INVESTOR SIGNATURE PAGES TO FOLLOW -15- SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT DATED AS OF NOVEMBER 21, 2001 BY AND AMONG CALIFORNIA MICRO DEVICES CORPORATION AND EACH INVESTOR NAMED THEREIN The undersigned hereby executes and delivers the California Micro Devices Corporation Stock Purchase Agreement (the "Agreement") to which this Signature Page is attached effective as of the date of the Agreement, which Agreement and Signature Page, together with all counterparts of such Agreement and signature pages of the other Investors named in such Agreement, shall constitute one and the same document in accordance with the terms of such Agreement. Number of Shares: ------------------------------ ----------------------------------------------- Print Name of Investor By --------------------------------------------- Signature Address: --------------------------------------- --------------------------------------- --------------------------------------- Taxpayer Identification Number: ---------------- Investor is an "accredited investor" by reason of (check one): Investor is an entity with gross assets in excess of $5,000,000. ------------ Investor is an individual with a net worth in excess of $1,000,000 ------------ Investor is an individual and an Officer or Director of the Company ------------ -16- SCHEDULE A Investors
Number of Shares Investor Name Purchased from Company Investment In Dollars - ----------------------------------------- ---------------------- --------------------- Columbus Capital Partners, L.P. 734,000 $3,016,740.00 Columbus Capital Offshore Fund, Ltd. 366,000 $1,504,260.00 Fremont Concentrated Equity Fund, LLC 300,000 $1,233,000.00 Oceanoar & Co. 200,000 $822,000.00 RS Smaller Company Growth Fund 150,000 $616,500.00 Ascend Offshore Fund, Ltd 136,000 $558,960.00 Ascend Partners, L.P. 32,000 $131,520.00 Ascend Patners Sapient, L.P. 32,000 $131,520.00 Donald L. Waite 25,000 $102,750.00 Wade Meyercord Rollover IRA 5,000 $20,550.00 Daniel McCranie 10,000 $41,100.00 Stephen M. Wurzburg 10,000 $41,100.00 TOTAL 2,000,000 $8,220,000.00
SA-1 EXHIBIT A CALIFORNIA MICRO DEVICES CORPORATION CERTIFICATE OF SUBSEQUENT SALE - ------------------------------ RE: Sale of Shares of Common Stock of California Micro Devices Corporation (the "Company") pursuant to the Company's Prospectus dated __________, 2001 (the "Prospectus") Dear Sir/Madam: The undersigned hereby certifies, in connection with the sale of shares of Common Stock of the Company included in the table of Selling Stockholders in the Prospectus, that the undersigned has sold the Shares pursuant to the Prospectus and in a manner described under the caption "Plan of Distribution" in the Prospectus and that such sale complies with all applicable securities laws, including, without limitation, the Prospectus delivery requirements of the Securities Act of 1933, as amended. Selling Stockholder (the beneficial owner): Record Holder (e.g., if held in name of nominee): --------------------- Restricted Stock Certificate No.(s): ---------------------------------- Number of Shares Sold: ------------------------------------------------ Date of Sale: --------------------------------------------------------- In the event that you receive a stock certificate(s) representing more shares of Common Stock than have been sold by the undersigned, then you should return to the undersigned a newly issued certificate for such excess shares in the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you should place a stop transfer on your records with regard to such certificate. Very truly yours, By -------------------------------------- Print Name ------------------------------ Title ----------------------------------- Dated: --------------------------- cc: Pillsbury Winthrop LLP 2550 Hanover Street Palo Alto, California 94304 Attn: Stephen M. Wurzburg A-1 EX-10.12 4 p15016_ex10-12.txt LETTER AGREEMENT Exhibit 10.12 October 23, 2001 CONFIDENTIAL Mr. Robert V. Dickinson President and Chief Executive Officer California Micro Devices Corporation 215 Topaz Street Milpitas, CA 95035 Dear Bob: This letter agreement (this "Agreement") confirms the understanding and agreement between Needham & Company, Inc. (the "Placement Agent") and California Micro Devices Corporation (the "Company") as follows: 1. The Company hereby engages the Placement Agent as the Company's exclusive placement agent in connection with the proposed private placement to accredited investors of securities of the Company (the "Offering"). The Placement Agent hereby accepts such engagement upon the terms and conditions set forth in this Agreement. It is currently contemplated that the Offering will be structured as a private offering with a planned maximum of 2.0 million shares of Common Stock of the Company (the "Securities"). The final terms of the Offering will be determined by negotiation between the Company and interested investors in consultation with the Placement Agent. This Agreement shall not give rise to any commitment or obligation by the Placement Agent to purchase any of the Securities or, except as provided in Section 2 below, to find purchasers for the Securities. 2. The Placement Agent will provide the following services: (a) Advise the Company with regard to the size of the Offering and the structure and terms of the Securities that might be realized in the current market environment; (b) Work with the Company to prepare a private placement memorandum (the "Memorandum") and, if deemed desirable, create an investor road show concerning the Company for use with qualified investors. The Memorandum would not be made available to or used in discussions with prospective qualified investors until such Memorandum and such prospective qualified investors have been approved by the Company. The Memorandum that will be initially circulated will incorporate publicly available documents and will not include any non-public material information about the Company; (c) Assist the Company in identifying and evaluating prospective qualified investors; (d) Approach prospective qualified investors regarding an investment in the Company; and (e) Work with the Company to develop a negotiating strategy and assist in negotiations with potential qualified investors. The Placement Agent will have no authority under this Agreement to bind the Company in any way to any party. In addition, nothing contained in this Agreement will require the Company to accept the terms of any proposal. The Company agrees to coordinate any discussions regarding any investment in the Company with the Placement Agent and agrees to instruct Company directors and officers that if they receive any inquiry or are Exhibit 10.12 - -------------------------------------------------------------------------------- California Micro Devices Corporation October 23, 2001 Page 2 - -------------------------------------------------------------------------------- Needham & Company, Inc. otherwise aware of the interest of any third party concerning an investment in the Company during the term of this Agreement, they should notify the Company CEO who, on behalf of the Company, will promptly notify the Placement Agent of the prospective investor and its interest. The prior sentence will not apply to potential strategic investors who have, or are proposing, commercial business relationships with the Company ("Strategic Investors") if such Strategic Investors express an interest in investing in the Company separate from the Offering being placed by Placement Agent. 3. The Offering will be made by means of the Memorandum, which shall be prepared and approved by the Company and its counsel. The Company will also be responsible for updating and supplementing the Memorandum prior to closing to reflect developments affecting the Company. The Memorandum and any amendment or supplement thereto will be in form reasonably acceptable to the Placement Agent. The Company agrees that the Placement Agent may rely on the information contained in the Memorandum and shall have no responsibility for any information contained therein except for any information concerning the Placement Agent supplied by the Placement Agent in writing to the Company for inclusion therein. All other documents and materials to be used for circulation to investors (collectively "Investor Materials") in connection with the Offering will be provided by the Company to the Placement Agent in advance, and no such documents or materials will be provided to investors without the Placement Agent's prior approval. The Memorandum and all Investor Materials shall be the sole responsibility of the Company. The Memorandum will include all information required to be provided to accredited investors pursuant to Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). Neither the Memorandum nor any of the Investor Materials shall contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 4. Each of the Company and the Placement Agent agrees to conduct the Offering in a manner intended to qualify for the exemption from the registration requirements of the Securities Act provided by Section 4(2) thereof and Regulation D thereunder and in a manner intended to comply with the applicable state "blue sky" laws and applicable securities laws of other jurisdictions. Other than as provided in the prior sentence, the Company will be responsible for compliance with the Securities Act and Regulation D and with applicable state and other securities laws with respect to offers and sales made by the Company and for compliance with the filing requirements and other actions required under such laws. 5. The Company will, at each closing of the Offering, furnish Needham & Company with an opinion of counsel relating to the Company and the Offering in form and substance reasonably satisfactory to Needham & Company and its counsel. Such opinion shall include legal assurances regarding compliance with applicable corporate and securities laws and comfort with respect to the accuracy and completeness of the disclosure in the Memorandum and the Investor Materials as well as those of the matters addressed in the opinion such counsel renders to the purchasers in the Offering as Needham & Company shall request. In addition, at each closing the Company will provide Needham & Company with the same certificates of the officers of the Company, comfort letters and other documents and certificates as are furnished to the purchasers in the Offering. 6. The Company agrees to pay the following fees to the Placement Agent for its services rendered under this Agreement: (a) An advisory fee of $50,000 payable in cash upon signing of this Agreement, which advisory fee, to the extent paid and to the extent the Placement Agent's out of pocket expenses specified in Section 7 total less than $50,000, shall be credited against the fee described in 6(b) below; (b) A fee equal to 6.0% of the gross proceeds on all sales of Securities made in the Offering, payable Exhibit 10.12 - -------------------------------------------------------------------------------- California Micro Devices Corporation October 23, 2001 Page 3 - -------------------------------------------------------------------------------- Needham & Company, Inc. in cash upon the closing to which such fee relates except that the fee shall be equal to (i) 3% of the gross proceeds on such sales to persons who are currently Company shareholders or their affiliates if such persons invest in the Company separate from the Offering being placed by Placement Agent; (ii) 3% of the gross proceeds on such sales to persons who are friends and family of Company management; and (iii) 0% of the gross proceeds on such sales to Strategic Partners if such Strategic Investors invest in the Company separate from the Offering being placed by Placement Agent; (c) Warrants (the "Warrants"), issuable at the first and any subsequent closing of the sales of the Securities, to purchase such number of Securities equal to one-half of the percentage specified in 6(b) of the Securities sold in the Offering. The Warrants shall be exercisable at an exercise price equal to the price per share of the Securities sold in the Offering and shall contain other customary provisions, including anti-dilution provisions and demand and "piggyback" registration rights similar to those contained in warrants issued to investors in the Offering. The Warrants shall have a term identical to that of warrants issued to investors in the Offering and if, but only if, the investor warrants have a net issuance (cashless exercise) provision, then so shall the Warrants; provided however, that if no warrants are issued to investors in the Offering, then the term of the Warrants shall be five (5) years and the Warrants shall contain a net issuance (cashless exercise) provision; and (d) If during the nine-month period following the expiration or termination of this Agreement other than by the Company for cause (cause shall be deemed to exist if Placement Agent has not cured a material breach within five (5) business days notice thereof) or by the Placement Agent for convenience, the Company sells any equity securities to any investor (i) that the Placement Agent identified to the Company prior to such expiration or termination and which the Company approved to receive the Memorandum, (ii) as to which the Placement Agent advised the Company prior to such expiration or termination, or (iii) with which the Company or the Placement Agent had discussions prior to such expiration or termination, the fees payable pursuant to clauses (b) and (c) of this paragraph; provided, however, that if no Securities were sold in the Offering, no fees shall be payable in connection with the sale of equity securities to any investor who was not brought to the initial attention of the Company by the Placement Agent. In these regards, within thirty (30) days of the expiration or termination of this Agreement, the Placement Agent shall notify the Company of those persons (A) the Placement Agent so identified, advised the Company, or had discussions with prior to expiration or termination of this Agreement and (B) if there were no securities sold in the Offering, the Placement Agent brought to the initial attention of the Company. 7. In addition to any fees that may be payable to the Placement Agent under this Agreement, whether or not there is a closing of the Offering, the Company agrees to reimburse the Placement Agent, upon request made from time to time, for all its reasonable out-of-pocket expenses incurred in connection with this engagement that exceed a total of $50,000 and are less than a total of $100,000, including the reasonable fees and disbursements of its legal counsel. The foregoing costs, expenses and charges will be paid by the Company to the Placement Agent promptly upon receipt by the Company of an invoice(s) from the Placement Agent. 8. (a) The Company will furnish or cause to be furnished to the Placement Agent such information as the Placement Agent believes appropriate to its assignment and to satisfy its due diligence requirements (the "Information"). The Company recognizes and confirms that the Placement Agent (i) will use and rely primarily on the Information and on information available from generally recognized public sources in Exhibit 10.12 - -------------------------------------------------------------------------------- California Micro Devices Corporation October 23, 2001 Page 4 - -------------------------------------------------------------------------------- Needham & Company, Inc. performing the services contemplated by this Agreement without having independently verified the same, (ii) does not assume responsibility for the accuracy or completeness of the Information and such other information, and (iii) will not make an appraisal of the Company or its business or assets. To the best of the Company's knowledge, the Information to be furnished by the Company, when delivered, will be true and correct in all material respects and will not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. The Company will promptly notify the Placement Agent if it learns of any material inaccuracy or misstatement in, or material omission from, any Information theretofore delivered to the Placement Agent. (b) All such Information, whether oral or written, will be kept confidential by Needham & Company except for Information (i) that is already or becomes public through no breach of this provision, (ii) that is in the Memorandum or in materials delivered by the Company to prospective investors, or that the Company agrees may be disclosed, (iii) that Needham & Company is required to disclose by applicable law, regulation or legal process, or (iv) that becomes available to Needham & Company on a non-confidential basis from a third party who is not bound by a confidentiality obligation to the Company; and provided, further, that the Information may be disclosed to Needham & Company's directors, officers, employees, agents, advisors and representatives in connection with its engagement hereunder with a need to know such Information, who shall be informed of the confidential nature of the Information and that such Information is subject to a confidentiality agreement or if, on the advice of counsel, Needham & Company is compelled to disclose such Information. 9. The Company agrees to indemnify the Placement Agent as set forth in the Placement Agent's standard indemnity provisions attached hereto as Addendum A; provided, however, that if a third party asserts a claim against the Placement Agent related to the Offering, the Company shall not be liable for fees or expenses of counsel or investigators of the Placement Agent which are incurred prior to the Placement Agent giving notice to the Company of such claim. 10. The Placement Agent's engagement hereunder may be terminated by either the Company or the Placement Agent at any time upon written notice to that effect to the other party, it being understood that the provisions of paragraphs 6, 7, 8(b), 9, 11 and 12 of this Agreement shall survive any such termination. The Company may in its discretion postpone, modify or abandon the Offering prior to closing. The Placement Agent may decline to participate in the Offering if the Placement Agent reasonably determines that the Offering has become impractical or undesirable. 11. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 12. This Agreement constitutes the entire agreement and understanding of the parties concerning its subject matter, superseding all prior oral or written agreements and understandings concerning its subject matter. This Agreement may not be amended or modified except in writing signed by each of the parties. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to principles of conflicts of law. The Company and the Placement Agent hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of New York and of the United States District Courts located in the City of New York for any lawsuits, claims or other proceedings arising out of or relating to this Agreement and agree not to commence any such lawsuit, claim or other proceeding except in such courts. The Company and the Placement Agent hereby irrevocably and unconditionally waive any objection to the laying of venue of any lawsuit, claim, or other proceeding arising out of or relating to this Agreement in the courts of the State of New York or the United States District Courts located in the City of New York, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court Exhibit 10.12 - -------------------------------------------------------------------------------- California Micro Devices Corporation October 23, 2001 Page 5 - -------------------------------------------------------------------------------- Needham & Company, Inc. that any such lawsuit, claim or other proceeding brought in any such court has been brought in an inconvenient forum. Any right to trial by jury with respect to any lawsuit, claim or other proceeding arising out of or relating to this Agreement or the services to be rendered by the Placement Agent hereunder is expressly and irrevocably waived. Please confirm that the foregoing is in accordance with our understanding by signing and returning to us the enclosed duplicate of this letter. Sincerely yours, NEEDHAM & COMPANY, INC. By: /s/ Chad W. Keck Managing Director Agreed to and Accepted as of the date set forth above: CALIFORNIA MICRO DEVICES CORPORATION By: /s/ Robert V. Dickinson President and Chief Executive Officer Exhibit 10.12 Addendum A This Addendum A is attached to and incorporated by reference into the foregoing letter agreement (the "Agreement"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Agreement. The Company agrees to indemnify and hold harmless Needham & Company and its affiliates, the respective directors, officers, employees and agents of Needham & Company and its affiliates, and each other person, if any, controlling Needham & Company or any of its affiliates within the meaning of the federal securities laws (Needham & Company and each such other person or entity are hereinafter referred to as an "Indemnified Person") from and against any and all losses, claims, damages, expenses (including fees and disbursements of counsel) and liabilities (or actions or proceedings in respect thereof) (collectively "Losses") caused by, relating to, based upon or arising out of (i) Needham & Company's engagement under the Agreement, any transaction contemplated by such engagement or any Indemnified Person's role in connection therewith (all of the foregoing are collectively hereafter referred to as the "Engagement") or (ii) any untrue statement or alleged untrue statement of a material fact contained in any offering materials, including but not limited to private placement memoranda used to offer securities of the Company in a transaction subject to Needham & Company's engagement under the Agreement, as such materials may be amended or supplemented (and including but not limited to any documents deemed to be incorporated therein by reference), or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that with respect to clause (i) above, such indemnification obligation shall not apply to any such Loss to the extent it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted primarily and directly from the gross negligence or willful misconduct of the Indemnified Person seeking indemnification. The Company agrees to reimburse each Indemnified Person for all expenses (including fees and disbursements of counsel) as they are incurred by such Indemnified Person in connection with investigating, preparing, defending, paying, settling or compromising any claim, action, suit, proceeding or Loss, whether or not in connection with an action in which any Indemnified Person is a named party. The Company also agrees that an Indemnified Person shall not have any liability (whether direct or indirect, in contract or otherwise) to the Company or its affiliates, directors, officers, employees, agents or shareholders, directly or indirectly for or in connection with the Engagement, except for any Losses that are found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted primarily and directly from such Indemnified Person's gross negligence or willful misconduct. In no event, regardless of the legal theory advanced, shall any Indemnified Person be liable for any consequential, indirect, incidental or special damages of any nature. If any action, suit, proceeding, or investigation is commenced, as to which such Indemnified Person proposes to demand such indemnification, such Indemnified Person shall notify the Company with reasonable promptness; provided, however that any failure by such Indemnified Person to notify the Company shall not relieve the Company from its obligations hereunder, except as and to the extent the failure of such timely notice materially prejudices the Company. If the Company so elects or at the request of an Indemnified Person, the Company will assume the defense of such action, suit, proceeding or investigation, including the employment of counsel reasonably satisfactory to such Indemnified Person and the payment of all fees and expenses of such counsel. In the event, however, that such Indemnified Person reasonably determines in its judgment that representation by common counsel would be inappropriate due to actual or potential differing interests or if the Company fails to assume the defense of the action, suit, proceeding or investigation in a timely manner, then such Indemnified Person may employ separate counsel to represent or defend it in any such action, suit, proceeding or investigation and the Company will pay the fees and disbursements of such counsel; provided, however, that the Company will not be required to pay the fees and disbursements of more than one separate counsel for all Indemnified Persons in any jurisdiction in any single action or proceeding. In any action or proceeding the defense of which the Company assumes, an Indemnified Person will have the right to participate in such litigation and to retain its own counsel at such Indemnified Person's own expense. The Company shall not be liable for any settlement of any action or proceeding effected without its written consent, but if settled with such consent the Company agrees to indemnify the Indemnified Party from and against any Loss by reason of such settlement. The Company shall not settle any claim, action, suit or proceeding related to the Engagement or the Agreement unless the settlement also includes an unconditional release of all Indemnified Persons from all liabilities arising out of such claim, action, suit or proceeding. If the indemnification sought by an Indemnified Person hereunder is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to be unenforceable, even though the express provisions hereof provide for indemnification in such case, then the Company shall contribute to the Losses for which such indemnification is held unavailable in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and Needham & Company, on the other hand, in connection with the Engagement reflected in the Agreement, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but the relative fault of the Company on the one hand and Needham & Company on the other hand, in connection with the statements, acts or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The respective relative benefits received by the Company and Needham & Company in connection with any transaction shall be deemed to be in the same proportion as the aggregate fee paid or payable to Needham & Company in connection with the transaction bears to the total value of the transaction. The relative fault of the Company and Needham & Company shall be determined by reference to, among other things, whether the statements, actions or omissions to act were by the Company or Needham & Company and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action or omission to act. Notwithstanding the foregoing, in no event shall the aggregate contribution of all Indemnified Persons for all Losses in connection with any transaction exceed the amount of fees actually received by Needham & Company pursuant to the Agreement. If multiple claims are brought against an Indemnified Person in an arbitration, with respect to at least one of which indemnification is permitted under applicable law and provided for under the Agreement, the Company agrees that any arbitration award shall be conclusively deemed to be based on claims as to which indemnification is permitted and provided for, except to the extent the arbitration award expressly states that the award, or any portion thereof, is based solely on a claim as to which indemnification is not available. The obligations of the Company referred to above shall be in addition to any liability which the Company may otherwise have and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of any Indemnified Person and the Company. Neither termination of the Agreement nor completion of the Engagement shall affect these indemnification provisions which shall then continue in full force and effect. -----END PRIVACY-ENHANCED MESSAGE-----