FORM S-1
REGISTRATION STATEMENT
UNDER
MONOLITHIC SYSTEM TECHNOLOGY, INC.
(Exact name of Registrant as specified in our charter)
CALIFORNIA 3674 77-0291941
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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1020 STEWART DRIVE
SUNNYVALE, CA 94085
(408) 731-1800
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
COPIES TO:
ALAN B. KALIN JOHN W. CAMPBELL
DANIEL D. MEYERS JAMES H. LAWS
MAHA H. KHALAF INGRID A. EBERLE
MCCUTCHEN, DOYLE, BROWN & ENERSEN, LLP MORRISON & FOERSTER LLP
3150 PORTER DRIVE 425 MARKET STREET
PALO ALTO, CALIFORNIA 94304-1212 SAN FRANCISCO, CALIFORNIA 94105-2482
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If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
Common stock.......................................... $50,000,000 $13,200
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY OUR EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities, and we are not soliciting offers to buy securities, in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
DATED , 2000
PROSPECTUS
SHARES
[LOGO]
MONOLITHIC SYSTEM TECHNOLOGY, INC.
COMMON STOCK
This is our initial public offering. We are offering shares of our common stock. Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. We have applied for quotation of the common stock on the Nasdaq National Market under the symbol "MOSY."
INVESTING IN OUR COMMON STOCK INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT MOSYS
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Per Share $ $ $
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Total $ $ $
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We have granted the underwriters a 30-day option to purchase up to an additional shares of common stock, solely to cover over-allotments.
J.P. MORGAN & CO. WIT SOUNDVIEW
, 2000
[EDGAR DESCRIPTION OF ARTWORK:]
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Comments made about MoSys' 1T-SRAM technology by senior executives and management of
our customers.
[LSI Logic logo] "LSI Logic continues to provide enabling technologies and
CoreWare-Registered Trademark- products to support the
requirements of the high-growth communications market. A
growing demand for the communications market is the
integration of CoreWare-Registered Trademark- library
elements with multi-megabits of high-performance memories in
a single silicon process. MoSys' 1T-SRAM technology provides
a solution for that multi-megabits memory integration."
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[NEC logo] "NEC evaluated and licensed MoSys' embedded 1T-SRAM memory
technology based on its unique combination of performance,
density and power capabilities not available from other SRAM
technologies."
"Our ASIC customers now have an exciting new solution for
SOC designs requiring large quantities of high-performance
embedded memory."
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[Nintendo logo] "The incredible performance of MoSys' 1T-SRAM memory with
the proprietary custom graphics chip designed by ArtX is the
perfect match for IBM's custom, copper-based CPU."
"We will employ this technology to surpass the game
experience offered by any competing console or personal
computer."
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[Allayer Communications "Allayer evaluated and selected MoSys' 1T-SRAM embedded
logo] memory technology for its unique combination of performance,
density and power capabilities. These 1T-SRAM
characteristics are ideally suited to our communication
applications and are not available from other technologies."
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[Galileo Technology "In order to achieve the next level of integration for our
logo] high-performance data communications products, we needed to
find a memory technology that could meet the stringent
demands of our market. MoSys' 1T-SRAM memory technology
uniquely delivers both the performance and integration
capability required."
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[Pixelworks logo] "Pixelworks' success is based on our ability to design and
deliver highly integrated chips that deliver exceptional
performance. We selected MoSys' 1T-SRAM because it delivers
the exceptional SRAM performance we require and at densities
significantly ahead of any other embedded memory."
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[Virage Logic logo] "1T-SRAM represents a breakthrough in embedded memory
technology for the SOC industry, and we are very excited to
partner with MoSys to provide compilers for this
revolutionary technology."
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[TSMC logo] "Embedded memory is the most pervasive silicon intellectual
property block on our customers' designs and has the largest
economic and performance impact. We are very encouraged by
this progress in making 1T-SRAM technology available to our
customers on our standard 0.18-micron logic process."
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[UMC logo] "MoSys' 1T-SRAM technology provides our system-on-chip
customers with the capability to economically integrate
megabytes of high-performance memory on these
industry-leading processes, addressing a density segment
between the typical densities of our 6T-SRAM and embedded
DRAM technologies."
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You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information different from that contained or incorporated by reference in this prospectus. This prospectus is an offer to sell, or a solicitation of offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.
TABLE OF CONTENTS
PAGE
Prospectus Summary................... 1
Risk Factors......................... 5
Special Note Regarding
Forward-Looking Statements and
Industry Data...................... 17
Use of Proceeds...................... 17
Dividend Policy...................... 17
Capitalization....................... 18
Dilution............................. 19
Selected Financial Data.............. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
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PAGE
Business............................. 31
Management........................... 41
Related Party Transactions........... 48
Principal Stockholders............... 50
Description of Capital Stock......... 52
Shares Eligible for Future Sale...... 56
Underwriting......................... 58
Legal Matters........................ 60
Experts.............................. 60
Where You Can Find Additional
Information........................ 60
Index to Consolidated Financial
Statements......................... F-1
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Our primary web site is www.mosys.com. The information on our web site is not incorporated by reference into this prospectus.
MOSYS, MULTIBANK and 1T-SRAM are our trademarks. In this prospectus, "MoSys," "we," "us" and "our" refer to Monolithic System Technology, Inc. Product names, trade names and trademarks of other companies are also referred to in this prospectus.
References to, or quotations of, third parties contained in this prospectus do not constitute an endorsement by these parties of the purchase of shares of our common stock.
Until , 2000 (25 days after the date of this prospectus), all dealers that buy, sell or trade in these shares of common stock, whether or not participating in this offering, may be required to deliver a prospectus. Dealers are also obligated to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS, BEFORE YOU DECIDE TO BUY OUR COMMON STOCK.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
We design, develop, license and market memory technologies used by the semiconductor industry and electronic product manufacturers. We have developed an innovative embedded-memory technology, called 1T-SRAM, that offers major advantages over traditional embedded six-transistor static random access memory, or traditional SRAM. Our patented 1T-SRAM technology offers a combination of high density, low power consumption, high speed and low cost that other embedded memory technologies do not match.
Semiconductor companies increasingly integrate multiple functions, such as microprocessors, memory, analog components and digital signal processors, on a single integrated circuit. A major challenge in achieving high levels of integration on integrated circuits is economically incorporating the memory component. Rather than using stand-alone memory products, semiconductor companies prefer to embed memory in highly integrated circuits as the ideal solution to optimize the performance and size of integrated circuits. Integrated circuit designers today require more embedded memory to achieve high levels of functionality and performance. Thus, embedded memory also accounts for an increasing percentage of the area of highly integrated circuits. As a result of these factors, the memory function is becoming more important in determining the ultimate silicon area, power consumption, speed and cost parameters of an integrated circuit. As long as the amount of memory required is relatively modest, traditional SRAM typically is cost effective. As the amount of required memory increases, however, designers find it difficult to include traditional SRAM on the integrated circuit at a reasonable cost.
Our 1T-SRAM technology provides significant advantages over traditional SRAM in density, power consumption and cost that enable designers to more economically use a larger amount of embedded memory. In addition, our 1T-SRAM technology offers the benefits of traditional SRAM, such as high speed, a simple interface and ease of manufacturability. Instead of the six transistors utilized in a traditional SRAM memory cell, our 1T-SRAM technology contains only one transistor and one capacitor in each memory cell. The use of our 1T-SRAM memory enables designers to achieve greater density and lower costs in their integrated circuits without sacrificing performance. Embedded memory utilizing our 1T-SRAM technology typically offers the following advantages -
- it is two to three times denser than traditional SRAM, using 50-70% less silicon for the same amount of memory;
- it consumes less than one-quarter the power consumed by traditional SRAM when operating at the same speed;
- it provides speeds equal to or greater than those offered by traditional SRAM, especially for larger memory sizes;
- it can be implemented without requiring the manufacturer to make any changes to standard logic manufacturing processes; and
- it uses the simple, standard embedded memory interconnection, or interface, that designers are accustomed to today.
We license our 1T-SRAM technology on a non-exclusive and worldwide basis to semiconductor companies and electronic product manufacturers. From our inception in 1991 until 1998, we focused primarily on the sale of stand-alone memory products. In the fourth quarter of 1998, we changed our business model to focus primarily on the licensing of our 1T-SRAM technology. Development of our stand-alone memory products during the early years of our existence enabled us to validate critical elements of the 1T-SRAM technology we currently license.
While we generated our historical revenue almost exclusively from the sale of stand-alone products, we anticipate that licensing revenue will represent the majority of our future revenue. We generate contract revenue from our licensing activities that consists of fees paid for engineering development and engineering support services. Under all our licensing agreements, we will receive royalties when our licensees manufacture or sell products that incorporate our technology. We recorded our first contract revenue related to our 1T-SRAM technology in the quarter ended March 31, 2000.
We have achieved significant momentum in developing our licensing business. Since the fourth quarter of 1998, we have entered into strategic relationships to develop or license our 1T-SRAM technology with many companies including Allayer Communications Corporation, Analog Devices Incorporated, Chartered Semiconductor Manufacturing Ltd., Galileo Technology, Ltd., Lara Networks, Inc., Lexra Incorporated, LSI Logic Corporation, Lucent Technologies, Inc., NEC Corporation, Nintendo Corp., Pixelworks Incorporated, PMC-Sierra Incorporated, Taiwan Semiconductor Manufacturing Corporation, United Microelectronics Corporation, Via Technologies Incorporated and Virage Logic Corporation.
Our goal is to establish our 1T-SRAM technology as the standard for the embedded memory market by continuing to -
- expand significantly the number of licenses, as well as our co-marketing relationships with foundries and design companies, to proliferate our technology;
- target large and growing markets, including today's rapidly growing communications and consumer electronics sectors;
- work closely with our licensees to gain broad and detailed insight into their and their customers' current and next-generation technology requirements in order to identify trends and focus our research and development efforts on optimizing our technology solution;
- extend our technology leadership so that we can offer even higher-density, lower-power-consumption, higher-speed and lower-cost memory solutions for our licensees;
- generate stand-alone memory product revenue, as our stand-alone products serve to demonstrate the manufacturability of our leading-edge technologies and keep our research and development efforts focused on industry requirements; and
- develop our high-margin licensing business into the major source of our future revenue.
THE OFFERING
COMMON STOCK OFFERED........................................ shares
COMMON STOCK TO BE OUTSTANDING AFTER THIS OFFERING.......... shares
USE OF PROCEEDS............................................. We intend to use the net proceeds we
receive from this offering for working
capital and other general corporate
purposes, including expansion of sales
and marketing and research and
development.
PROPOSED NASDAQ NATIONAL MARKET SYMBOL...................... MOSY
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Unless otherwise indicated, the share information in this prospectus is as of June 30, 2000 and -
- gives effect to our reincorporation in Delaware from California to be approved and effective prior to this offering;
- reflects the conversion of all outstanding shares of our preferred stock outstanding as of June 30, 2000 into 12,731,446 shares of common stock, which will occur automatically upon the closing of this offering;
- reflects the exercise of warrants to purchase 2,881,219 shares of common stock outstanding as of June 30, 2000, with a weighted average exercise price of $5.97 per share and the "cashless" exercise of a warrant to purchase shares of common stock by surrendering shares of common stock in payment of the exercise price of $8.50 per share, assuming a fair market value per share of common stock in the offering of $ ;
- excludes 2,316,113 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2000, with a weighted average exercise price of $0.89 per share;
- excludes 5,000,000 shares of common stock reserved for future issuance under our 2000 employee stock option plan;
- excludes 200,000 shares of common stock reserved for issuance under our 2000 employee stock purchase plan; and
- assumes that the underwriters' over-allotment option will not be exercised.
We were originally incorporated in the State of California in September 1991. We will reincorporate in the State of Delaware prior to the effective date of this offering. Our principal executive offices are located at 1020 Stewart Drive, Sunnyvale, CA 94085, and our telephone number is (408) 731-1800.
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary financial data for our company. You should read this information together with our financial statements and the notes to those statements appearing elsewhere in this prospectus and the information under "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
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SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
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1995 1996 1997 1998 1999 1999 2000
IN THOUSANDS, EXCEPT PER SHARE DATA -------- -------- -------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net revenue:
Product....................... $ - $23,110 $34,822 $36,281 $15,356 $ 8,145 $ 4,028
Contract...................... - - - - - - 460
------- ------- ------- ------- ------- ------- -------
- 23,110 34,822 36,281 15,356 8,145 4,488
Gross profit.................... - 1,675 5,312 4,389 5,294 2,698 2,269
Loss from operations............ (4,781) (6,796) (1,509) (2,677) (311) (163) (1,041)
Net income (loss)............... (4,457) (7,059) (2,016) (2,322) 142 42 (582)
Net income (loss) per share
Basic......................... $ (0.53) $ (0.78) $ (0.22) $ (0.24) $ 0.01 $ 0.00 $ (0.06)
Diluted....................... $ (0.53) $ (0.78) $ (0.22) $ (0.24) $ 0.01 $ 0.00 $ (0.06)
======= ======= ======= ======= ======= ======= =======
Shares used to compute net income
(loss) per share
Basic......................... 8,376 8,997 9,323 9,626 9,727 9,708 9,856
Diluted....................... 8,376 8,997 9,323 9,626 23,320 22,735 9,856
Pro forma net income (loss) per
share
Basic......................... $ 0.01 $ (0.03)
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Diluted....................... $ 0.01 $ (0.03)
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Shares used to compute pro forma
net income (loss) per share
Basic......................... 21,808 22,259
Diluted....................... 23,320 22,259
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AS OF JUNE 30, 2000
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ACTUAL PRO FORMA AS ADJUSTED
IN THOUSANDS --------- ---------- -----------
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 19,947 $ 19,947 $
Working capital............................................. 17,254 17,254
Total assets................................................ 23,221 23,221
Deferred revenue............................................ 3,878 3,878
Convertible preferred stock................................. 35,591 -
Stockholders' equity (deficit).............................. (17,761) 17,830
Stockholders' equity (deficit) and preferred stock.......... 17,830 17,830
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The pro forma net income (loss) and net income (loss) per share amounts above reflect the conversion of 6,582,472 shares of convertible preferred stock in issue at June 30, 2000 into 12,731,446 shares of common stock upon the completion of this offering. See note 1 of Notes to Financial Statements for an explanation of the determination of the number of shares used in computing per share data.
The pro forma balance sheet amounts above reflect the same conversion of convertible preferred stock.
The pro forma as adjusted balance sheet amounts above are adjusted to reflect the receipt of the net proceeds from the sale of shares of common stock offered hereby at an assumed initial public offering price of $ per share, the exercise of warrants to purchase 2,881,219 shares of common stock outstanding as of June 30, 2000 with a weighted average exercise price of $5.97 per share, and the "cashless" exercise of a warrant outstanding as of June 30, 2000 representing the right to acquire shares of common stock, net.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN OUR STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD SUFFER SIGNIFICANTLY. IN ANY SUCH CASE, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT.
OUR SUCCESS DEPENDS UPON THE SEMICONDUCTOR MARKET'S ACCEPTANCE OF OUR 1T-SRAM TECHNOLOGY.
The future prospects of our business depend on the acceptance by our target markets of our 1T-SRAM technology for embedded memory applications and any future technology we might develop. Our technology is intended to allow our licensees to develop embedded-memory integrated circuits to replace other embedded-memory applications with different cost and performance parameters. Our core technology solution utilizes a fundamentally different architecture with which the industry is not familiar. Therefore, it might prove difficult to convince product designers of the viability of our embedded memory solution and to adopt our technology instead of other memory solutions which have proven effective in their products. In addition, we cannot assure you that our existing and proposed technology will perform the desired functions, will operate reliably on a long-term basis or otherwise will be technically successful, or that it will offer sufficient cost and performance benefits to achieve widespread market acceptance.
An important part of our strategy to gain market acceptance is to penetrate new markets by targeting market leaders as licensees of our technology. This strategy is designed to encourage other participants in those markets to follow these leaders in adopting our technology. Should a high-profile industry participant adopt our technology for one or more of its products but fail to achieve success with those products, other industry participants' perception of our technology could be adversely affected. Any such event could reduce future licenses of our technology. Likewise, were a market leader to adopt and achieve success with a competing technology, our reputation and licensing program could be adversely affected. Failure of our technology to be adopted as an industry standard would inhibit our growth and adversely affect our revenue.
OUR EMBEDDED MEMORY TECHNOLOGY IS NEW AND HAS NOT YET BEEN PROVEN IN VOLUME PRODUCTION OF OUR LICENSEES' INTEGRATED CIRCUITS, AND THE DISCOVERY OF DEFECTS IN THIS TECHNOLOGY COULD PREVENT US FROM ACHIEVING MARKET ACCEPTANCE.
We entered into our first license of a significant portion of our 1T-SRAM technology for embedded memory applications in March 1999. Our technology was silicon verified in the most widely used standard logic manufacturing process generation in September 1999. While we and our licensees have evaluated and tested this technology, only one licensee has begun volume manufacture of products incorporating our technology. Complex technology like ours often contains errors or defects when first incorporated into customer products. The discovery of defects or problems regarding the reliability, quality or compatibility of our technology could require significant expenditures of capital and resources to fix, significantly delay or hinder market acceptance of our technology and damage our reputation.
The discovery of a defect in our 1T-SRAM technology could lead our licensees to seek damages from us. Our standard license terms include provisions waiving implied warranties regarding our technology and limiting our liability to our licensees. We also maintain insurance coverage that is intended to protect us against potential liability for defects in our technology. We cannot be certain, however, that the waivers or limitations of liability contained in our licensee contracts will be enforceable, that insurance coverage will continue to be available on reasonable terms or in amounts sufficient to cover one or more large claims or that our insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims that exceed available insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could cause our expenses to increase and could have a material adverse effect on our cost of operations and financial condition.
OUR EMBEDDED MEMORY TECHNOLOGY MIGHT NOT INTEGRATE AS WELL AS ANTICIPATED WITH OTHER SEMICONDUCTOR FUNCTIONS, WHICH WOULD SLOW OR PREVENT ADOPTION OF OUR TECHNOLOGY AND REDUCE OUR REVENUE.
Our 1T-SRAM technology is new and incorporates a fundamentally new architecture. We and our licensees have conducted computer modeling and testing of integrated circuits utilizing our technology and we have verified our technology in production and sale of stand-alone 1T-SRAM integrated circuits. Nevertheless, detailed aspects of our interface could cause unforeseen problems in the efficient integration of our technology with other functions of particular integrated circuits. Any significant compatibility problems with our technology could reduce the attractiveness of our solution, impede its acceptance in the industry and reduce our potential revenue.
MARKET ACCEPTANCE OF OUR 1T-SRAM TECHNOLOGY COULD BE SLOWED OR PREVENTED IF THIS TECHNOLOGY PRESENTS MANUFACTURING DIFFICULTIES OR CONTRIBUTES TO A FAILURE TO ACHIEVE ACCEPTABLE YIELDS.
Semiconductor manufacturing yield could be adversely affected by difficulties in adapting our 1T-SRAM technology to our licensee's product design or to the manufacturing process technology of a particular foundry or semiconductor manufacturer. Yield problems might not be effectively determined or resolved until an actual product exists that can be analyzed and tested to identify process sensitivities relating to the design rules that are used. We cannot assure you that products utilizing our technology will achieve or maintain acceptable manufacturing yields. Any weakness in manufacturing yields of integrated circuits utilizing our technology could adversely impact our revenue and gross profit.
OUR FAILURE TO CONTINUE TO ENHANCE OUR TECHNOLOGY OR DEVELOP NEW TECHNOLOGY ON A TIMELY BASIS COULD DIMINISH OUR ABILITY TO ATTRACT AND RETAIN LICENSEES AND PRODUCT CUSTOMERS.
The existing and potential markets for memory products and technology are characterized by ever increasing performance requirements, evolving industry standards, rapid technological change and product obsolescence. These characteristics lead to frequent new product and technology introductions and enhancements, shorter product life cycles and changes in consumer demands. The semiconductor industry might adopt or develop a completely different approach to utilizing memory for many applications, which could render our existing technology unmarketable or obsolete. We might not be able to successfully develop new technology, or adapt our existing technology, to comply with these innovative standards.
Our future performance depends on a number of factors, including our ability to -
- identify target markets and relevant emerging technological trends, including new standards and protocols;
- develop and maintain competitive technology by improving performance and adding innovative features that differentiate our technology from alternative technologies;
- enable the incorporation of enhanced technology in our licensees' and customers' products on a timely basis and at competitive prices; and
- respond effectively to new technological developments or new product introductions by others.
We cannot assure you that the design and introduction schedules of any additions and enhancements to our existing and future technology will be met, that this technology will achieve market acceptance or that we will be able to license this technology on terms that are favorable to us. Our failure to develop future technology that achieves market acceptance could adversely affect our results of operations.
WE DEPEND SUBSTANTIALLY ON OUR CO-MARKETERS TO ASSIST US IN ATTRACTING POTENTIAL LICENSEES, AND A LOSS OR FAILURE TO INCREASE THE NUMBER OF THESE RELATIONSHIPS COULD INHIBIT OUR GROWTH AND REDUCE OUR REVENUE.
A significant part of our marketing strategy is dependent upon our co-marketing agreements with foundries and design companies. These co-marketers have existing relationships, and continually seek new relationships, with companies in the markets we target, and have agreed to utilize these relationships to introduce our technology to potential licensees. If we fail to maintain current relationships with these co-marketers in order to develop relationships with others in the semiconductor industry, we might fail to achieve anticipated growth.
WE HAVE A HISTORY OF OPERATING LOSSES, AND ANY FUTURE PROFITABILITY IS UNCERTAIN.
We have recorded operating losses in each year since inception. We had an accumulated deficit of $19.7 million as of June 30, 2000. From our inception through 1994, we were engaged primarily in research and product development. From 1995 through the third quarter of 1998, we focused on the sale of stand-alone memory products. We were profitable in the fourth quarter of 1997 and the first quarter of 1998 under our product sales business model, but, beginning in the fourth quarter of 1998, we altered our business plan to concentrate on developing and licensing our 1T-SRAM technology. We may not be profitable in 2000, and we cannot assure you that we will be profitable on a quarterly or annual basis in the future.
OUR HISTORICAL FINANCIAL INFORMATION DOES NOT REFLECT THE RECENT CHANGES TO OUR BUSINESS AND STRATEGY.
The historical financial information included in this prospectus does not reflect the many significant changes in our revenue structure that have occurred as a result of changes in our business model. Such historical financial information also does not reflect changes in our operations and expense structure that have resulted from this transition. Our profitability in the fourth quarter of 1997 and the first quarter of 1998 was attained prior to changing our focus to licensing our 1T-SRAM technology. While we expect to continue to generate revenue from stand-alone product sales, most of our stand-alone product sales efforts are now directed at the strategic and limited sale of our 1T-SRAM stand-alone product, and we do not anticipate that product revenue will ever reach the levels attained in the past. The absence of meaningful historical financial information could make it more difficult for potential investors to evaluate us and our prospects, and could complicate our efforts to undertake meaningful financial planning.
OUR OPERATING RESULTS MIGHT FLUCTUATE SIGNIFICANTLY AND REMAIN UNCERTAIN, WHICH COULD NEGATIVELY IMPACT THE VALUE OF YOUR INVESTMENT.
Our results of operations have fluctuated significantly in the past, and our future quarterly and annual operating results are likely to fluctuate due to a wide variety of factors, many of which are outside of our control, including -
- market acceptance of our 1T-SRAM and any future technology we might develop;
- the timing of significant licenses and cancellations or rescheduling of our licensees' product introductions or project completion dates;
- the timing and announcement of new technology or product introductions by us and our competitors;
- our failure to anticipate evolving licensee or customer technology requirements;
- increased expenses associated with new technology introductions or process changes;
- our lengthy licensing cycle and our licensees' often lengthy product development cycles;
- seasonal fluctuations in demand for and variability of the life cycles of our licensees' products;
- the gain or loss of one or more key licensees or co-marketers; and
- variations in manufacturing yields, increases in materials costs and other manufacturing risks.
Because of these and other factors, our operating results might not meet the expectations of public market analysts or investors in any particular quarter. In such an event, the market price of our common stock could decline.
We cannot accurately forecast all of the above factors or their impact on our results of operations. In part because of this probable fluctuation, we believe that period-to-period comparisons are not necessarily meaningful and should not be relied upon as indicative of future operating results.
OUR LENGTHY LICENSING CYCLE AND OUR LICENSEES' LENGTHY PRODUCT DEVELOPMENT CYCLES WILL MAKE THE OPERATING RESULTS OF OUR LICENSING BUSINESS DIFFICULT TO PREDICT.
We anticipate difficulty in accurately predicting the timing and amounts of revenue generated from licensing our 1T-SRAM technology. The establishment of a business relationship with a potential licensee is a lengthy process, frequently spanning a year or more. Following the establishment of the relationship, the negotiation of licensing terms can be a lengthy process, and a potential licensee could require an extended evaluation and testing period.
Once a license agreement is executed, the timing and amount of our licensing revenue from contract revenue and royalties will remain difficult to predict. Generally, we will recognize contract revenue related to our licensees' development engineering projects only when the licensee manufactures products that meet the contract's performance specifications. We will recognize royalty revenue, if any, when the licensees report to us the manufacture or sale of products that include our 1T-SRAM technology. The completion of the licensees' development projects and the commencement of production will be subject to the licensees' efforts, development risks and other factors outside our control. The timing and level of our royalties depend on the licensees' ability to market, produce and ship products incorporating our technology. All of these factors will prevent us from making predictions of revenue with any certainty.
In addition, none of our licensees is under any obligation to incorporate our technology in any present or future product or to pursue the manufacture or sale of any product incorporating our technology. The long development cycle of our licensees' products increases the risk that, due to changing economic, marketing or strategic factors, our licensees might discontinue a product line or cancel a product introduction. A failure by our licensees to market products incorporating our technology could cause our revenue to decline.
ROYALTY AMOUNTS OWED TO US MIGHT BE DIFFICULT TO VERIFY, AND WE MIGHT FIND IT DIFFICULT, EXPENSIVE AND TIME-CONSUMING TO ENFORCE OUR LICENSE AGREEMENTS.
The standard terms of our license agreements require our licensees to document the manufacture and sale of products that incorporate our technology and report this data to us after the end of each quarter. We must rely to a large extent upon the accuracy of these reports, as we do not have the capacity to independently verify this information. Though our standard license terms give us the right to audit the books and records of any licensee to attempt to verify the information provided to us in these reports, an audit of a licensee's records can be expensive and time-consuming, and potentially detrimental to the business relationship. If we are unable to fully enforce the royalty provisions of our license agreements, our revenue could decrease and our results of operations could be adversely affected.
WE EXPECT OUR REVENUE TO BE HIGHLY CONCENTRATED AMONG A SMALL NUMBER OF LICENSEES AND CUSTOMERS, AND OUR RESULTS OF OPERATIONS COULD BE HARMED IF WE LOSE AND FAIL TO REPLACE THIS REVENUE.
Through June 30, 2000 we had not recognized any royalty revenue. An examination of our existing licenses, however, leads us to expect that royalty revenue will be highly concentrated among a few licensees in the near
future. In particular, we expect projected revenue from the licenses to Nintendo to represent a very substantial portion of projected licensing revenue in 2001 and 2002. Nintendo faces intense competitive pressure in the video game market, which is characterized by extreme volatility, frequent new product introductions and rapidly shifting consumer preferences. We cannot assure you that Nintendo's products incorporating our technology will succeed in the marketplace or that we will receive substantial royalty revenue from Nintendo.
Our product sales also are highly concentrated. Revenue derived from our three largest customers represented 29.1%, 10.8% and 10.1%, respectively, of our total revenue in 1998. In 1999, our two largest customers represented 16.4% and 10.9% of our total revenue, respectively. We expect that a relatively small number of customers will continue to account for a substantial portion of our product revenue for the foreseeable future.
As a result of this revenue concentration, our results of operations could be adversely affected by the decision of a single key licensee or customer to cease using our technology or products or by a decline in the number of products that incorporate our technology that are sold by a single licensee or customer or by a small group of licensees or customers.
OUR REVENUE CONCENTRATION MAY POSE CREDIT RISKS.
We might also face credit risks associated with the concentration of our revenue among a small number of licenses and customers. As of December 31, 1999, four customers accounted for 66% of total receivables, each of whom accounted for at least 11% of the total. As of December 31, 1998, two customers accounted for 41% of total receivables at year end, each of whom represented at least 12% of the total. Our failure to collect receivables from any customer that represents a large percentage of receivables on a timely basis, or at all, could adversely affect our cash flow or results of operations and might cause our stock price to fall.
OUR EXISTING PATENTS MIGHT NOT PROVIDE US WITH SUFFICIENT PROTECTION OF OUR INTELLECTUAL PROPERTY, AND OUR PATENT APPLICATIONS MIGHT NOT RESULT IN THE ISSUANCE OF PATENTS, EITHER OF WHICH COULD REDUCE THE VALUE OF OUR CORE TECHNOLOGY AND HARM OUR BUSINESS.
We rely on a combination of patents, trademarks, copyrights, trade secret laws and confidentiality procedures to protect our intellectual property rights. As of June 30, 2000, we held 30 patents in the United States, which expire at various times from 2013 to 2018, and 8 corresponding foreign patents. In addition, as of June 30, 2000, we had 20 patent applications pending in the United States and 21 pending foreign applications, and had received notice of allowance of two of these pending patent applications in the United States. We cannot assure you that any patents will issue from any of our pending applications or that any claims allowed from pending applications will be of sufficient scope or strength, or issue in all countries where our products can be sold, to provide meaningful protection or any commercial advantage to us. Also, competitors might be able to design around our patents. Failure of our patents or patent applications to provide meaningful protection would have a material adverse effect on our business and results of operations.
WE MIGHT NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD IMPAIR OUR ABILITY TO COMPETE AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Our technology is complex and is intended for use in complicated integrated circuits. A very large number of new and existing products utilize embedded memory, and a still larger number of companies manufacture and market these products. Because of these factors, policing the unauthorized use of our intellectual property is difficult and expensive. We cannot be certain that we will be able to detect unauthorized use of our technology or prevent other parties from designing and marketing unauthorized products based on our technology. Likewise, we cannot assure you that others will not independently develop or otherwise acquire the same or substantially equivalent technology as ours. Although we are not aware of any past or present infringement of our patents, copyrights or trademarks, or any violation of our trade secrets, confidentiality procedures or licensing agreements to date, we cannot assure you that the steps taken by us to protect our proprietary information will be adequate to prevent misappropriation of our technology. Our inability to protect adequately our intellectual property would reduce
significantly the barriers of entry for directly competing technologies and could reduce the value of our technology solution. Furthermore, we might initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Litigation by us could result in significant expense and divert the efforts of our technical and management personnel, whether or not such litigation results in a determination favorable to us.
ANY CLAIM THAT OUR PRODUCTS OR TECHNOLOGY INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS COULD INCREASE OUR COSTS OF OPERATION AND DISTRACT MANAGEMENT AND COULD RESULT IN EXPENSIVE SETTLEMENT COSTS OR THE DISCONTINUANCE OF OUR TECHNOLOGY LICENSING OR PRODUCT OFFERINGS.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which has resulted in often protracted and expensive litigation. We are not aware of any currently pending intellectual property litigation or threatened claim against us. However, we or our licensees might from time to time receive notice of claims that we have infringed patents or other intellectual property rights owned by others. Litigation against us could result in significant expense and divert the efforts of our technical and management personnel, whether or not the litigation results in a determination adverse to us. In the event of an adverse result in any such litigation, we could be required to pay substantial damages, cease the licensing of certain technology or the sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses for the infringing technology. We cannot assure you that we would be successful in such development or that such licenses would be available on reasonable terms, or at all.
IF WE FAIL TO COMPETE EFFECTIVELY IN THE MARKET FOR EMBEDDED MEMORY TECHNOLOGY AND PRODUCTS, OUR BUSINESS WILL BE ADVERSELY AFFECTED.
Competition in the market for embedded memory technology and products is intense. Our licensees and prospective licensees can meet their need for embedded memory with traditional memory solutions with different cost and performance parameters. To the extent that alternative technologies provide comparable system performance at lower cost than our 1T-SRAM technology, or do not require the payment of comparable royalties, our results of operations could be harmed.
A number of competitive developers of alternative technologies are more established, benefit from greater market recognition and have substantially greater financial, development, manufacturing and marketing resources than we have. These advantages might permit these developers to respond more quickly to new or emerging technologies and changes in licensee requirements. We cannot assure you that future competition will not have a material adverse effect on the adoption of our technology and our market penetration.
WE MIGHT BE UNABLE TO DELIVER OUR CUSTOMIZED MEMORY TECHNOLOGY IN THE TIME FRAME DEMANDED BY OUR LICENSEES, WHICH COULD DAMAGE OUR REPUTATION AND FUTURE SALES.
A significant number of our licenses requires us to customize our 1T-SRAM technology within a certain delivery timetable. Not all of the factors relating to this customization are within our control. We cannot assure you that we will be able to meet the time requirements under these licenses. Any failure to meet significant license milestones could damage our reputation in the industry and harm our ability to attract new licensees and could preclude our receipt of licensing fees.
FACTORS THAT NEGATIVELY AFFECT THE BUSINESSES OF OUR LICENSEES COULD ADVERSELY AFFECT OUR BUSINESS.
Because we expect licensing revenue to be the largest source of our future revenue, factors negatively affecting a significant licensee or group of licensees could adversely affect our results of operations and financial condition. We are subject to many risks beyond our control that influence the success of our licensees, including, for example, the highly competitive environment in which they operate, the strength of the markets for their products, their engineering capabilities and their financial and other resources.
Likewise, we have no control over the product development, pricing and marketing strategies of our licensees, which directly affect product sales and the corresponding royalties payable to us. A decline in sales of our licensees' royalty-generating products for any reason would reduce our revenue.
Additionally, a claim of infringement against any of our licensees could severely disrupt the development, marketing and sales of royalty-generating products by them, which could decrease our revenue and negatively impact our reputation and market share.
WE INTEND TO GROW RAPIDLY, AND OUR FAILURE TO MANAGE THIS GROWTH COULD HARM OUR BUSINESS.
Our planned expansion of the development, licensing and marketing of our technology will require us to implement and improve our operational, financial and management information systems, procedures and controls on a timely basis and to expand, train, motivate and manage our work force. Our ability to manage growth and any future changes effectively will require us to continue to -
- implement and manage new marketing channels to penetrate different and broader markets;
- manage an increasing number of complex relationships with licensees and co-marketers and their customers and other third parties;
- improve our operating systems, procedures and financial controls on a timely basis;
- hire additional key management personnel; and
- expand, train and manage our workforce and, in particular, our software development, sales, marketing and support organizations.
We cannot assure you that we will adequately manage our growth or meet the foregoing objectives.
IF WE FAIL TO RETAIN KEY PERSONNEL OR ATTRACT NEEDED MANAGEMENT AND TECHNICAL PERSONNEL, OUR BUSINESS AND GROWTH COULD BE NEGATIVELY AFFECTED.
Our business has been dependent to a significant degree upon the services of a small number of executive officers and technical employees, including Dr. Fu-Chieh Hsu, our Chairman of the Board, President and Chief Executive Officer, and Dr. Wing-Yu Leung, our Vice President and Chief Technical Officer. We generally have not entered into employment or noncompetition agreements with any of our employees. We do not maintain key man life insurance on the lives of any of our key personnel. The loss of any of these individuals could have a material adverse effect on our company. In addition, we continue to seek to hire additional marketing and technical personnel. The competition for qualified personnel is intense, and our failure to recruit additional key personnel in a timely manner could adversely affect us. We cannot assure you that we will be able to continue to attract and retain qualified management, sales and technical personnel necessary for the development of our business.
A MAJORITY OF OUR PRODUCT REVENUE DERIVES PRIMARILY FROM OUR PROPRIETARY INTEGRATED CIRCUITS USING THE 1T-SRAM TECHNOLOGY, AND A DECLINE IN DEMAND FOR THESE PRODUCTS COULD REDUCE OUR REVENUE SUBSTANTIALLY.
Our 1T-SRAM stand-alone products, which currently account for a majority of our product revenue, have only recently been introduced. Our 1T-SRAM stand-alone product accounted for approximately 11% and 26% of our revenue in 1998 and 1999, respectively, and 57% in the first six months of 2000. We anticipate that these products will continue to account for a majority of our revenue for 2000. As a result, our revenue and results of operations would be adversely affected if for any reason we were unsuccessful in selling this product or if the market for this product declines. We cannot assure you that our stand-alone products will perform the desired functions, will operate reliably on a long-term basis or otherwise will be technically successful, that we will be able to manufacture adequate quantities of any products we develop at commercially acceptable costs or on a timely basis.
A DECLINE IN THE AVERAGE SELLING PRICES OF OUR STAND-ALONE PRODUCTS COULD REDUCE OUR PRODUCT REVENUE AND GROSS PROFIT.
As has been typical in the semiconductor industry, we expect that the average unit selling prices of our stand-alone products will decline over the course of their commercial lives, principally due to the supply of competing products, falling demand from customers and product cycle changes. Declining average selling prices will adversely affect the gross margins of our stand-alone products. We might not be able to adjust our costs rapidly or deeply enough to offset the pricing declines and, as a consequence, our product revenue and gross profit could fall.
WE CONTRACT THE MANUFACTURE, ASSEMBLY AND TESTING OF OUR PRODUCTS FROM THIRD-PARTIES THAT WE DO NOT CONTROL, AND A LOSS OF THESE SERVICES COULD HARM OUR LICENSING BUSINESS AND DECREASE OUR PRODUCT REVENUE.
Our marketing efforts with respect to licensing our 1T-SRAM technology include the use of our stand-alone 1T-SRAM product to demonstrate the performance and manufacturability of the underlying technology and to facilitate acceptance of our technology by potential licensees. A loss of foundry capacity, assembly services or testing services for our stand-alone products, or any other failure to produce our 1T-SRAM product, could materially threaten our licensing business.
We are a fabless semiconductor company, and currently rely on Taiwan Semiconductor Manufacturing Corporation, or TSMC, in Taiwan for the manufacture of substantially all of our stand-alone products. If TSMC ceases to provide us with required production capacity with respect to our stand-alone products, we cannot assure you that we will be able to enter into manufacturing arrangements with other foundries on commercially reasonable terms, or that these arrangements, if established, will result in successful manufacturing of our products. These arrangements might require us to share control over our manufacturing process technologies or to relinquish rights to our technology and might be subject to unilateral termination by the foundries. Even if such capacity is available from another manufacturer, we would need to qualify the manufacturer, which process could take six months or longer. We cannot assure you that we would be able to identify or qualify manufacturing sources that would be able to produce wafers with acceptable manufacturing yields.
Under the contractual provisions of our supply agreement with TSMC, we are required to provide forecasts of anticipated purchases and place purchase orders months in advance of shipment. Forecasts of monthly purchases might not coincide with our eventual customer requirements. Should our purchases of wafers exceed customer demand for our products, we could have a significant exposure to high inventory levels. If we cannot sell the excess inventory or avoid selling it at a price below cost, we would be required to write down or write off this inventory, which would adversely affect our financial condition.
All of our semiconductor memory products are assembled and tested by third-party vendors, primarily in Hong Kong and Taiwan. We have designed and developed internally our own test software and certain test equipment, which we provide to our test vendors. Our reliance on independent assembly and testing vendors involves a number of risks, including reduced control over delivery schedules, quality assurance and costs. The inability of these third-party contractors to deliver products of acceptable quality and in a timely manner could result in the loss of customers and a reduction in our product revenue and could ultimately harm our licensing business.
THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY MAY MAKE IT DIFFICULT TO PLAN OUR BUSINESS AND COULD CAUSE OUR RESULTS OF OPERATIONS TO FLUCTUATE SUBSTANTIALLY.
The semiconductor industry has historically been characterized by a number of factors that could adversely affect our business, including -
- rapid technological change;
- cyclical market patterns;
- significant price erosion;
- fluctuating inventory levels;
- alternating periods of over-capacity and capacity constraints;
- variations in manufacturing costs and yields; and
- significant expenditures for capital equipment and product development.
In addition, the industry has experienced significant economic downturns at various times, characterized by diminished product demand and accelerated erosion of product prices. We could experience substantial period-to-period fluctuations in operating results due to any of these conditions.
INTERNATIONAL LICENSES ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUE, AND OUR FAILURE TO SUCCESSFULLY ADDRESS THE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS COULD INCREASE OUR COSTS OF OPERATION AND NEGATIVELY IMPACT OUR REVENUE.
We anticipate that licenses to companies that operate primarily outside the United States will account for a substantial portion of our licensing revenue in future periods. Moreover, all of our products are manufactured, assembled and tested outside of the United States. We are, therefore, subject to many international risks, including -
- foreign currency exchange fluctuations;
- unanticipated changes in local regulation;
- potentially adverse tax consequences;
- difficulties regarding timing and availability of export and import licenses;
- political and economic instability; and
- reduced or limited protection of our intellectual property.
The occurrence of any of these risks could have an adverse effect on our business.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS, DELAWARE LAW OR OUR RIGHTS PLAN MIGHT DELAY OR PREVENT A CHANGE OF CONTROL TRANSACTION AND DEPRESS
THE MARKET PRICE OF OUR STOCK.
Certain provisions of our certificate of incorporation and bylaws might have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of our company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain of these provisions eliminate cumulative voting in the election of directors, eliminate the right of stockholders to act by written consent without a meeting and establish specific procedures for director nominations by stockholders and the submission of other proposals for consideration at stockholder meetings.
We are also subject to certain provisions of Delaware law which could delay or make more difficult a merger, tender offer or proxy contest involving our company. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless certain conditions are met. Any of these provisions could have the effect of delaying, deferring or preventing a change in control, including without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock.
Our board of directors might issue up to 20,000,000 shares of preferred stock without stockholder approval on such terms as the board might determine. The rights of the holders of common stock will be subject to, and might be adversely affected by, the rights of the holders of any preferred stock that might be issued in the future.
Our board of directors has approved the adoption of a stockholder rights plan, which will become effective prior to the effectiveness of this offering. This plan entitles our stockholders to rights to acquire additional shares of our common stock generally when a third party acquires 15% of our common stock or commences or announces its intent to commence a tender offer for at least 15% of our common stock. This plan could delay, deter or prevent an investor from acquiring us in a transaction that could otherwise result in stockholders receiving a premium over the market price for their shares of common stock. For more information, please refer to "Description of Capital Stock - Antitakeover Effects of Our Stockholder Rights Plan."
A LIMITED NUMBER OF STOCKHOLDERS WILL HAVE THE ABILITY TO INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL.
Our executive officers, directors and entities affiliated with them will, in the aggregate, beneficially own approximately % of our common stock following this offering. These stockholders acting together will have the ability to exert substantial influence over all matters requiring the approval of our stockholders, including the election and removal of directors and any proposed acquisition, consolidation or sale of all or substantially all of our assets. In addition, they could dictate the management of our business and affairs. The stockholder rights plan that we will adopt prior to the completion of the offering will contain a higher threshold ownership before the rights take effect with respect to additional share acquisitions by Drs. Hsu and Leung, West Coast Venture Capital Limited, L.P., or West Coast, and DynaTech Capital, LLC, or DynaTech, as well as their affiliates and associates. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding an acquisition, consolidation, takeover or other business combination, which might otherwise involve the payment of a premium for your shares of our common stock.
WE MIGHT SPEND A SUBSTANTIAL PORTION OF THE NET PROCEEDS IN WAYS WITH WHICH YOU MIGHT NOT AGREE.
The principal purposes of this offering are to obtain additional capital, create a public market for our common stock and facilitate future access to public equity markets. We expect to use the net proceeds from this offering for working capital and other general corporate purposes. A portion of the proceeds might also be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. There are currently no negotiations, commitments or agreements with respect to any such transactions, however. Pending the use of the net proceeds for the above purposes, we intend to invest such funds in short-term, interest-bearing, investment grade securities. Accordingly, our management will retain broad discretion as to the allocation of the net proceeds from this offering and, subject to certain exceptions, will be able to use and allocate such net proceeds without first obtaining stockholder approval.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION.
As part of our growth strategy, we might consider opportunities to acquire other businesses or technologies that would complement our current offerings, expand the breadth of our markets or enhance our technical capabilities. To date, we have not made any acquisitions, and we are currently not subject to any agreement or letter of intent with respect to potential acquisitions. Acquisitions entail a number of risks that could materially and adversely affect our business and operating results, including -
- problems integrating the acquired employees, operations, technologies or products with our existing business and products;
- diversion of management's time and attention from our core business;
- difficulties in retaining business relationships with suppliers and customers of the acquired company;
- risks associated with entering markets in which we lack prior experience; and
- potential loss of key employees of the acquired company.
THERE HAS BEEN NO PRIOR TRADING MARKET FOR OUR COMMON STOCK, AND THE POTENTIAL VOLATILITY OF THE PRICE OF OUR COMMON STOCK COULD NEGATIVELY AFFECT YOUR INVESTMENT.
Prior to this offering, there has been no public market for our common stock, and we cannot assure you that an active trading market will develop or be sustained after this offering. The initial public offering price will be determined through negotiations between us and the representatives of the underwriters, and will be based on several factors and might not be indicative of the market price of our common stock after this offering.
The market price of the shares of our common stock is likely to be highly volatile and might be significantly affected by factors such as -
- actual or anticipated fluctuations in our operating results;
- product or technology announcements by us or our competitors;
- new contracts entered into by us or our competitors;
- developments with respect to patents or intellectual property rights;
- conditions and trends in the semiconductor and other technology industries;
- changes in financial estimates by securities analysts; and
- general market conditions.
Recently, the stock market has experienced significant price and volume fluctuations. Market prices of securities of technology companies, particularly following an initial public offering, have been highly volatile and frequently reach levels that bear no relationship to the operating performance of such companies. These market prices generally are not sustainable and are subject to wide variations. If our common stock trades to unsustainably high levels following this offering, it is likely that the market price of our common stock will thereafter experience a material decline.
In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We could be the target of similar litigation in the future. Securities litigation could cause us to incur substantial costs, divert management's attention and resources and harm our financial condition and results of operations.
THE PRICE OF OUR STOCK COULD DECREASE AS A RESULT OF SHARES BEING SOLD IN THE MARKET AFTER THE OFFERING.
Sales of a substantial number of shares of common stock in the public market following this offering could adversely affect the market price of the common stock prevailing from time to time. The number of shares of common stock available for sale in the public market is limited by restrictions under the Securities Act of 1933, as amended, or the Securities Act, and lock-up agreements executed by certain of our security holders under which such security holders have agreed not to sell or otherwise dispose of any of their shares until 180 days after the date of this prospectus without the prior written consent of the underwriters. In addition to the shares of common stock offered hereby, assuming no exercise of the underwriters' over-allotment option, there will be 22,629,281 shares of common stock outstanding as of the date of this prospectus, all of which are "restricted" shares under the Securities Act. As a result of the lock-up agreements described above and the provisions of Rules 144(k), 144 and 701, the restricted shares will be available for sale in the public market as follows -
- no shares will be eligible for immediate sale on the date of this prospectus;
- shares will be eligible for sale 90 days after the date of this prospectus;
- approximately shares will be eligible for sale 180 days after the date of this prospectus; and
- approximately shares will be eligible for sale approximately one year from the date of this prospectus.
After this offering, the holders of approximately 12,731,446 shares of common stock and rights to acquire shares of common stock will be entitled to certain demand and piggyback rights with respect to registration of such shares under the Securities Act. See "Description of Capital Stock - Registration Rights." If such holders, by exercising their demand registration rights, cause a large number of securities to be registered and sold in the public market, such sales could have an adverse effect on the market price for our common stock. If we were to initiate a registration and include shares held by such holders pursuant to the exercise of their piggyback registration rights, such sales might have an adverse effect on our ability to raise capital.
PURCHASERS OF COMMON STOCK IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
Purchasers of the shares of common stock offered hereby will incur immediate and substantial dilution of approximately $ per share in the net tangible book value of common stock from the initial public offering price. Purchasers might incur additional dilution upon the exercise of outstanding stock options and warrants. For a more detailed description of this dilution, please see "Dilution."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This prospectus contains forward-looking statements which include, without limitation, statements about the market for our technology, our strategy, competition and expected financial performance. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described above and elsewhere in this prospectus. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
This prospectus contains statistical data regarding the semiconductor industry that we obtained from industry reports generated by Dataquest Inc. These reports generally indicate that their information has been obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Although we believe that the reports are reliable, we have not independently verified their data.
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock being sold in this offering are estimated to be $ at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and offering expenses. Net proceeds will be $ if the underwriters' over-allotment option is exercised in full. We intend to use the net proceeds for working capital and other general corporate purposes, including to expand sales and marketing and research and development. We might also use a portion of the net proceeds for the acquisition of technologies, businesses or products that are complementary to our business, although no such acquisitions are planned or being negotiated as of the date of this prospectus, and no portion of the net proceeds has been allocated for any specific acquisition. Pending such uses, the net proceeds of this offering will be invested in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We currently anticipate that we will retain any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.
CAPITALIZATION
The following table sets forth -
- our actual capitalization as of June 30, 2000;
- our actual capitalization on a pro forma basis giving effect to the conversion of all outstanding shares of our preferred stock into 12,731,446 shares of common stock upon the closing of this offering; and
- our pro forma capitalization as adjusted to reflect the sale and issuance of the shares of common stock in this offering at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discount and offering expenses and the application of the estimated proceeds therefrom; and to reflect the exercise of warrants to purchase a total of additional shares of common stock.
This information should be read in conjunction with our financial statements and the notes relating to those statements appearing elsewhere in this prospectus.
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JUNE 30, 2000
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
IN THOUSANDS, EXCEPT PER SHARE DATA -------- ---------- -----------
Cash and cash equivalents................................... $ 19,947 $ 19,947 $
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Mandatorily redeemable convertible preferred stock, no par
value; 9,500,000 shares authorized, 6,582,472 shares
issued and outstanding (actual); 9,500,000 shares
authorized, no shares issued and outstanding (pro forma);
20,000,000 shares authorized $0.01 par value, no shares
outstanding (as adjusted)................................. 35,591 -
-------- ---------- -----------
Stockholders' equity:
Common stock, $0.01 par value; 30,000,000 shares
authorized, 9,934,715 shares issued and outstanding
(actual); 30,000,000 shares authorized, 22,666,161
shares issued and outstanding (pro forma); 120,000,000
shares authorized $0.01 par value, shares issued
and outstanding (as adjusted)........................... 99 227
Additional paid-in capital................................ 2,630 38,093
Accumulated deficit....................................... (19,723) (19,723)
Deferred stock compensation............................... (767) (767)
-------- ---------- -----------
Total stockholders' equity (deficit).................... (17,761) 17,830
-------- ---------- -----------
Total capitalization.................................... $ 17,830 $ 17,830
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The actual outstanding share information in this table is based on our shares outstanding as of June 30, 2000 and excludes -
- 2,316,113 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2000, with a weighted average exercise price of $0.89 per share;
- 2,881,219 shares of common stock issuable upon exercise of warrants outstanding as of June 30, 2000, with a weighted average exercise price of $5.97 per share, and shares of common stock issuable upon the exercise of another warrant outstanding as of June 30, 2000 on a "cashless" basis;
- 5,000,000 shares of common stock reserved for future issuance under our 2000 employee stock option plan; and
- 200,000 shares of common stock reserved for issuance under our 2000 employee stock purchase plan.
DILUTION
Our pro forma net tangible book value as of June 30, 2000 was approximately $17.8 million, or [$0.79] per share of common stock. Pro forma net tangible book value per share is determined by dividing our pro forma net tangible book value, calculated as total pro forma tangible assets less total pro forma liabilities, by the number of outstanding shares of common stock, after giving affect to the adjustments indicated below. After giving effect to the sale of shares of common stock in this offering, based upon an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and offering expenses, our as adjusted pro forma net tangible book value as of June 30, 2000 would have been $ , or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors. The following table illustrates this per share dilution:
---------------
Initial public offering price per share..................... $
Pro forma net tangible book value per share as of June 30,
2000.................................................... $[0.79]
Pro forma increase in net tangible book value per share
attributable to new investors...........................
------
Pro forma net tangible book value per share after this
offering..................................................
------
Pro forma dilution per share to new investors............... $
======
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The following table summarizes, on a pro forma as adjusted basis as of June 30, 2000, the total number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing shares in this offering.
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SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- -------------- -------- -------------
Existing stockholders................. % $ % $1.61
New investors.........................
---------- ---- -------------- ---- ----------
Total................................. % %
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The foregoing tables give effect to -
- the conversion of all of our outstanding shares of preferred stock outstanding as of June 30, 2000 into 12,731,446 shares of common stock; and
- the issuance of 2,881,219 shares of common stock upon the exercise of warrants outstanding as of June 30, 2000 at a weighted average exercise price of $5.97 per share, and the "cashless" exercise of an additional warrant outstanding as of June 30, 2000 representing the right to acquire shares of common stock, net.
The foregoing tables exclude the issuance of 2,316,113 shares of common stock upon the exercise of options outstanding as of June 30, 2000 under our 1992 stock option plan and our 1996 stock plan, with a weighted average exercise price of $0.89 per share.
To the extent that any shares are issued upon exercise of options that are presently outstanding or granted in the future, there will be further dilution to new public investors.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our financial statements and notes related to those statements, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999 are derived from our financial statements that have been audited by PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 1995 and 1996 and the balance sheet data as of December 31, 1995, 1996 and 1997 are derived from our financial statements that have been audited by PricewaterhouseCoopers LLP, independent accountants, and are not included in this prospectus. The statement of operations data for the six months ended June 30, 1999 and 2000 and the balance sheet data as of June 30, 2000 are derived from our unaudited financial statements that have been prepared on the same basis as the audited financial statements and, in our opinion, include all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation of the information set forth therein. Operating results for the six months ended June 30, 2000 are not necessarily indicative of the results that could be expected for the year ending December 31, 2000 or any other future period.
--------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
IN THOUSANDS, EXCEPT PER SHARE DATA -------- -------- -------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net revenue:
Product.......................................... $ - $23,110 $34,822 $36,281 $15,356 $8,145 $4,028
Contract......................................... - - - - - - 460
------- ------- ------- ------- ------- ------ ------
- 23,110 34,822 36,281 15,356 8,145 4,488
------- ------- ------- ------- ------- ------ ------
Cost of net revenue:
Product.......................................... - 21,435 29,510 31,892 10,062 5,447 1,952
Contract......................................... - - - - - - 267
------- ------- ------- ------- ------- ------ ------
- 21,435 29,510 31,892 10,062 5,447 2,219
------- ------- ------- ------- ------- ------ ------
Gross profit....................................... - 1,675 5,312 4,389 5,294 2,698 2,269
------- ------- ------- ------- ------- ------ ------
Operating expenses:
Research and development......................... 4,132 4,926 3,596 4,224 3,110 1,647 1,630
Selling, general and administrative.............. 649 3,545 3,225 2,842 2,388 1,194 1,338
Stock-based compensation charge.................. - - - - 107 20 342
------- ------- ------- ------- ------- ------ ------
Total operating expenses....................... 4,781 8,471 6,821 7,066 5,605 2,861 3,310
------- ------- ------- ------- ------- ------ ------
Loss from operations............................... (4,781) (6,796) (1,509) (2,667) (311) (163) (1,041)
Interest expense................................... - (1,022) (1,030) (294) - - -
Interest and other income.......................... 324 759 523 649 520 225 459
Provision for income taxes......................... - - - - (67) (20) -
------- ------- ------- ------- ------- ------ ------
Net income (loss).................................. $(4,457) $(7,059) $(2,016) $(2,322) $ 142 $ 42 $ (582)
======= ======= ======= ======= ======= ====== ======
Net income (loss) per share - basic................ $ (0.53) $ (0.78) $ (0.22) $ (0.24) $ 0.01 $ 0.00 $(0.06)
======= ======= ======= ======= ======= ====== ======
- diluted................... $ (0.53) $ (0.78) $ (0.22) $ (0.24) $ 0.01 $ 0.00 $(0.06)
======= ======= ======= ======= ======= ====== ======
Shares used in computing net income (loss) per
share
- basic.......................................... 8,376 8,997 9,323 9,626 9,727 9,708 9,856
- diluted........................................ 8,376 8,997 9,323 9,626 23,320 22,735 9,856
Pro forma net income (loss) per share
- basic.......................................... $ 0.01 $(0.03)
======= ======
- diluted........................................ $ 0.01 $(0.03)
======= ======
Shares used in computing pro forma net income
(loss) per share
- basic.......................................... 21,808 22,259
- diluted........................................ 23,320 22,259
|
-------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
IN THOUSANDS -------- -------- -------- -------- -------- ------------
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 5,089 $ 12,109 $ 9,091 $ 9,750 $ 12,720 $ 19,947
Working capital.................................. (24,029) 10,122 3,677 11,387 11,908 17,254
Total assets..................................... 45,091 54,328 49,408 17,932 16,481 23,221
Deferred revenue................................. - - - - 2,045 3,878
Current portion of notes payable................. 29,633 4,988 7,773 - - -
Notes payable, long-term......................... 5,880 36,247 22,540 - - -
Convertible preferred stock...................... 13,933 14,032 22,330 30,391 30,391 35,591
Stockholders' deficit............................ (7,812) (14,077) (15,903) (18,001) (17,666) (17,761)
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We design, develop, license and market memory technologies used by the semiconductor industry and electronic product manufacturers. We license our 1T-SRAM technology on a non-exclusive and worldwide basis to semiconductor companies and electronic product manufacturers. From our inception in 1991 through 1998, we focused primarily on the sale of stand-alone products. In the fourth quarter of 1998, we changed our business model to focus primarily on the licensing of our 1T-SRAM technology. Development of our stand-alone memory products during the early years of our existence enabled us to validate critical elements of the 1T-SRAM technology we currently license.
Sales of our stand-alone memory products grew rapidly, peaking at $36.3 million in 1998. We achieved profitability on sales of our stand-alone memory products in the fourth quarter of 1997 and the first quarter of 1998. We determined, however, that the competition for memory products, volatile pricing and low margins would limit our profitability in the long term. Consequently, using our existing memory technology as a foundation, in 1998, we completed initial development of our innovative, proprietary 1T-SRAM technology to distinguish ourselves from other memory providers.
Once we had successfully implemented the new technology and demonstrated its benefits through the manufacture of our stand-alone products, we adopted a new business model focused on licensing our 1T-SRAM technology. After changing our business model, we signed our first license agreement for this technology at the end of the fourth quarter of 1998 and recognized licensing contract revenue for the first time in the first quarter of 2000. As of July 31, 2000, we had signed 1T-SRAM license agreements with six companies and had signed memoranda of understanding, each of which requires an up-front payment to us, with seven additional companies. We recognized our first license revenue from our 1T-SRAM technology in the first quarter of 2000. Generally, we expect our total sales cycle, or the period that begins with our initial discussion with a prospective licensee to our receipt of royalties from the licensee's use of our 1T-SRAM technology, to run from 18 to 24 months.
We have had a limited operating history and have incurred net losses in every year of operation until 1999.
REVENUE. We generate our revenue from licensing our technology and selling stand-alone memory products. Contract revenues from our licensing activities consist of fees paid for engineering development and engineering support services. Under all our licensing agreements, we will receive royalties when our licensees manufacture or sell products that incorporate our technology.
We receive contract fees for providing circuit design, layout and testing services to a licensee that is embedding our memory technology into its product. For some licensees, we also provide engineering support services to assist in the commencement of production of their products. Contract fees range from several hundred thousand dollars to several million dollars, depending on the scope and complexity of the development project, the licensee's rights and the royalty to be paid under the contract. The licensee generally pays contract fees in installments at the beginning of the contract and upon achieving certain milestones. For contracts involving performance specifications that we have not yet met, we defer the recognition of revenue until the licensee manufactures products that meet the contract performance specifications. Contract fees billed prior to revenue recognition are recorded as deferred contract revenue. We recognized contract revenue for the first time in the six-month period ended June 30, 2000. The recognized revenue of $460,000 arose under two licensing contract projects that we completed during the period. Deferred contract revenue at June 30, 2000 was $3.9 million.
Our licensing contracts provide for royalty payments at a stated rate. We negotiate royalty rates taking into account such factors as the amount of contract fees to be paid, the anticipated volume of the licensee's sales of
products that utilize our technology and the cost savings to be achieved by the licensee when using our technology. Our agreements require licensees to report the manufacture or sale of products that include our technology after the end of the quarter in which the sale or manufacture occurs. We will recognize royalties in the quarter in which we receive the licensee's report. We have recorded no royalties through June 30, 2000.
We anticipate that revenue from our licensing activities will fluctuate from period to period and that it will be difficult to predict the timing and magnitude of such revenue. Our license contracts involve long sales cycles, which make it difficult to predict the timing of signing agreements. These contracts are also associated with lengthy and complicated engineering development projects, and so the completion of development and commencement of production may be difficult for us to predict. Furthermore, substantial amounts of revenue arising from these contracts will be recognized only when the licensee manufactures the products meeting the performance specification. We believe that the amount of licensing contract revenues for any period are not necessarily indicative of results for any future period. The timing and level of royalties will likewise be difficult to predict because they are totally dependent on the licensees' ability to market, produce and ship product that incorporates our technology. For a discussion of factors that could contribute to the fluctuation of our revenues, please see "Risk Factors - Our operating results might fluctuate significantly and remain uncertain, which could negatively impact the value of your investment," and "Our lengthy licensing cycle and our licensees' lengthy development cycles will make the operating results of our licensing business difficult to predict."
Since 1998, we have reduced the development of follow-on versions of our stand-alone products, which development had been key to our generation of revenue in preceding periods. Our stand-alone product revenue has declined accordingly. Moreover, these stand-alone products address specific semiconductor applications required by our customers and are not intended to be widely distributed. Product revenue derived from our three largest customers represented 29.1%, 10.8% and 10.1% of our total revenue in 1998. In 1999, our two largest customers represented 16.4% and 10.9% of our total revenue. All of our sales are denominated in U.S. dollars. Our stand-alone products are subject to competitive pricing pressure that might result in fluctuating gross profits, which we have experienced in the past.
Product sales are typically on a purchase-order basis, with shipment of product from one to six months later. Provisions for potential warranty liability and estimated returns are recorded at the time revenue is recognized.
We procure the manufacture of our stand-alone memory products from TSMC. Our products are assembled and tested prior to shipment by independent, third-party contractors. We contract for all of these manufacturing services on a purchase-order basis and have no long-term commitments for the supply of any of our stand-alone memory products. If we are unable to obtain manufacturing, assembly or testing services required to fill our customer orders for these products, our revenues from these products will decline substantially.
During the next 12 months, our revenue may continue to consist primarily of stand-alone product sales revenue, with contract and royalty revenue generating an increasing portion of our revenue. We expect that licensing revenue will represent the majority of our total revenue in the following years.
COST OF REVENUE. Cost of product revenue consists primarily of costs associated with the manufacture, assembly and test of our stand-alone memory products by independent, third-party contractors.
Cost of contract revenue consists primarily of deferred engineering costs directly related to engineering development projects specified in agreements we have with licensees of our memory technology. To the extent that the amount of engineering costs does not exceed the amount of the related contract revenues, these costs are deferred on a contract-by-contract basis from the time we have established technological feasibility of the product to be developed under the contract. This occurs when we have completed all of the activities necessary to establish that the licensee's product can be produced to meet the performance specifications when incorporating our technology. Deferred costs are charged to cost of contract revenue when the related revenue is recognized.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of salaries and related employee expenses, material costs for prototype and test units and expenses associated with engineering
development software and equipment. Prior to 1998 our research and development expenses were incurred primarily in support of design, development and production of stand-alone memory products.
Since changing our business model in 1998, we have devoted our research and development efforts primarily to developing the 1T-SRAM technology and the licensing activities required to serve the embedded-memory market. Most of these efforts have been directly related to projects specified in various licensee agreements we have with the early adopters of our memory technology. These projects have included development and design of variations of the 1T-SRAM technology for use in a number of different wafer manufacturing processes used by licensees, the development of interface circuitry that enables embedding our memory on a licensee's integrated circuit, the development and testing of devices to prove the technological feasibility of embedding our memory designs in licensees' products and engineering support to assist in commencement of production of a licensee's products.
We generally record engineering cost as research and development expense in the period incurred except when the engineering cost is being deferred under a licensing contract for which technological feasibility has been established.
We intend to focus an increasing percentage of our research and development efforts on the development of new intellectual property for licensing to semiconductor companies, electronic product manufacturers and their customers. The success of our business will depend on our ability to develop these new technologies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses consist primarily of employee-related expenses, occupancy costs, sales commissions to independent sales representatives and professional fees. We pay commissions to our independent sales representatives on most of our sales of stand-alone memory products. We leverage our licensing and co-marketing relationships to promote our technology, and currently do not use sales representatives or distributors in our licensing business.
After the offering, we anticipate an increase in our administrative expenses as we hire additional staff and incur additional professional fees to address reporting and similar requirements applicable to a public company. We also anticipate an increase in our sales and marketing expenses as we increase the number of personnel devoted to the licensing of our technology.
RESULTS OF OPERATIONS
The table set forth below shows our historical results of operations, expressed as a percentage of revenue. As we changed our business model in the fourth quarter of 1998 and have concentrated our efforts on licensing
1T-SRAM technology only since early 1999, these historical results of operations and the ensuing discussion of them are unlikely to be representative of our operating results going forward.
-------------------------------------------------
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
Net revenue:
Product....................................... 100.0% 100.0% 100.0% 100.0% 90.0%
Contract...................................... - - - - 10.0
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
Cost of net revenue:
Product....................................... 84.7 87.9 65.5 66.9 43.5
Contract...................................... - - - - 5.9
----- ----- ----- ----- -----
84.7 87.9 65.5 66.9 49.4
----- ----- ----- ----- -----
Gross profit.................................... 15.3 12.1 34.5 33.1 50.6
----- ----- ----- ----- -----
Operating expenses:
Research & development........................ 10.3 11.6 20.3 20.2 36.3
Selling, general and administrative........... 9.3 7.8 15.5 14.7 29.8
Stock-based compensation charge............... - - 0.7 0.2 7.6
----- ----- ----- ----- -----
Total operating expenses.................... 19.6 19.5 36.5 35.1 73.7
----- ----- ----- ----- -----
Loss from operations............................ (4.3) (7.3) (2.0) (2.0) (23.1)
Interest expense................................ (3.0) (0.8) 0.0 0.0 0.0
Interest and other income....................... 1.5 1.8 3.4 2.8 10.2
Provision for income taxes...................... 0.0 0.0 (0.4) (0.2) 0.0
----- ----- ----- ----- -----
Net income (loss)............................... (5.8)% (6.4)% 1.0% 0.5% (12.9)%
===== ===== ===== ===== =====
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YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUE. Revenue increased from $34.8 million in 1997 to $36.3 million in 1998, then decreased to $15.4 million in 1999. From 1997 to 1998 we shipped more units of stand-alone memory. The decrease in revenue from 1998 to 1999 reflected the change in our business model to the licensing of our technology and a corresponding reduction in the number of new product introductions and unit shipments.
GROSS PROFIT. Gross profit decreased from $5.3 million in 1997 to $4.4 million in 1998, then increased to $5.3 million in 1999. The decrease in gross profit in 1998 was due to lower average selling prices of stand-alone memories, caused by an over-supply in the memory market and our product mix which was weighted towards lower margin memories. The increase from 1998 to 1999 again reflected our decision to shift to a licensing-based business model and our reduction of sales of lower margin SGRAM products, together with a recovery in average selling prices. Also the increase in gross margin in 1999 resulted from the introduction of our higher-margin 1T-SRAM products.
RESEARCH AND DEVELOPMENT. Research and development expense increased from $3.6 million in 1997 to $4.2 million in 1998, and then decreased to $3.1 million in 1999. The increase in research and development expenses from 1997 to 1998 resulted primarily from higher prototype and tooling costs associated with qualifying additional manufacturing sources for our stand-alone products. These expenses decreased in 1999 because we had fewer prototype production runs of new products during the period.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense decreased from $3.2 million in 1997 to $2.8 million in 1998 and $2.4 million in 1999. The decrease over these three years resulted from a
reduction in commissions paid to independent sales representatives and in personnel cost due to decreasing product revenue.
INTEREST INCOME AND INTEREST EXPENSE. Interest income reflects interest earned on average cash and cash equivalents. Interest income was $523,000, $649,000 and $520,000 in 1997, 1998 and 1999, respectively. The fluctuation in interest income levels corresponded to differences in average cash balances. Interest expense consists of interest on debt and capital lease obligations. Interest expense was $1.0 million, $294,000 and $0 in 1997, 1998 and 1999, respectively. All interest expense was incurred on $13.1 million of notes issued to entities controlled by two of our directors and other unrelated parties. Principal of $6.7 million was converted into Series F preferred stock in 1997. We repaid the balance of these notes in 1998.
PROVISION FOR INCOME TAXES. We have incurred losses in each year through 1998 and consequently did not provide for federal or state income taxes. In 1999, a provision of $67,000 was recorded. At December 31, 1999, we had federal net operating loss carryforwards of approximately $15.0 million that we expect to be available to reduce future income tax liabilities to the extent permitted under federal and applicable state income tax laws. The federal net operating loss carryforwards expire from 2002 to 2019.
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
REVENUE. Total revenue was $8.1 million and $4.5 million in the six months ended June 30, 1999 and 2000, respectively. Product revenue declined by $4.1 million as we decreased unit shipments of stand-alone memory products, consistent with our decision to focus our efforts on the embedded-memory market. During the six-month period ended June 30, 1999 we recognized contract revenue for the first time, which totaled $460,000.
GROSS PROFIT. Gross profit decreased from $2.7 million in the six-month period ended June 30, 1999 to $2.3 million in the same period of 2000, due primarily to the decrease in product revenue. Total gross profit as a percent of total revenue was 33.2% and 50.6% for the six-month periods ended June 30, 1999 and 2000, respectively. The increase occurred primarily because of higher average selling prices on our 1T-SRAM stand-alone memory products. In addition, gross profit for the six months ended June 30, 2000 reflects $267,000 of engineering costs deferred previously under two licensing contract projects that we completed during the period.
RESEARCH AND DEVELOPMENT. Research and development expenses were $1.6 million in each of the six-month periods ended June 30, 1999 and 2000 as we have not yet been required to add engineering staff to support our licensing activities. In addition, we recorded approximately $113,000 of engineering expense incurred in the six-month period ended June 30, 2000 as cost of contract revenue.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses were $1.2 million and $1.3 million in the six-month periods ended June 30, 1999 and 2000, respectively. The small increase resulted from the addition of staff to support the expansion of sales and marketing activities in licensing our technology.
INTEREST INCOME AND INTEREST EXPENSE. Interest income increased from approximately $225,000 in the six-month period ended June 30, 1999 to $459,000 in the corresponding period in 2000. This increase resulted from higher average cash balances in the year 2000 period.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited results of operations data for the six quarters ended June 30, 2000. This unaudited information has been prepared on a basis consistent with our audited financial statements appearing elsewhere in this prospectus and, in the opinion or our management, includes all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the information for the periods presented. The unaudited quarterly information should be read in conjunction with the financial statements and notes included elsewhere in this prospectus.
----------------------------------------------------------------------------------------------------
MAR. 31, 1999 JUNE 30, 1999 SEPT. 30, 1999 DEC. 31, 1999 MAR. 31, 2000 JUNE 30, 2000
IN THOUSANDS -------------- -------------- --------------- -------------- -------------- --------------
Net revenue:
Product.................. $ 4,322 $ 3,823 $ 3,767 $ 3,444 $ 1,717 $ 2,311
Contract................. - - - - 60 400
-------------- -------------- -------------- -------------- -------------- --------------
4,322 3,823 3,767 3,444 1,777 2,711
-------------- -------------- -------------- -------------- -------------- --------------
Cost of net revenue:
Product.................. 3,024 2,423 2,449 2,166 761 1,191
Contract................. - - - - 42 225
-------------- -------------- -------------- -------------- -------------- --------------
3,024 2,423 2,449 2,166 803 1,416
-------------- -------------- -------------- -------------- -------------- --------------
Gross profit............. 1,298 1,400 1,318 1,278 974 1,295
-------------- -------------- -------------- -------------- -------------- --------------
Research and development... 792 855 830 633 766 864
Selling, general and
administrative........... 603 591 534 660 673 665
Stock-based compensation
charge................... 1 19 22 65 107 235
-------------- -------------- -------------- -------------- -------------- --------------
Total operating
expenses............... 1,396 1,465 1,386 1,358 1,546 1,764
-------------- -------------- -------------- -------------- -------------- --------------
Loss from operations....... (98) (65) (68) (80) (572) (469)
Interest and other
income................... 107 118 144 151 163 296
Provision for income
taxes.................... (3) (17) (24) (23) -
-------------- -------------- -------------- -------------- -------------- --------------
Net income (loss).......... $ 6 $ 36 $ 52 $ 48 $ (409) $ (173)
============== ============== ============== ============== ============== ==============
----------------------------------------------------------------------------------------------------
MAR. 31, 1999 JUNE 30, 1999 SEPT. 30, 1999 DEC. 31, 1999 MAR. 31, 2000 JUNE 30, 2000
-------------- -------------- --------------- -------------- -------------- --------------
Net revenue:
Product.................. 100.0% 100.0% 100.0% 100.0% 96.6% 85.2%
Contract................. - - - - 3.4 14.8
-------------- -------------- -------------- -------------- -------------- --------------
100.0 100.0 100.0 100.0 100.0 100.0
-------------- -------------- -------------- -------------- -------------- --------------
Cost of net revenue:
Product.................. 70.0 63.4 65.0 62.9 42.8 43.9
Contract................. - - - - 2.4 8.3
-------------- -------------- -------------- -------------- -------------- --------------
Cost of revenue............ 70.0 63.4 65.0 62.9 45.2 52.2
-------------- -------------- -------------- -------------- -------------- --------------
Gross profit............. 30.0 36.6 35.0 37.1 54.8 47.8
-------------- -------------- -------------- -------------- -------------- --------------
Research and development... 18.3 22.4 22.0 18.4 43.1 31.9
Selling, general and
administrative........... 14.0 15.5 14.2 19.2 37.9 24.5
Stock-based compensation
charge................... 0.0 0.4 0.6 1.9 6.0 8.7
-------------- -------------- -------------- -------------- -------------- --------------
Total operating
expenses............... 32.3 38.3 36.8 39.4 87.0 65.1
-------------- -------------- -------------- -------------- -------------- --------------
Loss from operations....... (2.3) (1.7) (1.8) (2.3) (32.2) (17.3)
Interest and other
income................... 2.5 3.1 3.8 4.4 9.2 10.9
Provision for income
taxes.................... (0.0) (0.4) (0.6) (0.7) 0.0 0.0
-------------- -------------- -------------- -------------- -------------- --------------
Net income (loss).......... 0.1% 1.0% 1.4% 1.4% (23.0)% (6.4)%
============== ============== ============== ============== ============== ==============
|
Revenue generally decreased each quarter during the six-quarter period ended June 30, 2000, with the most significant decline occurring from the fourth quarter of 1999 to the first quarter of 2000. This decrease over the six-quarter period was due to the decline in product revenue and unit shipments of stand-alone memory products, consistent with the change in our business model to focusing our efforts on the licensing of embedded-memory technology. In the second quarter of 2000, revenue increased to $2.7 million due to increased unit shipments of our 1T-SRAM stand-alone memory products and recording of contract revenue of $400,000 related to a completed contract.
Cost of revenue generally declined during the six-quarter period ended June 30, 2000, reflecting a decrease in unit shipments of stand-alone memory products. Gross profit as a percent of revenue ranged from 30.0% to 37.1% during most of this period, but rose to 54.8% and 47.8% in the first and second quarter of 2000, respectively. The increase in the percentage was due to higher prices received for 1T-SRAM stand-alone memory products.
Research and development expenses remained generally constant during the periods, as we shifted engineering resources from product development and introduction to developing intellectual property and supporting our licensees.
Selling, general and administrative expenses generally have been flat. These expenses increased moderately in the quarter ending March 31, 2000, despite a decrease in sales commissions paid during the period because we increased marketing expenses related to licensing our technology.
Interest income increased each quarter, primarily as our cash position increased and we ceased paying interest expense following the retirement of all outstanding indebtedness in 1998.
We believe that quarterly and annual results of operations will be affected by a variety of factors that could materially and adversely affect revenue, gross profit and income from operations. Accordingly, and in light of our limited operating history under our new business model, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through a combination of equity and debt financing. In our most recent equity financing, we issued 650,000 shares of Series H preferred stock in May 2000 to two of our licensees, Galileo Technology, Ltd. and LSI Logic, Inc. with aggregate proceeds to us of $5.2 million. Including this financing, we have raised $35.6 million through the issuance of preferred stock, including $6.7 million of indebtedness converted to preferred stock in 1997. We borrowed an aggregate of $13.1 million through various debt financings between 1996 and 1998. As of June 30, 2000, we had repaid in full all amounts due under these loans.
As of June 30, 2000, we had cash and cash equivalents of $19.9 million, an increase of $7.2 million from cash and cash equivalents held as of December 31, 1999. Our primary capital requirements are to fund working capital needs.
Net cash used in operations was $6.5 million and $1.2 million in 1997 and 1998, respectively. We generated cash from operations of $3.6 million in 1999. Net cash used in operations in 1997 consisted primarily of the net operating loss, increases in accounts receivable and inventory and decreases in balances payable to related party and accounts payable, offset by an increase in accrued liabilities. Net cash used in operations in 1998 consisted primarily of the operating loss and decreases in accounts payable and accrued liabilities offset by decreases in accounts receivable and inventories. Net cash generated from operations in 1999 resulted principally from decreases in accounts receivable and inventory and the deferral of revenues, offset by a decrease in accounts payable.
Net cash provided by investing activities was $6.1 million in 1997, principally as a result of releasing restricted cash previously required to be held as collateral for a line of credit cancelled in that year. Net cash provided by
investing activities was approximately $641,000 in 1998, generated from the maturity and sale of short-term securities. In 1999, net cash used in investing activities was approximately $726,000, representing capital expenditure on property and equipment.
Proceeds from the sales of preferred stock and existing cash were used to repay $4.2 million of loans in 1997. In 1998, cash generated from the sales of preferred stock was used to repay outstanding loans totaling $6.9 million from entities controlled by two of our shareholders.
Our future liquidity and capital requirements are expected to vary from quarter to quarter, depending on numerous factors, including -
- level and timing of licensing and stand-alone product revenues;
- cost, timing and success of technology development efforts;
- market acceptance of our existing and future technologies and products;
- competing technological and market developments;
- cost of maintaining and enforcing patent claims and intellectual property rights; and
- variations in manufacturing yields, materials costs and other manufacturing risks.
We will continue to require substantial working capital to fund our operations. We expect that the net proceeds of this offering, together with our existing capital and cash generated from operations, if any, will be sufficient to meet our capital requirements for the next 12 months. However, we cannot be certain that we will not require additional financing at some point in time. Should our cash resources prove inadequate, we might need to raise additional financing through public or private financing. There can be no assurance that such additional funding will be available to us on favorable terms, if at all. The failure to raise capital when needed could have a material, adverse effect on our business and financial condition. We currently do not have any third-party indebtedness.
QUANTITATIVE AND QUALITATIVE DISCUSSION OF MARKET INTEREST RATE RISK
We invest primarily in short-term bank money market rate accounts, and also have investments in short-term, investment-grade corporate securities. These securities are highly liquid and generally mature within three months or less of purchase date. We do not use our investments for trading or other speculative purposes. We do not believe that we have any significant exposure to market risk related to changes in interest rates, foreign currency exchange rates and equity prices.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the staff of the Securities and Exchange Commission, or the SEC, issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides interpretive guidance on the recognition, presentation and disclosure of revenue in financial statements under certain circumstances. We adopted the provisions of SAB 101 in these financial statements for all periods presented.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133 ("SFAS 133"), "Accounting for Derivatives and Hedging Activities." SFAS 133 establishes accounting and reporting standards of derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, the Financial Accounting Standards Board issued SFAS No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS 137 deferred the effective date until the fiscal year beginning after June 15, 2000. We will adopt SFAS 133 in the quarter ending March 31, 2001. We have not engaged in hedging activities or invested in derivative instruments.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of APB Opinion No. 25. FIN 44 establishes guidance for the accounting for stock option grants or modifications to existing stock options awards and is effective for option grants made after June 30, 2000, but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. FIN 44 also establishes guidance for the repricing of stock options and determining whether a grantee is an employee, for which the guidance was effective after December 15, 1999 and modifying a fixed option to add a reload feature, for which the guidance was effective after January 12, 2000. The adoption of certain of the provisions of FIN 44 prior to June 30, 2000 did not have a material effect on the financial statements. We do not expect that the adoption of the remaining provisions to have a material effect on the financial statements.
BUSINESS
COMPANY OVERVIEW
We design, develop, license and market memory technologies used by the semiconductor industry and electronic product manufacturers. We have developed an innovative embedded-memory technology, called 1T-SRAM, that offers major advantages over traditional embedded six transistor SRAM, or traditional SRAM. Our patented 1T-SRAM technology offers a combination of high density, low power consumption and high speed at performance and cost levels that other embedded memory technologies do not match. We license our 1T-SRAM technology on a non-exclusive and worldwide basis to semiconductor companies and electronic product manufacturers.
From our inception until 1998, we focused primarily on the development of innovative memory technologies and the sale of stand-alone memory products. Development of our stand-alone memory products during the early years of our existence enabled us to validate critical elements of the 1T-SRAM technology. In the fourth quarter of 1998, we changed our business model to focus primarily on the licensing of our 1T-SRAM technology, which we expect will represent a majority of our future revenue. We generate contract revenues from our licensing activities which consist of fees paid for engineering development and engineering support services. Under all our licensing agreements, we will receive royalties when our licensees manufacture or sell products that incorporate our technology.
INDUSTRY BACKGROUND
TRENDS IN THE SEMICONDUCTOR INDUSTRY
Electronic products play an increasingly important role in our lives, as evidenced by the growth of the personal computer, wireless communications, networking equipment and consumer electronics markets. These markets are characterized by intensifying competition, rapid innovation, increasing performance requirements and continuing cost pressures. To manufacture electronic products that achieve optimal performance and cost levels, semiconductor companies must produce integrated circuits that offer higher-performance, greater functionality and lower-cost.
Two important measures of performance are speed and power consumption. Higher-speed integrated circuits can allow electronic products to operate faster, enabling the performance of more functions. Reducing the power consumption of integrated circuits contributes to increased battery life and reduced heat generation in electronic products. Reduced power consumption also enables integrated circuit designers to overcome costly design hurdles, such as meeting the thermal limitations of low-cost packaging materials.
In addition to offering high performance products, semiconductor companies must produce integrated circuits that are cost effective. High-density integrated circuits reduce the amount of silicon on the integrated circuit, thus reducing the size and cost of the integrated circuit. Cost reduction can also be achieved by simplifying the integrated circuit's manufacturing process and improving manufacturing yield. Additionally, to avoid the high cost of substantial redesigns, semiconductor companies can use technology which is scalable, which means it can be readily incorporated into multiple generations of manufacturing process technologies.
IMPORTANCE OF INTEGRATION
For decades, the semiconductor industry has continuously increased the value of integrated circuits by improving their density, power consumption, speed and cost. The main driver for these improvements has been the success of shrinking the size of the basic semiconductor building block, or transistor. Transistors have become small enough to make it economical to combine multiple functions, such as microprocessors, memory, analog components and digital signal processors, on a single integrated circuit, in what is commonly referred to as System-on-a-Chip, or SOC. Highly integrated circuits such as SOCs often offer advantages in density, power consumption, speed and cost that cannot be matched using separate, discrete integrated circuits. SOCs are essential for most electronic products, such as cellular phones, video game consoles, networking equipment and
Internet appliances, to achieve desired performance at a reasonable cost. According to Dataquest, Inc., a technology market research company, the SOC market is projected to grow from more than $14 billion in 1999 to over $58 billion by 2004, representing a compound annual growth rate of approximately 33%.
IMPORTANCE OF EMBEDDED MEMORY
Historically, semiconductor companies implemented memory in separate integrated circuits. Rather than using separate memory circuits, semiconductor companies today are embedding memory on highly integrated circuits, in order to optimize performance and size. The increasing sophistication of electronic products is driving a rapid increase in the amount of memory required. According to Dataquest, in 2000 the percentage of silicon area of a typical SOC occupied by memory is 32% and is expected to rise significantly over the next five years. We believe this percentage will exceed 70% by 2003.
The high cost of incorporating the memory component represents a major challenge to achieving high levels of integration. Embedded memory accounts for an increasing percentage of the size of a highly integrated circuit and is often the slowest or rate limiting function in the circuit. Not only must integrated circuits contain a larger amount of embedded memory, this memory must be dense enough to be economically attractive and must offer sufficiently high speed and low power consumption. Embedded memory has become a crucial design consideration for determining the overall cost and performance of highly integrated circuits and the growing number of electronic products in which they are incorporated.
TRADITIONAL SRAM
The most widely used embedded memory today utilizes traditional SRAM technology, and has the following characteristics -
- it operates at the same high speeds as other functions of the integrated circuit;
- its simple and familiar interface allows for quick design into an integrated circuit with less risk that the design will not function according to specification; and
- it utilizes the standard logic manufacturing process that is both economical and the most widely available.
As memory requirements increase, however, traditional SRAM becomes relatively more expensive compared to the total cost of the integrated circuit. Specifically, traditional SRAM has the following drawbacks that can lead to higher cost -
- it requires a substantial amount of silicon area because of its low density; and
- it consumes a significant amount of power when operating at high speeds.
To overcome the density limitations of traditional SRAM, some manufacturers have utilized embedded dynamic random access memory, or embedded DRAM. While embedded DRAM is denser than traditional SRAM, it is typically ten times slower. Manufacturing embedded DRAM also requires additional process steps and results in low yields, which translate into increased manufacturing time and cost. Additionally, because of its complex interface requirements, embedded DRAM is more difficult to incorporate on integrated circuits, leading to a higher risk of failure. As integrated circuit designers have experimented with embedded DRAM, they have discovered that these limitations of embedded DRAM preclude its use in almost all applications. Therefore, traditional SRAM continues to be the most widely used technology for embedded memory.
One of the major challenges for the semiconductor industry today is to find an embedded memory solution that combines high density, low power consumption, high speed and low cost.
SOLUTION
We have developed an innovative memory architecture, 1T-SRAM memory, which provides major advantages over traditional SRAM in density, power consumption and cost, thus making it more economical for designers to
incorporate large amounts of embedded memory in their designs. In addition, 1T-SRAM technology offers all of the benefits of traditional SRAM, such as high speed, simple interface and ease of manufacturability. Its core architecture is already production proven in millions of our stand-alone memory products and offers integrated circuit designers the following characteristics compared to traditional SRAM -
-----------------------------------------------------------------------------------------
PARAMETERS TYPICAL CHARACTERISTICS OF 1T-SRAM TECHNOLOGY VS. TRADITIONAL SRAM
--------------------- ------------------------------------------------------------------
Density Two to three times denser, using 50-70% less silicon for the same
amount of memory
Power Consumption Consumes less than one-quarter the power when operating at the
same speed
Speed Provides speeds equal to or greater than those offered by
traditional SRAM especially for larger memory sizes
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Our 1T-SRAM technology can achieve these advantages while utilizing standard logic manufacturing processes and the simple, standard SRAM interface that designers are accustomed to today.
HIGH DENSITY
Embedded memory utilizing our 1T-SRAM technology is typically two to three times denser than traditional SRAM. Increased density enables manufacturers of electronic products, such as cellular phones and video game consoles, to incorporate additional functionality into a single integrated circuit, resulting in overall cost savings. Semiconductor designers can take advantage of the high density of 1T-SRAM technology and embed large quantities of high-performance memory and other components that in the past might not have been feasible.
LOW POWER CONSUMPTION
Embedded memory utilizing our 1T-SRAM technology typically consumes less than one-quarter the power and generates less heat than traditional SRAM when operating at the same speed. This feature facilitates longer battery life and reliable operation using lower-cost packaging.
HIGH SPEED
Embedded memory utilizing our 1T-SRAM technology typically provides speeds equal to or greater than the speeds of traditional SRAM, especially for larger memory sizes. Our 1T-SRAM memory can sustain random access cycle times of less than three nanoseconds. In today's 0.18-micron manufacturing process technology, our 1T-SRAM technology can operate with a random access frequency in excess of 300 megahertz for multi-megabit memory.
MANUFACTURING PROCESS INDEPENDENCE
We have been able to implement our technology without requiring the manufacturer to make any significant changes to either standard logic or alternative manufacturing processes. 1T-SRAM's portability or the ease with which it can be implemented in different semiconductor manufacturing facilities, has been silicon-proven at TSMC, UMC and Chartered, the world's three largest independent foundries. 1T-SRAM's scalability, or the ease with which it can be implemented in different generations of manufacturing processes, has already been silicon- proven in 0.25-micron, 0.18-micron and 0.15-micron process generations. We expect our technology to continue to scale readily to future process generations. This portability and scalability provides for wide availability, inexpensive implementation and quick product time to market for our licensees.
SIMPLICITY OF INTERFACE
Our 1T-SRAM technology utilizes the simple, standard SRAM interface that designers are accustomed to today. Our use of this standard high-performance interface minimizes design time, thus optimizing time to market for our licensees. This simple interface also helps minimize the risk that integrated circuit designs will not operate according to specifications.
STRATEGY AND BUSINESS MODEL
Our goal is to establish our 1T-SRAM technology as the standard for the embedded memory market. We intend to achieve this goal by licensing our technology on a non-exclusive and worldwide basis to semiconductor companies and electronic product manufacturers.
The following are integral aspects of our strategy and business model.
PROLIFERATE TECHNOLOGY THROUGH A DIVERSE DISTRIBUTION STRATEGY
Our solution offers performance features and cost benefits that existing embedded memory solutions do not provide. We have strategic relationships with many companies, including Allayer Communications, Analog Devices, Chartered, Galileo Technology, Lara Networks, Lexra, LSI Logic, Lucent, NEC, Nintendo, Pixelworks, PMC-Sierra, TSMC, UMC, Via Technologies and Virage Logic. We license our technology to semiconductor companies who incorporate our technology into integrated circuits that they then sell to customers. We also license our technology to electronic product manufacturers, who then require their suppliers to adopt our technology. In addition, we engage in co-marketing activities with foundries and design companies to promote our technology to a wide base of customers. We believe that these distribution channels will broaden the acceptance and availability of our technology in the industry. Because our technology is becoming available through an increasing number of channels, it is less likely that customers will be required to alter their procurement practices in order to acquire our technology. We intend to continue to expand significantly this base of strategic relationships to further proliferate our technology.
TARGET LARGE AND GROWING MARKETS
Although our 1T-SRAM technology is applicable to many markets, we presently focus on the rapidly growing communications and consumer electronics sectors. These sectors increasingly require embedded memory solutions with higher density, lower power consumption, higher speeds and lower cost. We will also focus over the longer term on other markets that are projected to achieve strong, long-term growth.
WORK CLOSELY WITH OUR LICENSEES AND CO-MARKETERS TO DELIVER OPTIMAL TECHNOLOGY SOLUTIONS
We intend to continue to work closely with our licensees and co-marketers to gain broad and detailed insight into their own and their customers' current and next-generation technology requirements. This insight helps us identify trends and focus our development efforts on optimizing our technology solution, resulting in shorter product time to market and lower costs.
EXTEND TECHNOLOGY LEADERSHIP
Our goal is to continue to enhance our 1T-SRAM architecture and increase our share of the embedded memory market. We will continue to develop our technology in order to offer even higher-density, lower-power-consumption, higher-speed and lower-cost designs for our licensees. We will continue to invest heavily in research and development to develop related embedded memory technologies.
LEVERAGE STAND-ALONE PRODUCT LINE TO DEMONSTRATE LEADING-EDGE TECHNOLOGY
Stand-alone product revenue has constituted a majority of our historical revenue. We expect to continue to generate stand-alone product revenue, as these products serve to demonstrate the manufacturability of our leading-edge technologies. Our direct involvement in these products also helps to keep our research and development efforts focused on delivering leading-edge technologies and meeting industry requirements.
FOCUS ON HIGHER-MARGIN LICENSING MODEL
Our intellectual property licensing revenue consists of contract revenue and royalties. This licensing revenue typically produces higher gross margins than can be achieved with our stand-alone memory products. We intend to focus on our intellectual property licenses as the major source of our future revenue.
STRATEGIC RELATIONSHIPS
We offer our technology on a non-exclusive and worldwide basis to semiconductor companies, electronic product manufacturers, foundries and design companies. An important element of our strategy is to offer our technology broadly in order to establish 1T-SRAM technology as the standard in the embedded memory market. Our licensees and co-marketers act as important indirect channels to promote our technology.
The following table lists our current 1T-SRAM technology relationships, in reverse chronological order.
-----------------------------------------------------------------------------------------------
COMPANY DATE APPLICATION
------------------------------ ------- -----------------------------------------------------
Lucent........................ Q3 2000 Communications
Lara Networks................. Q2 2000 Application specific memory
PMC-Sierra.................... Q2 2000 Communications
Via Technologies.............. Q2 2000 Application specific standard products (ASSPs)
LSI Logic..................... Q1 2000 Communications, application specific integrated
circuits (ASICs) and ASSPs
Allayer Communications........ Q4 1999 Communications
Galileo Technology............ Q4 1999 Communications
NEC........................... Q4 1999 Custom application specific memory
Pixelworks.................... Q4 1999 Imaging
NEC........................... Q3 1999 Custom application specific memory
Nintendo...................... Q3 1999 Video game consoles
NEC........................... Q1 1999 ASICs
Analog Devices................ Q4 1998 Digital signal processors
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The following table illustrates our current co-marketing relationships, in reverse chronological order.
-----------------------------------------------------------------------------------------------
COMPANY DATE APPLICATION
------------------------------ ------- -----------------------------------------------------
Chartered..................... Q2 2000 Prove technology on Chartered's logic processes
UMC........................... Q2 2000 Port technology to UMC's standard logic processes
TSMC / Virage Logic........... Q3 1999 MoSys and Virage Logic to co-develop compilers for
TSMC's standard logic processes
Lexra......................... Q2 1999 Joint marketing of processor cores with 1T-SRAM
TSMC.......................... Q1 1999 Port technology to TSMC's standard logic processes
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RESEARCH AND DEVELOPMENT
Our ability to compete in the future will depend on improving our technology to meet the market's increasingly demanding performance and cost requirements. We have assembled a team of highly skilled engineers whose activities are focused on developing even higher-density, lower-power-consumption, higher-speed and lower-cost 1T-SRAM designs. We expect to continue to focus our research and development efforts on extending our 1T-SRAM technology and developing new memory technologies. We will also continue our focus on porting our technology to additional semiconductor manufacturing facilities and scaling our technology to new generations of manufacturing process technologies.
As of June 30, 2000, we employed 22 engineers, representing 59% of our employees, with specific expertise in circuit design and layout and in a variety of manufacturing processes. For the years ended 1997, 1998 and 1999, research and development expenditures totaled approximately $3.6 million, $4.2 million and $3.4 million, respectively. During the first six months of 2000, our research and development expenditures were approximately $1.6 million.
TECHNOLOGY
Our innovative 1T-SRAM technology includes many new and proprietary architectural features. Development of our stand-alone memory products during the early years of our existence was critical to validating elements of the 1T-SRAM technology we license today. This technology combines the high density advantages of DRAM with the high performance and utility of SRAM. Underlying this architecture are several distinct pieces of proprietary technology.
SINGLE-TRANSISTOR MEMORY CELL
The high density of 1T-SRAM stems from the use of a single-transistor, or 1T, storage cell for each bit of information, which is similar to DRAM. Our 1T storage cell using one transistor and one capacitor represents a very significant improvement in density over the six-transistor storage cells used by traditional SRAM.
The following diagrams illustrate the difference between the traditional SRAM storage cell and our 1T-SRAM storage cell. The diagrams are drawn to scale, but not to actual size.
[EDGAR REPRESENTATION OF PRINTED GRAPHIC]
[THE GRAPHIC ON THE LEFT, LABELED "SIX TRANSISTOR STORAGE CELL SCHEMATIC",
ILLUSTRATES THE BASIC STRUCTURE OF A SIX TRANSISTOR SRAM MEMORY CELL. THE
ILLUSTRATION SHOWS WORD LINES AND BIT LINES CONNECTED BY SIX TRANSISTORS, WHICH
ARE REPRESENTED BY THEIR NORMAL ELECTRICAL SCHEMATIC SYMBOLS. THE GRAPHIC ON THE
RIGHT, LABELED "1T-SRAM STORAGE CELL SCHEMATIC", ILLUSTRATES THE BASIC STRUCTURE
FOR A 1T-SRAM MEMORY CELL. THIS ILLUSTRATION SHOWS A WORD LINE AND BIT LINE
CONNECTED BY ONE TRANSISTOR, AGAIN REPRESENTED BY ITS NORMAL ELECTRICAL
SCHEMATIC SYMBOL.]
[UNDERNEATH EACH OF THE SCHEMATICS, THERE IS A SQUARE THAT REPRESENTS THE AREA OF THE MEMORY CELL. THE SIX TRANSISTOR SRAM SQUARE IS SIGNIFICANTLY LARGER THAN THE 1T-SRAM SQUARE.]
MULTIBANK TECHNOLOGY
The high speed and low power consumption of 1T-SRAM are enabled by our MultiBank technology, as illustrated below. This technology efficiently partitions the memory into many, typically hundreds, of fast, small sub-blocks of memory, or banks, that can operate independently over high-speed data buses. Only one small bank containing
the required memory data must be active for each access to the memory. Therefore, the remaining banks can stay in a low-power, standby mode, reducing the overall power consumption of the memory.
[EDGAR REPRESENTATION OF PRINTED GRAPHIC]
[GRAPHIC DEPICTS MOSYS' MULTIBANK PARTITIONING TECHNOLOGY USED IN 1T-SRAM. IT
CONSISTS OF MANY ROWS AND COLUMNS REPRESENTING BANK CELLS, WITH TWO-WAY
HORIZONTAL ARROWS REPRESENTING HIGH SPEED DATA BUSES CROSSING THROUGH THE BANKS
AND TERMINATING AT A RECTANGULAR COLUMN ON THE RIGHT, LABELED "SRAM INTERFACE".]
STANDARD SRAM INTERFACE
Our architecture incorporates all of the circuitry required to present the simple high performance interface to which integrated circuit designers are accustomed. Our 1T-SRAM technology appears to the rest of the integrated circuit and the designer as if it were traditional SRAM.
ABILITY TO USE STANDARD LOGIC MANUFACTURING PROCESS
Another key area of innovation in our 1T-SRAM memory technology is the ability to use a standard logic manufacturing process. This is advantageous because standard logic is the most widely available process. As many of the other functions on an integrated circuit are implemented in a standard logic process, the ability to implement 1T-SRAM memories using the same process saves time and costs for the manufacturer. Other embedded memory technologies do not achieve the same density and performance using the standard logic process.
LICENSED TECHNOLOGY AND STAND-ALONE PRODUCTS
We license the 1T-SRAM technology in the form of customized memory designs and memory compilers. Compilers are software programs that translate required memory design parameters into actual physical circuit designs. We also make and sell stand-alone memory products based on our 1T-SRAM technology.
LICENSED MEMORY DESIGNS
We offer standard memory designs and generate customized memory designs to meet a specific customer's design parameters. We also offer a variety of options for interface and power management. Our licensed memory designs can be ported to the manufacturing processes of leading foundries and semiconductor manufacturers.
The table below details the variety of specifications of our customized memory designs.
------------------------------------------------------------------------------------------------- PROCESS GENERATION 0.25-MICRON 0.18-MICRON 0.15-MICRON ------------------------------------------------- -------------- ------------- ------------- Silicon Verification............................. September 1999 January 2000 May 2000 Typical Macro Size............................... 1-16 megabits 1-32 megabits 1-48 megabits Random Access Speed.............................. 100-250 MHz 100-350 MHz 100-400 MHz |
MEMORY COMPILERS AND COMPILED MEMORY SOLUTIONS
In January 2000, we announced 1T-SRAM compilers for TSMC's 0.18-micron and 0.15-micron standard logic processes as part of a joint development agreement with Virage Logic. Under this agreement, we will license these compilers to enable our licensees and their customers to automatically generate and configure 1T-SRAM designs. In addition to licensing the 1T-SRAM compilers, companies will be able to license standard 1T-SRAM pre-compiled memory designs from us. We expect to develop additional 1T-SRAM compilers for other processes at TSMC and other foundries.
STAND-ALONE MEMORY PRODUCTS
We offer a range of stand-alone memory products that utilize the 1T-SRAM technology and offer high performance and low power consumption but are cost competitive with other commercially available memory products. We have developed these 1T-SRAM products in a number of configurations, bit densities and clock speeds to support specific targeted products. We sell our products mostly to suppliers of communications equipment, such as Accton Technology Corporation, Cisco Systems, Inc., Cobalt Networks, Foundry Networks, Integral Technologies, International Business Machines Corporation, Lucent and Maxtek Technology Company, Ltd. In addition to these existing stand-alone memory products, we are currently developing new products based on the 1T-SRAM technology for our customers.
We also sell a limited number of stand-alone memory products based on some of our earlier technologies to customers who have incorporated these integrated circuits into their existing product lines.
INTELLECTUAL PROPERTY
We regard our patents, copyrights, trademarks, trade secrets and similar intellectual property as critical to our success, and rely on a combination of patent, trademark, copyright, and trade secret laws to protect our proprietary rights. As of June 30, 2000, we held 30 U.S. patents on various aspects of our technology, with expiration dates ranging from 2013 to 2018. Our 1T-SRAM technology incorporates technology covered by seven patents. We currently have 20 pending U.S. patent applications, and have received notices of allowance with respect to two of these applications. We also hold eight foreign patents with expiration dates ranging from 2009 to 2019, and 21 pending foreign patent applications. There can be no assurance that others will not independently develop similar or competing technology or design around any patents that may be issued to us, or that we will be able to be able to enforce our patents against infringement.
The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. While we have not received formal notice of any infringement of the rights of any third party, questions of infringement in the semiconductor field involve highly technical and subjective analyses. Litigation may be necessary in the future to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity, and there can be no assurance that we would prevail in any future litigation. Any such litigation,
whether or not determined in our favor or settled by us, would be costly and would divert the efforts and attention to our management and technical personnel from normal business operations, which would have a material adverse effect on our business, financial condition and results of operations. Adverse determinations in litigation could result in the loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties or prevent us from licensing our technology, any of which could have a material adverse effect on our business, financial condition and results of operations. Moreover, the laws of certain foreign countries in which our technology is or may in the future be licensed may not protect our intellectual property rights to the same extent as the laws of the United States, thus increasing the possibility of infringement of our intellectual property.
SALES AND MARKETING
We market our technology to semiconductor companies, electronic product manufacturers, foundries and design companies. An important element of our strategy is to offer our 1T-SRAM technology broadly in order to establish it as the standard in the embedded memory market. In order to focus our sales and marketing resources, we generally enter into a license when the licensee has identified an initial product that will utilize our technology. The licensee can then incorporate the technology into additional products under the terms of the original license.
Our licensees and co-marketers act as distribution channels by incorporating our technology into their integrated circuits or manufacturing processes. Our licensees include semiconductor manufacturers, fabless semiconductor companies and electronic product manufacturers. Our co-marketers include foundries, intellectual property companies and design service companies, as they all can help proliferate our technology to semiconductor manufacturers and fabless semiconductor companies. Semiconductor manufacturers and fabless semiconductor companies can also use our technology for their customers, electronic product manufacturers. They introduce our technology to their customers, who in turn could incorporate our technology into their future product specifications. These distribution channels reduce our need to build a large, internal sales force.
Below is an illustration of our sales and marketing channels:
[EDGAR REPRESENTATION OF PRINTED GRAPHIC]
[SALES CHANNEL STRUCTURE DIAGRAM]
[GRAPHIC DEPICTS OUR SALES CHANNEL STRUCTURE. THE MOSYS LOGO, LOCATED AT THE
TOP OF THE DIAGRAM, HAS ARROWS POINTING TO THREE SALES CHANNELS, REPRESENTED
BY THREE BOXES LABELED "FOUNDRIES AND IP/DESIGN SERVICE COMPANIES",
"SEMICONDUCTOR MANUFACTURERS" AND "FABLESS SEMICONDUCTOR COMPANIES". THESE
THREE BOXES HEAD VERTICAL COLUMNS ACROSS THE PAGE, FROM LEFT TO THE RIGHT.
THE LEFT BOX LABELED "FOUNDRIES AND IP/DESIGN SERVICE COMPANIES" HAS LOGOS
FOR TSMC, UMC AND VIRAGE LOGIC UNDER IT, AND ARROWS POINTING TOWARD THE OTHER
TWO COLUMNS. THE MIDDLE BOX LABELED "SEMICONDUCTOR MANUFACTURERS" HAS LOGOS
FOR LSI LOGIC AND NEC UNDER IT, AND ARROWS POINTED TOWARD THE COLUMN LABELED
"FABLESS SEMICONDUCTOR COMPANIES". THE RIGHT BOX LABELED "FABLESS
SEMICONDUCTOR COMPANIES" HAS LOGOS FOR ALLAYER COMMUNICATIONS, GALILEO AND
PIXELWORKS BELOW IT. THE MOSYS LOGO AND THE THREE SALES CHANNEL COLUMNS ALSO
POINT TO A BOX AT THE BOTTOM OF THE PAGE, TITLED "ELECTRONIC PRODUCT
MANUFACTURERS".]
Our sales and marketing efforts also include technical support for our licensees and customers, publishing articles in trade and research journals and participation in trade shows and other traditional marketing activities. As of June 30, 2000, our sales and marketing staff included eight people, with six based in our corporate
headquarters in Sunnyvale, California, one based in our sales office in Melrose, Massachusetts and one based in Helsinki, Finland. We also have 17 stand-alone product representatives in North America and Asia.
COMPETITION
In order to remain competitive, we believe we must continue to provide higher-density, lower-power-consumption, higher-speed and lower-cost technology solutions to the semiconductor industry and electronic product manufacturers. We believe that the principal competitive factors in our industry are -
- density and cost;
- power consumption;
- speed;
- portability to different manufacturing processes;
- scalability to different manufacturing process generations;
- interface requirements; and
- the ease with which technology can be customized for and incorporated into customers' products.
Our customers and prospective customers can meet their current needs for embedded memory using other memory solutions with different cost and performance parameters. Many companies provide these solutions, including several which are much larger and have greater access to financial, technical and other resources.
We believe that our 1T-SRAM technology offers a high degree of overall performance improvement over traditional SRAM. We have spent significant time and resources in developing our 1T-SRAM memory architecture. We believe that many of the companies offering other solutions could seek to license our technology because the cost of a license from us would be lower than the cost and time required to independently develop a directly competing technology.
MANUFACTURING
We have designed the architecture of our 1T-SRAM technology so that our licensees can manufacture it in standard logic process as well as other widely used embedded memory processes.
For our stand-alone memory products, we implement a fabless manufacturing strategy by using relationships with independent foundries. Today, we rely predominantly upon TSMC for our stand-alone product manufacturing. We also use domestic and offshore subcontractors for assembly, testing and packaging. Assembly and test services provided by these subcontractors comply with the requirements of ISO-9000.
EMPLOYEES
As of June 30, 2000, we had 37 full time employees, consisting of 22 in research and development, eight in sales and marketing, four in finance and administration and three in operations management. We believe our future success will depend, in part, on our ability to continue to attract and retain qualified technical and management personnel, particularly highly skilled design engineers involved in new product development, for whom competition is intense. Our employees are not represented by any collective bargaining unit and we have not experienced any work stoppage. We believe that our employee relations are good.
FACILITIES
Our principal administrative, sales, marketing, support and research and development functions are located in a leased facility in Sunnyvale, California. We currently occupy approximately 19,500 square feet of space in the Sunnyvale facility, the lease for which extends through June 2005. We hold an option to extend our lease for three additional years. We believe that our existing facility is adequate to meet our current needs.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors and executive officers of our company as of July 31, 2000.
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NAME AGE POSITION
------------------------------------- -------- ------------------------------------------------------------
Fu-Chieh Hsu......................... 44 Chairman of the Board, President and Chief Executive Officer
Wing-Yu Leung........................ 45 Executive Vice President and Chief Technical Officer,
Director and Secretary
Mark-Eric Jones...................... 45 Vice President and General Manager - Intellectual Property
F. Judson Mitchell................... 64 Vice President, Finance & Administration, Chief Financial
Officer
Andre Hassan......................... 40 General Manager - Discrete Products
Carl E. Berg(1)(2)................... 61 Director
Denny R. S. Ko(1)(2)................. 60 Director
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(1) Member of Audit Committee
(2) Member of Compensation Committee.
FU-CHIEH HSU has served as our Chairman of the Board since September 1991 and as our President and Chief Executive Officer since April 1992. Dr. Hsu also served as our Chief Financial Officer from April 1992 until May 1996. Prior to joining our company, Dr. Hsu was the President and Chairman of the Board of Myson Technology, Inc., a developer of high performance semiconductor products from August 1990 to August 1991. From May 1985 to August 1990, Dr. Hsu served as Vice President and Chief Technology Officer of Integrated Device Technology, Inc., or IDT, a developer of high performance semiconductor products and modules. Dr. Hsu holds a B.S. in electrical engineering from National Taiwan University and an M.S. and Ph.D. in electrical engineering from the University of California at Berkeley.
WING-YU LEUNG has served as our Vice President, Engineering and Chief Technical Officer and as a member of our board of directors since April 1992. Dr. Leung also served as our Secretary from April 1992 until May 1996 and again since May 1997. Prior to joining our company, Dr. Leung served as a technology consultant to several high technology companies, including Rambus, Inc., or Rambus, a developer of a high-speed chip-to-chip interface technology. Prior to that time, Dr. Leung served as a member of the technical staff of Rambus, and as a senior engineering manager at IDT, where he managed and participated in circuit design activities. Dr. Leung holds a B.S. in electrical engineering from the University of Maryland, an M.S. in electrical engineering from the University of Illinois and a Ph.D. in electrical engineering and computer science from the University of California at Berkeley.
MARK-ERIC JONES has served as our Vice President and General Manager - Intellectual Property since October 1998. Prior to joining our company, Mr. Jones served as Director, Intellectual Property Division of Mentor Graphics Corporation., a developer of EDA tools and provider of intellectual property from January 1996 to September 1998. Mr. Jones founded 3SOFT, Inc., a developer of intellectual property and served as its President and Chief Executive Officer from May 1976 to January 1996. Mr. Jones holds a M.A. from Trinity College, University of Cambridge, United Kingdom.
F. JUDSON MITCHELL has served as our Vice President of Finance and Administration and Chief Financial Officer since July 2000. Prior to joining our company, Mr. Mitchell served as Vice President and Chief Financial Officer of Wavespan, Inc., a manufacturer of microwave radio links from November 1997 until December 1999. Prior to that time, Mr. Mitchell served as a financial consultant to high technology companies. Mr. Mitchell also served as Vice President and Chief Financial Officer of the DSP Group from August 1993 until September 1995. Mr. Mitchell has also served as Chief Financial Officer of Adaptec, Inc., IXYS Corporation and Finnigan
Corporation. Mr. Mitchell holds a B.S. in Mechanical Engineering and an A.B. in Liberal Arts from Columbia College in New York and an M.B.A. from the Stanford Graduate School of Business.
ANDRE HASSAN has served as our General Manager - Discrete Products since January 1999. Prior to this, Mr. Hassan was Director of Marketing from February 1996 to December 1998. Prior to joining our company, Mr. Hassan served as Strategic Marketing Manager for S3, Inc., a developer of semiconductor multimedia products from June 1994 to January 1996. Mr. Hassan holds a B.S. in electrical engineering from Worcester Polytechnic Institute.
CARL E. BERG has served as a member of our Board of Directors since September 1992. Since 1997, Mr. Berg has served as the Chairman of the Board and Chief Executive Officer of Mission West Properties, Inc., a real estate investment trust. Mr. Berg is also the President of the sole General Partner of West Coast Venture Capital Ltd. Mr. Berg has been actively engaged in the ownership, development and management of industrial real estate and in venture capital investment for over 30 years. He currently serves as a member of the board of directors for IDT, Valence Technology, Inc., a developer of advanced rechargeable battery technology, and Videonics, Inc., a developer of post-production video equipment. Mr. Berg holds a B.A. in business from the University of New Mexico.
DENNY R. S. KO has served as a Member of our Board of Directors since May 1994. Dr. Ko has been managing general partner of DynaFund Ventures, a venture capital firm, since August 1997. Dr. Ko also serves as Chairman of the Board of Dynamic Technologies, Inc., a technical research, engineering and consulting company, which he founded in 1976. Dr. Ko holds a B.S. in mechanical engineering from National Taiwan University, an M.S. in aeronautical sciences from the University of California at Berkeley and a Ph.D. in aeronautics and applied mathematics from the California Institute of Technology.
DIRECTOR COMPENSATION
Members of our board of directors do not receive compensation for their services as directors. Under our 1996 stock plan we have authorized the grant of options to purchase 10,000 shares of our common stock in each of the fiscal years 1997 through 2000 to our two non-employee directors. Each of these grants vests at a rate of 1/12th of the shares each month in the fiscal year.
Our 2000 employee stock option plan provides that options will be granted to our non-employee directors pursuant to an automatic, nondiscretionary grant mechanism. Beginning with the 2001 annual meeting, each non-employee director will receive automatically a grant of an option to purchase 10,000 shares of our common stock at the first meeting of our board of directors after each annual meeting of stockholders. Each option will be granted at the fair market value of the common stock on the date of grant. The options granted to non-employee directors will vest at a rate of 1/12th of the shares each month following the date of grant. No additional options will be granted to our non-employee directors in any year for which the director has already been granted options in a like or greater number.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee is responsible for determining salaries, incentives and other forms of compensation for directors, officers and other employees, and administers our incentive compensation and benefit plans. The compensation committee consists of Carl Berg and Denny Ko. Dr. Hsu participates in all discussions and decisions regarding salaries and incentive compensation for all of our employees and consultants, except that he is excluded from discussions regarding his own salary and incentive compensation. During 1999, none of our executive officers served as a member of the board of directors or compensation committee of any entity that had one or more of its executive officers serving as a member of our board of directors or compensation committee.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth in summary form information concerning the compensation of our Chief Executive Officer and our other executive officers, referred to in this prospectus as the named executive officers, whose salary and bonus for 1999 exceeded $100,000 and who were serving as officers as of the end of 1999. Mr. Voll resigned in July 2000.
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ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------- -----------------------------
NAME SALARY SECURITIES UNDERLYING OPTIONS
------------------------------------------------------------ -------------------- -----------------------------
Fu-Chieh Hsu................................................ $ 210,000 35,000
Wing-Yu Leung............................................... 175,002 30,000
Mark-Eric Jones............................................. 170,000 -
Mark Voll................................................... 130,000 15,000
Andre Hassan................................................ 110,539 60,000
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OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants made to each of the named executive officers in 1999. Each stock option was awarded under our 1996 stock plan and vests in 12 equal installments from the executive's respective vesting commencement date or dates. The per share purchase price of all of these options represents our board of directors' determination of the fair market value of our common stock on the grant date.
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POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES EXERCISE ---------------------
NAME GRANTED IN 1999 PRICE EXPIRATION DATE 5% 10%
-------------------------------- ---------- ---------- -------- --------------- --------- ---------
Fu-Chieh Hsu.................... 35,000 6.3% $ 1.00 May 17, 2009 $22,011 $55,781
Wing-Yu Leung................... 30,000 5.4 1.00 May 17, 2009 18,867 47,812
Mark-Eric Jones................. - - - - - -
Mark Voll....................... 15,000 2.7 1.00 May 17, 2009 9,433 23,906
Andre Hassan.................... 60,000 10.8 1.00 May 17, 2009 37,734 95,625
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The percentage of total options granted is based upon options to purchase an aggregate of 554,000 shares of common stock granted during the fiscal year ended December 31, 1999 to our employees, including the named executive officers and outside directors.
Amounts described under the heading "Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term" were calculated by assuming that the market price of our common stock appreciates 5% and 10% each year from the date of grant of the options until the expiration of the options. These assumed annual rates of appreciation were used in compliance with the rules of the Securities and Exchange Commission and are not intended to forecast future price appreciation of our common stock. The actual value realized from the options could be substantially higher or lower than the values reported above, depending upon the future appreciation or depreciation of the common stock during the option period and the timing of the exercise of the options. Unless the executive officer remains employed until he vests in the option shares and the market price of the common stock appreciates over the option term, no value will be realized from the option grants made to the executive officers.
The grants to Drs. Hsu and Leung have a vesting commencement date of July 1, 2002. We made four grants to Mr. Hassan in 1999, in the amounts of 6,000 shares, 19,000 shares, 25,000 shares and 10,000 shares. The vesting commencement dates for these grants are February 12, 1999, 2000, 2001 and 2002, respectively. The grant of an option to purchase 15,000 shares to Mr. Voll had a vesting commencement date of April 6, 2002. Due to Mr. Voll's resignation in July 2000, this option has lapsed without exercise.
FISCAL YEAR END OPTION AND VALUES
None of our named executive officers exercised stock options in the fiscal year ended December 31, 1999. The following table sets forth information concerning the number and value of unexercised options held by each of our named executive officers on December 31, 1999. The value of "in-the-money" options represents the positive spread between the exercise price of the options and the fair market value of our common stock. There was no public market for our common stock as of December 31, 1999. Accordingly, for the purpose of this table only, the fair market value on December 31, 1999 is deemed to be the initial public offering price of $ per share.
Pursuant to the option agreements regarding these grants, option holders may elect to exercise all or any part of their vested and unvested options at any time. Any shares of common stock received by the optionee on exercise of unvested options become subject to our right of repurchase pursuant to a restricted stock purchase agreement. The number of shares so obtained that are subject to our right of repurchase decreases over time in accordance with the vesting schedule applicable to the unvested options exercised. Accordingly, all options granted to the named executive officers under the 1996 plan are deemed to be exercisable for the purpose of the following table.
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NUMBER OF SHARES OF COMMON
STOCK UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR END OPTIONS AT YEAR END
---------------------------- ---------------------------------
Fu-Chieh Hsu...................................... 140,500 $
Wing-Yu Leung..................................... 100,000
Mark-Eric Jones................................... 350,000
Mark Voll......................................... 165,000
Andre Hassan...................................... 201,000
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Of the options to purchase 165,000 shares granted to Mr. Voll, options to purchase shares remained exercisable at July 31, 2000.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
Our bylaws provide that we will indemnify our directors and executive officers and may indemnify our other officers, employees and other agents to the fullest extent permitted by Delaware law. Our bylaws allow us to enter into indemnification agreements with our directors and officers and to purchase insurance for any person whom we are required or permitted to indemnify. We are presently in the process of obtaining a policy of directors' and officers' liability insurance that insures these people against the cost of defense, settlement or payment of a judgment under certain circumstances.
We intend to enter into agreements with our directors and executive officers regarding indemnification. Under these agreements, we will indemnify them against amounts actually and reasonably incurred in connection with an actual or threatened proceeding if they are made a party because of their role as a director or officer. We will be obligated to pay these amounts only if the officer or director acted in good faith and in a manner that he reasonably believed to be in or not opposed to our best interest. With respect to any criminal proceeding, we are obligated to pay these amounts only if the officer or director had no reasonable cause to believe his conduct was unlawful.
In addition, our certificate of incorporation filed in connection with this offering provides that the liability of our directors for monetary damages shall be eliminated to the fullest extent permissible under Delaware law. This provision does not eliminate a director's duty of care. Each director will continue to be subject to liability for -
- breaches of the director's duty of loyalty to us;
- acts or omissions not in good faith or involving intentional misconduct or knowing violations of law;
- acts or omissions that the director believes to be contrary to the best interests of our company or our stockholders;
- any transaction from which the director derived an improper personal benefit;
- improper transactions between the director and our company;
- improper distributions to stockholders; and
- improper loans to directors and officers.
There is no pending litigation or proceeding involving any of our directors or officers for which indemnification is being sought, nor are we aware of any threatened claim that could result in indemnification of any director or officer.
BENEFIT PLANS
2000 EMPLOYEE STOCK OPTION PLAN
Our 2000 employee stock option plan, or our 2000 plan, has been adopted by our board of directors and will be approved by our stockholders in connection with our reincorporation in the state of Delaware.
A total of 5,000,000 shares of common stock have been reserved for issuance under the 2000 plan. In addition, the 2000 plan provides for an annual increase in the number of shares reserved under the plan on January 1 of each year, equal to the lesser of 500,000 shares, two percent of our outstanding shares of common stock on such date or a lesser amount determined by the board of directors. The 2000 plan provides for grants to employees, including officers and employee directors, of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or the code, and for grants of nonstatutory stock options to employees, including officers and employee directors, and to consultants. The purpose of the 2000 plan is to attract and retain the best available personnel and to encourage stock ownership by employees, officers, and consultants in order to give them a greater personal stake in our success. The 2000 plan is administered by the board of directors or by a committee appointed by the board, which identifies optionees and determines the terms of options granted, including the exercise price, number of shares subject to the option and the timing and terms of exercise.
The term of options granted under the 2000 plan may not exceed ten years. The term of all incentive stock options granted to an optionee who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of our stock may not exceed five years. Generally, 25% of the options granted under the 2000 plan will vest and become exercisable on the first anniversary of the date of grant, and 1/48th of the options will vest and become exercisable each month thereafter.
The exercise price of incentive stock options granted under the 2000 plan must be at least equal to the fair market value of the shares on the date of grant. The exercise price of nonstatutory stock options granted under the 2000 plan will be determined by the board of directors, but in no event will be less than 85% of the fair market value of the common stock on the date of grant. The exercise price of any incentive stock option or nonstatutory stock option granted to a ten-percent stockholder must equal at least 110% of the fair market value of the common stock on the date of grant.
1996 STOCK PLAN
Our 1996 stock plan, or the 1996 plan, was adopted by the board of directors of our California predecessor and approved by its shareholders in May 1996. The 1996 plan will be assumed in connection with our Delaware reincorporation prior to the effectiveness of this offering. As of June 30, 2000, options to purchase 1,967,813 shares of common stock were outstanding under the 1996 plan. After this offering, we do not intend to make additional option grants under the 1996 plan.
The terms of the 1996 plan are generally consistent with the terms of the 2000 plan described above. In making grants under the 1996 plan, the board of directors gave all optionees the right to exercise their options, including unvested options, immediately, subject to the optionee's execution and delivery of a restricted stock purchase agreement. This agreement gives us the right to repurchase all shares obtained by an optionee from the early exercise of unvested options upon the termination of the optionee's employment or consulting relationship with our company. The repurchase price of these shares in that event is equal to the exercise price of the underlying option. Our repurchase right lapses as to these shares according to the vesting schedule applicable to the underlying option. As of June 30, 2000, no shares obtained by exercise of unvested options under the 1996 plan were outstanding and subject to our right of repurchase.
1992 STOCK OPTION PLAN
Our 1992 stock option plan, or the 1992 plan, was adopted by the board of directors of our California predecessor and approved by its shareholders in August 1992. No options have been granted under the 1992 plan since 1996. The 1992 plan will be assumed in connection with our Delaware reincorporation prior to the effectiveness of this offering. As of June 30, 2000, options to purchase 348,300 shares of our common stock were outstanding under the 1992 plan. As was done under the 1996 plan, the board of directors gave all optionees under the 1992 plan the right to exercise all options immediately, including unvested options, subject to the optionee's execution and delivery of a restricted stock purchase agreement. As of June 30, 2000, no shares obtained by exercise of unvested options under the 1992 plan were outstanding and subject to our right of repurchase.
The terms of the 1992 plan are generally consistent with the terms of the 2000 plan. The 1992 plan gave the board full discretion in establishing the vesting schedule of options granted under it. All outstanding options granted under the 1992 plan have fully vested as of June 30, 2000.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 employee stock purchase plan, or the purchase plan, has been adopted by the board of directors and will be approved by our stockholders in connection with our Delaware reincorporation. A total of 200,000 shares of common stock will be reserved for issuance under the purchase plan. In addition, the purchase plan provides for an annual increase in the number of shares reserved under the plan on January 1 of each year, equal to the lesser of 100,000 shares, one percent of our outstanding shares of common stock on such date or a lesser amount determined by the board of directors. The purchase plan, which is intended to qualify under Section 423 of the code, will be administered by the board of directors or a committee appointed by the board of directors.
Employees, including officers and employee directors but excluding 5% stockholders, are eligible to participate if they are customarily employed for at least 20 hours per week and for more than five months in any calendar year. The purchase plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 10% of an employee's compensation. Employees will be permitted to invest a maximum of $25,000 in any offering period.
The purchase plan will be implemented in a series of overlapping offering periods, each to be approximately 12 months in duration. The initial offering period under the purchase plan will begin on the pricing date of this offering and expires on the third enrollment date, which is the first day of the third offering period. Offering periods begin on the first trading day on or after January 1 and July 1 of each year and end on the last trading
day in the period ending twelve months later. Each participant will be granted an option on the first day of the offering period, and such option will be automatically exercised on the last day of each offering period. The purchase price of the common stock under the purchase plan will be equal to 85% of the lesser of the fair market value per share of common stock on the start date of the offering period or on the date on which the option is exercised. Employees may end their participation in an offering period at any time during that period, and participation ends automatically on termination of employment with us. The purchase plan will terminate in June 2010, unless sooner terminated by the board of directors.
As of the date of this prospectus, no shares have been issued under the purchase plan.
401(k) PLAN
We have adopted a tax-qualified employee savings and retirement plan, referred to in this prospectus as the 401(k) plan. All full-time employees who are at least 21 years old are eligible to participate as of their date of hire. Eligible employees may elect to defer between one percent and fifteen percent of their compensation in the 401(k) plan, subject to the statutorily prescribed annual limit. We may make matching contributions on behalf of all participants in the 401(k) plan in an amount determined by our board of directors. We also may make discretionary profit-sharing contributions in amounts determined by the board of directors, subject to statutory limitations on contributions made by employees and employers under such plans. Employees must complete a minimum of 500 hours of service during a year to be eligible for profit-sharing contributions.
Matching contributions and all earnings on these contributions are subject to a vesting schedule, providing for ratable vesting in equal annual installments over five years. All other contributions and earnings are fully vested at all times. Employees may borrow from the 401(k) plan, and may request withdrawal from their account in the case of hardship or on attainment of age 59 1/2.
The 401(k) plan is intended to qualify under Sections 401 and 501 of the Internal Revenue Code of 1986, as amended, so that contributions by employees or by us to the 401(k) plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) plan, and so that contributions by us, if any, will be deductible by us when made. The trustee under the 401(k) plan, at the direction of each participant, invests the assets of the 401(k) plan in any of a number of investment options.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
We currently have confidentiality and invention assignment agreement in place with the named executive officers. We do not, however, have any compensatory plan or arrangement with the named executive officers that is activated upon the resignation, termination or retirement of any of these executive officer or upon a change in control of our company.
The employment offer letter between us and our Chief Financial Officer, F. Judson Mitchell, provides for the immediate vesting of all stock options granted to Mr. Mitchell, which are exercisable for an aggregate of 250,000 shares of common stock, upon the termination of Mr. Mitchell's employment without cause in connection with or within 12 months following a change of control of our company. In addition, the letter provides that Mr. Mitchell will receive a severance payment of one fourth of his annual salary if he is terminated at any time without cause. The letter defines cause to mean an intentional, material act of fraud or dishonesty in connection with his employment, his conviction of a felony, his willful act injurious to us or his willful failure to perform substantially his duties.
RELATED PARTY TRANSACTIONS
FINANCING TRANSACTIONS
In 1996, we entered into note and warrant purchase agreements with two of our directors, Denny Ko and Carl Berg, certain preferred stockholders and other unrelated parties, pursuant to which we borrowed an aggregate of $13.1 million. The notes had an interest rate of 8.25% per annum and a maturity date of May 31, 1998. Each noteholder received a warrant to purchase a number of shares of our common stock determined by dividing half the principal amount of the note by the exercise price of the warrant at the time of subscription. The exercise price ranged from $6.50 to $8.50. These warrants had an expiration date of May 31, 1998.
In June 1997, upon cancellation of the note and warrant purchase agreements, $6,703,200 of the principal was converted into Series F preferred stock at a conversion price of $5.50 per share. In connection with this conversion, all of the outstanding warrants held by the noteholders were exchanged for new warrants. We issued 196,037 shares of Series F preferred stock and a warrant to purchase 196,037 shares of common stock to West Coast; 588,848 shares of Series F preferred stock and a warrant to purchase 588,848 shares of common stock to DynaTech Capital; and 51,012 shares of Series F preferred stock and a warrant to purchase 51,012 shares of common stock to Denny Ko. Carl Berg is the President and sole general partner of West Coast. Denny Ko is the managing general partner of DynaFund Ventures and the Chairman of the Board of DynaTech Capital.
In May 1998, we repaid the remaining principal balance of $6,418,000 and the accrued interest owed under the notes.
TRANSACTIONS WITH M-ONE
In 1993, we formed M-One Technology Corporation, or M-One, as a wholly-owned subsidiary incorporated under the laws of the Republic of China. The intended business activities of M-One were to manufacture and sell our products under two licenses from us. We contributed $1.5 million in cash to M-One in connection with its formation. Subsequently, M-One paid us $700,000 in cash for the license of some of our technology.
In 1994, we spun off M-One to our stockholders. As a result, our principal stockholders, including Drs. Hsu and Leung, became the principal stockholders of M-One. We assumed responsibility for the intended business activities, including the production and sale of its products, and liabilities of M-One in 1995. Due to continued operating losses, significant accumulated deficits and difficult market conditions, M-One ceased its operations in 1997 and terminated all of its employees.
In October 1995 and April 1996, Tseng Labs, Inc. loaned M-One $1.5 million and $5.0 million, respectively, in order to secure M-One's obligation to make available to it certain of our products that M-One was manufacturing. We guaranteed M-One's obligations under these loans, and in connection with the $5.0 million April 1996 loan, we granted Tseng Labs a conversion right that would permit it to purchase up to $2.5 million of our common stock at a per share price of $6.50 prior to April 22, 1997, and $8.50 thereafter. In March 1997, we repaid in full the loans owed to Tseng Labs and the corresponding conversion right held by Tseng Labs was terminated.
LOANS TO EXECUTIVE OFFICERS
On January 13, 1995 and June 13, 1995, in connection with the formation of M-One, we made loans in the form of secured, full-recourse promissory notes, each with an annual interest rate of 7% per year compounded annually, for the principal amounts of $125,375 and $130,000, respectively, to Fu-Chieh Hsu and Wing-Yu Leung. These loans each had a maturity date of the fifth anniversary of the date of issuance. In December 1997, Drs. Hsu and Leung repaid in full their respective notes.
TRANSACTIONS WITH TSMC
We and M-One entered into an option agreement with TSMC in November 1995 to secure manufacturing capacity of TSMC. Pursuant to the option agreement, we issued two promissory notes to TSMC, one in the amount of
$29.4 million with a maturity date of November 1996 and one in the amount of $5.9 million with a maturity date of June 1997.
On September 23, 1996, we amended the agreement. Under the terms of this amendment, the promissory notes referenced above were canceled and we issued to TSMC six new promissory notes totaling $23.4 million with varying due dates ranging from 1997 through 2000. These notes did not bear interest until they became due, at which date a rate of 10% per annum was to be applied on any unpaid amounts. We paid $840,000 to TSMC in 1997 in accordance with the amended agreement. In connection with this amendment, we issued TSMC a warrant to purchase 3,392,310 shares of our common stock at $6.50 per share.
On January 1, 1998, we again amended the option agreement to cancel the promissory notes signed under the 1996 amendment. We issued to TSMC five new promissory notes totaling $22.5 million with due dates ranging from November 1998 through June 2001. The other terms of the original agreement remained substantially the same.
On August 6, 1998, we and TSMC terminated the option agreement, as amended, including all obligations and rights of the parties under the agreement and all warrants to purchase our common stock held by TSMC. In connection with this termination, we issued to TSMC a warrant to purchase 1,200,000 shares of our common stock at an exercise price of $6.50. TSMC may exercise this warrant any time prior to August 6, 2002.
In March 1999, we entered in a development and promotion agreement with TSMC. This agreement required us to develop a demonstration macro for TSMC's 0.25-micron standard logic process. We completed our obligations under this agreement in the first quarter of 2000, for which TSMC paid us $60,000.
In October 1999, we signed a memorandum of understanding, or MOU, with TSMC and Virage Logic. The MOU sets the parameters for a future agreement requiring us to develop a compiler for TSMC's 0.18-micron and 0.15-micron standard logic manufacturing processes in conjunction with Virage Logic. In connection with the development of the compiler, TSMC has agreed to pay $250,000 to us.
In addition to the above agreements, we have paid TSMC $13.4 million, $24.1 million, $7.8 million and $1.5 million in fiscal 1997, 1998, 1999 and the first six months of 2000, respectively, for the purchase of wafers.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of common stock as of July 31, 2000 for -
- each person known to our management to beneficially own more than 5% of our outstanding common stock,
- each of our directors,
- each of the named executive officers, and
- all executive officers and directors as a group.
Beneficial ownership is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and includes all shares over which the beneficial owner exercises voting or investment power. Options and warrants to purchase common stock that are presently exercisable or exercisable within 60 days of July 31, 2000 and are included in the total number of shares beneficially owned for the person holding those options or warrants are considered outstanding for the purpose of calculating percentage ownership of the particular holder. Except as otherwise indicated, and subject to community property laws where applicable, we believe, based on information provided by these persons, that the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
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PERCENT OWNERSHIP
NUMBER OF SHARES --------------------------------
NAME AND ADDRESS OF PRINCIPAL STOCKHOLDERS BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------------------------------------------ ------------------ --------------- --------------
FIVE-PERCENT STOCKHOLDERS
West Coast Venture Capital Limited, L.P.(1)................. 3,068,839 13.4% %
c/o Carl E. Berg
10050 Bandley Drive
Cupertino, CA 95014
Integrated Device Technology................................ 2,602,500 11.5
c/o Alan F. Krock
2975 Stender Way
Santa Clara, CA 95054
DynaTech Capital, LLC(2).................................... 2,647,696 11.4
c/o Denny Ko
21311 Hawthorne Blvd.
Suite 300
Torrance, CA 90503
Taiwan Semiconductor Manufacturing Co. Ltd.(3).............. 1,200,000 5.0
c/o Julian Kuo
No. 121, Park Ave. 3
Science-Based Industrial Park
Hsincho, Taiwan
OFFICERS AND DIRECTORS
Fu-Chieh Hsu(4)............................................. 4,105,000 18.0
Wing-Yu Leung(5)............................................ 3,955,000 17.4
F. Judson Mitchell(6)....................................... 250,000 1.1
Mark-Eric Jones(7).......................................... 350,000 1.5
Andre Hassan(8)............................................. 201,000 0.9
Carl E. Berg(9)............................................. 3,128,839 13.8
Denny Ko(10)................................................ 2,758,708 11.8
All directors and executive officers as a group
(7 persons)(11)........................................... 14,748,547 59.8% %
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(1) Includes a warrant to purchase 196,037 shares of our common stock issued in connection with our issuance of Series F preferred stock in November 1997.
(2) Includes a warrant to purchase 588,848 shares of our common stock granted in connection with our issuance of Series F Preferred Stock in November 1997.
(3) Represents a currently exercisable warrant to purchase 1,200,000 shares of our common stock, granted in connection with the termination of an option agreement and the surrender of other outstanding warrants.
(4) Includes options to purchase 140,500 shares of common stock which are presently exercisable or will become exercisable within 60 days after July 31, 2000. Also includes 480,000 shares of common stock held by Dr. Hsu as trustee for trusts established for the benefit of Dr. Hsu's children and 40,000 shares of common stock held directly by such children.
(5) Includes options to purchase 100,000 shares of common stock which are presently exercisable or will become exercisable within 60 days after July 31, 2000. Also includes 600,000 shares of common stock held by Dr. Leung as trustee of trusts established for the benefit of Dr. Leung's children.
(6) Represents options to purchase 250,000 shares of common stock which are presently exercisable or will become exercisable within 60 days after July 31, 2000.
(7) Represents options to purchase 350,000 shares of common stock which are presently exercisable or will become exercisable within 60 days after July 31, 2000.
(8) Represents options to purchase 201,000 shares of common stock which are presently exercisable or will become exercisable within 60 days after July 31, 2000.
(9) Includes options to purchase 60,000 shares of common stock which are presently exercisable or will become exercisable within 60 days after July 31, 2000. Also includes 2,872,802 shares issued to West Coast and warrants to purchase 196,037 shares of common stock. Mr. Berg is a director and the President of West Coast Venture Capital, Inc., the sole general partner of West Coast. As such, he may be deemed to own beneficially all shares owned by West Coast. Mr. Berg also is a limited partner of West Coast. Mr. Berg disclaims beneficial ownership of all shares held by West Coast except to the extent of his pecuniary interest therein. Mr. Berg is a director of IDT, and disclaims beneficial ownership of all shares held by IDT. Excludes 5,000 shares owned by Mr. Berg's wife and 5,000 shares owned by Mr. Berg's daughter, as to which he disclaims beneficial ownership.
(10) Includes options to purchase 60,000 shares of common stock which are presently exercisable or will become exercisable within 60 days after July 31, 2000. Includes 51,012 shares issuable to Mr. Ko upon exercise of outstanding warrants to purchase common stock. Also includes 2,058,848 shares held by DynaTech Capital and an additional 588,848 shares issuable to DynaTech Capital upon exercise of outstanding warrants to purchase common stock.
(11) Includes options to purchase 1,161,500 shares of common stock which are presently exercisable or will become exercisable within 60 days after July 31, 2000 and warrants to purchase 835,897 shares of ccommon stock which are presently exercisable.
Unless indicated otherwise, the address of each person listed in the table is c/o Monolithic System Technology, Inc., 1020 Stewart Drive, Sunnyvale, California 94086.
Under the terms of their respective stock option agreements, all vested and unvested options held by our officers and directors can be exercised immediately. Shares obtained on exercise of unvested options are subject to our right of repurchase at cost. Shares are released from this right of repurchase according to the corresponding option vesting schedule.
The percentage of beneficial ownership before the offering is based on 22,676,161 shares, consisting of 9,944,715 shares of common stock outstanding as of July 31, 2000 and 12,731,446 shares issuable upon conversion of all shares of preferred stock outstanding as of July 31, 2000. The percentage of beneficial ownership after the offering is based on shares, including shares sold by us in this offering.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of our capital stock and provisions of our certificate of incorporation and bylaws is a summary only and not a complete description. The descriptions of the common stock and preferred stock reflect changes to our capital structure that will occur on the effectiveness of our reincorporation in Delaware, which occur prior to this offering, including the automatic conversion of all outstanding preferred stock into common stock.
Upon completion of the offering, our authorized capital stock will consist of 120,000,000 shares of common stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per share.
COMMON STOCK
As of June 30, 2000, 9,934,715 shares of our common stock were outstanding and held of record by 77 stockholders. Each holder of our common stock is entitled to -
- one vote per share on all matters submitted to a vote of the stockholders;
- dividends as may be declared by our board of directors out of funds legally available for that purpose, subject to the rights of any preferred stock that may be outstanding; and
- his, her or its pro rata share in any distribution of our assets after payment or providing for the payment of liabilities and the liquidation preference of any outstanding preferred stock in the event of liquidation.
Holders of common stock have no cumulative voting rights, redemption rights or preemptive rights to purchase or subscribe for any shares of our common stock or other securities. All of the outstanding shares of common stock are fully paid and nonassessable. As of June 30, 2000, options to purchase 2,316,113 shares of our common stock were outstanding, at a weighted average exercise price of $0.89 per share.
COMMON STOCK PURCHASE WARRANTS
As of June 30, 2000, warrants to purchase 3,481,219 shares of our common stock were issued and outstanding, as follows:
--------------------------------------------------------
NUMBER OF SHARES
OF COMMON STOCK EXERCISE PRICE EXPIRATION DATE
--------------------- -------------- ---------------
1,514,552 $ 5.50 April 2001
166,667 $ 6.50 January 2002
1,200,000 $ 6.50 August 2002
600,000 $ 8.50 June 2001
---------------------
3,481,219
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The warrant to purchase 600,000 shares of common stock may be exercised on a "cashless" basis by surrendering shares of common stock in payment of the exercise price.
PREFERRED STOCK
As of June 30, 2000, 6,582,472 shares of preferred stock were outstanding. As of the closing of this offering, all shares of preferred stock outstanding will convert automatically into 12,731,446 shares of common stock, and no shares of preferred stock will remain outstanding.
Prior to the completion of the offering, we intend to designate shares of our preferred stock as Series AA preferred stock for issuance pursuant to the exercise of rights under our rights plan. For more information on the rights plan, see the discussion below. We have no current intention to issue any other shares of preferred stock.
Our board of directors has the authority, subject to any limitations prescribed by Delaware law, to issue shares of preferred stock in one or more series and to fix and determine the relative rights and preferences of the shares constituting any series to be established, without any further vote or action by the stockholders. Any shares of preferred stock so issued may have priority over the common stock with respect to dividend, liquidation and other rights.
The board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. Although the issuance of preferred stock could provide us with flexibility in connection with possible acquisitions and other corporate purposes, under some circumstances, it could have the effect of delaying, deferring or preventing a change of control.
ANTITAKEOVER EFFECTS OF PROVISIONS OF OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS AND OF DELAWARE LAW
Certain provisions of our charter documents and Delaware law could have an anti-takeover effect and could delay, discourage or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might otherwise result in a premium being paid over the market price of our common stock.
CERTIFICATE OF INCORPORATION AND BYLAWS. Upon completion of this offering, our certificate of incorporation will provide that stockholders can take action only at a duly called annual or special meeting of the stockholders and not by written consent. At the same time, our bylaws will provide that special meetings of stockholders may be called only by our chairman of the board, the president, any officer at the request in writing of a majority of the directors or by the holders of at least 25% of our outstanding shares. These provisions could delay consideration of a stockholder proposal until the next annual meeting.
Our bylaws will provide for an advance notice procedure for the nomination, other than by or at the direction of our board of directors, of candidates for election as directors, as well as for other stockholder proposals to be considered at annual meetings of stockholders.
DELAWARE TAKEOVER STATUTE. We will be subject to the provisions of Section 203 of the Delaware law. In general, this statute prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date that the person became an interested stockholder unless, subject to exceptions, the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner.
Prior to the offering, each stockholder which is an interested stockholder became an interested stockholder in a transaction approved by our board of directors. Therefore, Section 203 would not impose any restriction on a business combination between us and any of our existing interested stockholders. However, the restrictions of Section 203 would apply to a business combination between us and any of our other stockholders who in the future become interested stockholders in a transaction not approved by our board of directors, unless the business combination involving such stockholder is approved in advance by the board of directors.
Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation's voting stock. These provisions may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders.
ANTITAKEOVER EFFECTS OF OUR RIGHTS PLAN
We intend to adopt a rights plan under which we will issue, prior to the completion of this offering, as a dividend on each outstanding share of common stock one right to purchase one one-thousandth of a share of our Series AA
preferred stock, $0.01 par value per share, or the preferred shares, at a price of $ per one one-thousandth of a preferred share, subject to adjustment.
The rights will not be exercisable until the distribution date, which will be defined as the date that is the earlier of -
- 10 days after a public announcement that a person or group of affiliated or associated persons have acquired beneficial ownership of 15% or more of the outstanding shares of common stock, other than a person or such a group that obtains the prior written approval of the board of directors or holders of grandfathered stock, as defined below, which person or group is referred to as an acquiring person, or
- 10 business days, or such later date as may be determined by action of the board of directors prior to such time as any person or group becomes an acquiring person, after the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of such outstanding shares of common stock, unless our board of directors has approved the offer.
Holders of grandfathered stock are subject to higher ownership thresholds prior to triggering a distribution date through their ownership of shares of our common stock. They are Fu-Chieh Hsu, Wing-Yu Leung, West Coast and Dynatech Capital, and their respective affiliates and associates. Their share ownership must reach [20%] rather than 15% as set forth above, and beneficial owners of their grandfathered stock must beneficially own 1% more than such grandfathered stockholder, rather than 15% as set forth above, before a distribution date would be deemed to occur.
The rights agreement will provide that, until the distribution date, the rights will be transferred only with the shares of common stock, including the shares of common stock sold in the offering. Until the distribution date or earlier redemption or expiration of the rights, new common stock certificates issued after the record date or upon transfer or new issuance of shares of common stock will contain a notation incorporating the rights agreement by reference and the surrender for transfer of any certificates for shares of common stock outstanding as of the record date, even without such notation, will also constitute the transfer of the rights associated with the shares of common stock represented by such certificate.
The rights will expire on , 2010, unless the rights are earlier redeemed or exchanged by us, in each case as described below.
In the event the rights become exercisable, the plan will require that proper provision shall be made so that each holder of a right will thereafter have the right to receive upon exercise that number of shares of our common stock having a market value of two times the exercise price of the right, and rights beneficially owned by an acquiring person will automatically become void. The plan also will provide that if we are acquired in a merger or other business combination transaction or 50% or more of our consolidated assets or earning power are sold after the distribution date, proper provision will be made so that each holder of a right will thereafter have the right to receive, upon the exercise of the right at the then current exercise price of the right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the right.
The plan also will include provisions that permit our board of directors to -
- exchange the rights, other than rights owned by an acquiring person which have become void, in whole or in part, at an exchange ratio of one share of common stock, or one one-thousandth of a preferred share, per right, subject to adjustment at any time after a person becomes an acquiring person and before the acquiring person acquires 50% or more of the outstanding shares of common stock;
- redeem the rights, in whole, but not in part, at a price of $0.01 per right at any time after a person or group becomes an acquiring person;
- reinstate the rights of redemption, if prior to completion of certain recapitalizations, mergers or other business combinations, an acquiring person reduces its beneficial ownership to less than 15% of the outstanding shares of common stock in transactions that do not involve us; and
- amend the terms of the rights without the consent of the holders of the rights under certain circumstances, except that once a person or group becomes an acquiring person, no such amendment may adversely affect the interests of the holders of the rights.
Until a right is exercised, the holder of a right will not, by reason of being such a holder, have rights as a stockholder of our company, including, without limitation, the right to vote or to receive dividends. The distribution of the rights will not be taxable to our stockholders, but stockholders may, depending on the circumstances, recognize taxable income if the rights become exercisable or upon the commencement of certain events thereafter.
Preferred shares purchasable upon exercise of the rights will not be redeemable. Each preferred share will be entitled to a minimum preferential dividend payment of 1,000 times the dividend declared on each share of common stock. In the event of liquidation, the holders of the preferred shares will be entitled to a preferential liquidation payment equal to 1,000 times the payment made per share of common stock. Each preferred share will have 1,000 votes, voting together with the common stock, plus accrued and unpaid dividends. Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each preferred share will be entitled to receive 1,000 times the amount received per share of common stock. These rights will be protected by customary antidilution provisions. Because of the nature of the preferred shares' dividend, liquidation and voting rights, the value of the one one-thousandth interest in a preferred share purchasable upon exercise of each right should approximate the value of one share of common stock.
The rights plan is intended to protect and maximize the value of our outstanding equity interests in the event of an unsolicited attempt by an acquiror to take over our company, in a manner or on terms not approved by the board of directors. The rights are not intended to prevent a takeover of our company and will not do so.
REGISTRATION RIGHTS
After this offering, the holders of approximately 12,731,446 shares of common stock and rights to acquire shares of common stock subject to outstanding warrants as of June 30, 2000 and their permitted transferees will be entitled, upon expiration of lockup agreements with the underwriters, to exercise certain rights with respect to the registration of their shares under the Securities Act. Under the terms of an agreement between us and these stockholders, the holders of these shares may require, on two occasions, that we use our best efforts to register these shares for public resale; provided, however, that the anticipated gross offering price of the sale of such shares must exceed $2.0 million before we will be required to undertake such registration. In addition, if we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights, these stockholders are entitled to notice of such registration and to include their shares, at our expense, in that registration. These stockholders may also require us, on no more than three occasions, to file, at our expense, a registration statement on Form S-3 under the Securities Act with respect to their shares, when use of such form becomes available to us. All registration rights are subject to certain conditions and limitations, including the right of the underwriters of an offering to limit the number of shares to be included in such registration. In addition, we need not effect a registration within six months following a previous registration, or within six months following any offering of securities for our account made subsequent to this offering, or after such time as all of these stockholders may sell under Rule 144 in a three-month period all shares of common stock to which such registration rights apply.
TRANSFER AGENT
The transfer agent and registrar for the common stock is [ ].
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our stock in the public market following the offering, then the market price of our stock could fall. After the offering, shares of our common stock will be outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants. Of those shares, the shares sold in the offering will be freely tradable, except for any shares purchased by our "affiliates," as defined in Rule 144 under the Securities Act. The remaining shares are "restricted securities," as defined in Rule 144, and may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or Rule 701, which rules are summarized below.
The following table depicts securities eligible for future sale:
Total shares outstanding....................................
----------
Total restricted securities.................................
----------
Shares that are freely tradable after the date of this
prospectus under Rule 144(k), subject to the 180-day
lockup agreement..........................................
----------
Shares that are freely tradable 90 days after the date of
this prospectus under Rule 144 or Rule 701, subject to the
180-day lockup agreement..................................
----------
Shares that are freely tradable 180 days after the date of
this prospectus under Rule 144 (subject, in some cases, to
volume limitations), under Rule 144(k) or pursuant to a
registration statement to register for resale shares of
common stock issued on exercise of stock options..........
----------
|
LOCKUP AGREEMENTS. All of our officers and directors and all of our stockholders owning more than 1% of our outstanding securities prior to the offering have signed lockup agreements pursuant to which they have agreed not to sell any shares of common stock, or any securities convertible into or exercisable or exchangeable for common stock, for 180 days after the offering without the prior written consent of J.P. Morgan Securities Inc. J.P. Morgan Securities Inc. may, in its sole discretion, release all or any portion of the shares subject to the lockup agreements.
RULE 144. In general, Rule 144 provides that any person who has beneficially owned shares for at least one year, including an affiliate, is generally entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the shares of common stock then outstanding, which will be approximately shares immediately after the offering, and the reported average weekly trading volume of the common stock during the four calendar weeks immediately preceding the date on which notice of the sale is sent to the SEC. Sales under Rule 144 are subject to manner of sale restrictions, notice requirements and availability of current public information concerning us.
RULE 144(k). A person who is not our affiliate and who has not been our affiliate within three months prior to the sale generally may sell shares without regard to the limitations of Rule 144, provided that the person has held the shares for at least one year. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
RULE 701. Any of our employees, directors, officers or consultants holding shares purchased pursuant to a written compensatory plan or contract, including options, entered into prior to the offering is entitled to rely on the resale provisions of Rule 701, which permit nonaffiliates to sell shares without having to comply with the public information, holding period, volume limitation or notice requirements of Rule 144 and permit affiliates to sell their Rule 701 shares without having to comply with the holding period restrictions of Rule 144, in each case beginning 90 days after the date of this prospectus.
STOCK PLANS. Following the offering, we intend to file a registration statement on Form S-8 under the Securities Act covering shares of common stock reserved for issuance under the 1992 plan, the 1996 plan, the 2000 plan and the 2000 employee stock purchase plan. Upon expiration of the lockup agreements, at least shares of common stock will be subject to vested options, based on options outstanding as of June 30, 2000. The registration statement is expected to be filed and become effective prior to expiration of the lockup agreements; accordingly, shares registered under the registration statement will be available for sale in the open market.
REGISTRATION RIGHTS. After this offering, the holders of approximately 12,731,446 shares of our common stock and holders of warrants to purchase shares of our common stock, or their transferees, will be entitled to certain rights with respect to the registration of those shares under the Securities Act. After any registration of these shares, these shares will become freely tradable without restriction under the Securities Act. These sales could have a material adverse effect on the trading price of our common stock.
UNDERWRITING
The underwriters named below, for whom J.P. Morgan Securities Inc. and Wit SoundView Corporation are acting as representatives, have severally agreed, subject to the terms and conditions set forth in the underwriting agreement between us and the underwriters, to purchase from us, and we have agreed to sell to the underwriters, the respective number of shares of common stock set forth opposite their names below:
------------------------------------------------------------------------------
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
J.P. Morgan Securities Inc..................................
Wit SoundView Corporation...................................
-------------
Total.......................................................
=============
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The nature of the underwriters' obligations under the underwriting agreement is such that all of the common stock being offered, excluding shares covered by the over-allotment option granted to the underwriters, must be purchased if any are purchased.
The representatives of the underwriters have advised us that the several underwriters propose to offer the common stock to the public initially at the public offering price set forth on the cover page of this prospectus and may offer the common stock to selected dealers at this price less a concession not to exceed $ per share. The underwriters may allow, and these dealers may reallow, a concession to other dealers not to exceed $ per share. After the initial public offering of the common stock, the public offering price and other selling terms may be changed by the representatives.
We have granted the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the same price per share to be paid by the underwriters for the other shares offered hereby. If the underwriters purchase any such additional shares pursuant to the option, each of the underwriters will be committed to purchase such additional shares in approximately the same proportion as shown in the above table. The underwriters may exercise the option only to cover over-allotments, if any, made in connection with the distribution of the common stock offered in this prospectus.
The underwriters have reserved for sale, at the initial public offering price, shares of the common stock for some of our directors, officers, employees, friends and family who, after receiving a preliminary prospectus and a letter explaining our directed share program, have expressed a non-binding interest in purchasing shares of common stock in the offering. These persons are expected to purchase, in the aggregate, not more than percent of the common stock offered in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not so purchased will be offered to the general public on the same basis as the other shares offered by this prospectus.
The following table shows the per share and total underwriting discounts to be paid to the underwriters by us. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option.
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
Per share:.................................................. $ $
----------- ------------
Total:...................................................... $ $
=========== ============
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We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make in respect thereof.
We estimate that the total expenses of this offering, excluding underwriting discounts, will be $ . We will be responsible for all of these expenses.
In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may overallot this offering, creating a syndicate short position. In addition, the underwriters may bid for, and purchase, shares of common stock in the open market to cover syndicate shorts or to stabilize the price of the common stock. Finally, the underwriting syndicate may reclaim selling concessions allowed for distributing shares of common stock in this offering, if the syndicate repurchases previously distributed common stock in syndicate covering transactions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the shares of common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time.
There has been no public market for the common stock prior to this offering. We and the underwriters negotiated the initial offering price. In determining the price, we and the underwriters considered a number of factors in addition to prevailing market conditions, including:
- the history of and prospects for our industry and for technology companies generally;
- an assessment of our management;
- our present operations;
- our historical results of operations'
- the trend of our revenues and earnings; and
- our earnings prospects.
We and the underwriters considered these and other relevant factors in relation to the price of similar securities of generally comparable companies. Neither we nor the underwriters can assure investors that an active trading market will develop for the common stock, or that the common stock will trade in the public market at or above the initial offering price.
We and our executive officers, directors and certain stockholders have agreed, with limited exceptions, that, during the period beginning from the date of this prospectus and continuing and including the date 180 days after the date of this prospectus, none of us will, directly or indirectly offer, sell, offer to sell, contract to sell or otherwise dispose of any shares of common stock or any of our securities which are substantially similar to the common stock, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or any such substantially similar securities or enter into any swap, option, future, forward or other agreement that transfers, in whole or in part, the economic consequence of ownership of common stock or any securities substantially similar to the common stock, other than pursuant to employee benefits plans existing on the date of this prospectus, without the prior written consent of J.P. Morgan Securities Inc.
It is expected that delivery of the shares will be made to investors on or about , 2000.
We have applied to have our common stock quoted on the Nasdaq National Market under the symbol MOSY.
From time to time in the ordinary course of their respective businesses, members of the underwriters and their affiliates have engaged in and may in the future engage in commercial and/or investment banking transactions with us and our affiliates.
A prospectus in electronic format is being made available on Internet web sites maintained by Wit SoundView Corporation's affiliate, Wit Capital Corporation, and may be made available on web sites maintained by other underwriters. In addition, other dealers purchasing shares from Wit SoundView in this offering have agreed to make a prospectus in electronic format available on web sites maintained by each of these dealers. Other than the prospectus in electronic format, the information on any underwriter's web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of
which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.
Other than the prospectus in electronic format, the information contained on any underwriter's web site and any information contained on any other web site maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as an underwriter and should not be relied upon by investors.
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon for us by McCutchen, Doyle, Brown & Enersen, LLP, Palo Alto, California. Morrison & Foerster LLP, San Francisco, California, is acting as counsel for the underwriters in connection with certain legal matters relating to the shares of common stock offered by this prospectus.
EXPERTS
Our financial statements as of December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 with respect to the common stock in this offering. This prospectus, which constitutes a part of the registration statement, does not contain all the information set forth in the registration statement. For further information about us and the shares of common stock to be sold in the offering, please refer to the registration statement and the exhibits and schedules thereto.
The registration statement and exhibits may be inspected, without charge, and copies may be obtained at prescribed rates, at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The registration statement and other information filed with the SEC is also available at the web site maintained by the SEC at http://www.sec.gov.
As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934 and will file periodic reports, proxy statements and other information with the SEC. These reports, proxy and information statements and other information may also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flow........................ F-6
Notes to Consolidated Financial Statements.................. F-7
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Monolithic System Technology, Inc.
The reincorporation of Monolithic Systems Technology, Inc., in the State of Delaware, described in Note 13 to the financial statements, has not yet been consummated. When it has been consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Monolithic System Technology, Inc. at December 31, 1998 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Jose, California
August 3, 2000
MONOLITHIC SYSTEM TECHNOLOGY, INC.
BALANCE SHEETS
(IN THOUSANDS)
----------------------------------------------------
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY (DEFICIT)
------------------- JUNE 30, AT JUNE 30,
1998 1999 2000 2000
-------- -------- ----------- ----------------
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,750 $ 12,720 $ 19,947
Accounts receivable, net.................................. 2,654 1,591 1,122
Inventories............................................... 4,442 1,049 1,238
Prepaid expenses and other current assets................. 83 304 338
-------- -------- -----------
Total current assets.................................... 16,929 15,664 22,645
Property and equipment, net................................. 953 778 547
Other assets................................................ 50 39 29
-------- -------- -----------
Total assets............................................ $ 17,932 $ 16,481 $ 23,221
======== ======== ===========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 4,484 $ 647 $ 396
Accrued expenses and other liabilities.................... 1,058 1,064 1,117
Deferred revenue.......................................... - 2,045 3,878
-------- -------- -----------
Total current liabilities............................... 5,542 3,756 5,391
-------- -------- -----------
Commitments and contingencies (Note 12)
Mandatorily redeemable convertible preferred stock, $0.01
par value; 9,500 shares authorized; 5,932 shares in 1998
and 5,932 shares in 1999 and 6,582 (unaudited) shares at
June 30, 2000 and none (unaudited) at June 30, 2000 (pro
forma) issued and outstanding............................. 30,391 30,391 35,591 $ -
-------- -------- -----------
Stockholders' equity (deficit):
Common Stock, $0.01 par value; 30,000 shares authorized;
9,697 shares in 1998 and 9,804 shares in 1999 and 9,935
(unaudited) shares at June 30, 2000 and 22,666
(unaudited) shares at June 30, 2000 (pro forma) issued
and outstanding......................................... 97 98 99 227
Additional paid-in capital................................ 1,185 2,098 2,630 38,093
Accumulated deficit....................................... (19,283) (19,141) (19,723) (19,723)
Deferred stock-based compensation......................... - (721) (767) (767)
-------- -------- ----------- --------------
Total stockholders' equity (deficit).................... (18,001) (17,666) (17,761) $ 17,830
-------- -------- ----------- ==============
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' equity
(deficit)........................................... $ 17,932 $ 16,481 $ 23,221
======== ======== ===========
|
The accompanying notes are an integral part of these financial statements.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------------- ---------------
1997 1998 1999 1999 2000
------- ------- ------- ------ ------
(UNAUDITED)
Net revenue:
Product................................................. $34,822 $36,281 $15,356 $8,145 $4,028
Contract................................................ - - - - 460
------- ------- ------- ------ ------
$34,822 $36,281 $15,356 $8,145 $4,488
Cost of net revenue:
Product................................................. 29,510 31,892 10,062 5,447 1,952
Contract................................................ - - - - 267
------- ------- ------- ------ ------
29,510 31,892 10,062 5,447 2,219
------- ------- ------- ------ ------
Gross profit.............................................. 5,312 4,389 5,294 2,698 2,269
------- ------- ------- ------ ------
Operating expenses:
Research and development................................ 3,596 4,224 3,110 1,647 1,630
Selling, general and administrative..................... 3,225 2,842 2,388 1,194 1,338
Stock-based compensation charge(*)...................... - - 107 20 342
------- ------- ------- ------ ------
Total operating expenses.............................. 6,821 7,066 5,605 2,861 3,310
------- ------- ------- ------ ------
Loss from operations...................................... (1,509) (2,677) (311) (163) (1,041)
Interest expense.......................................... (1,030) (294) - - -
Interest and other income................................. 523 649 520 225 459
------- ------- ------- ------ ------
Income (loss) before income taxes......................... (2,016) (2,322) 209 62 (582)
Provision for income taxes................................ - - (67) (20) -
------- ------- ------- ------ ------
Net income (loss)......................................... $(2,016) $(2,322) $ 142 $ 42 $ (582)
======= ======= ======= ====== ======
Net income (loss) per share:
Basic................................................... $ (0.22) $ (0.24) $ 0.01 $ 0.00 $(0.06)
======= ======= ======= ====== ======
Diluted................................................. $ (0.22) $ (0.24) $ 0.01 $ 0.00 $(0.06)
======= ======= ======= ====== ======
Shares used in computing net income (loss) per share:
Basic................................................... 9,323 9,626 9,727 9,708 9,856
Diluted................................................. 9,323 9,626 23,320 22,735 9,856
Pro forma net income (loss) per share:
Basic................................................... $ 0.01 $(0.03)
======= ======
Diluted................................................. $ 0.01 $(0.03)
======= ======
Shares used in computing pro forma net income (loss) per
share:
Basic................................................... 21,808 22,259
Diluted................................................. 23,320 22,259
(*) Stock-based compensation in operating expenses:
Research and development.............................. $ - $ - $ 56 $ 11 $ 152
Selling, general and administrative................... - - 51 9 190
------- ------- ------- ------ ------
$ - $ - $ 107 $ 20 $ 342
======= ======= ======= ====== ======
|
The accompanying notes are an integral part of these financial statements.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
-------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL DEFERRED DEFERRED
------------------- PAID-IN WARRANT STOCK-BASED ACCUMULATED
SHARES AMOUNT CAPITAL COST COMPENSATION DEFICIT TOTAL
-------- -------- ---------- -------- ------------- ------------ --------
Balance at December 31, 1996......... 9,216 $ 92 $ 1,113 $ (337) $ - $ (14,945) $(14,077)
Issuance of Common Stock upon
exercise of options................ 209 2 27 - - - 29
Amortization of warrants............. - - - 161 - - 161
Net loss............................. - - - - - (2,016) (2,016)
-------- -------- --------- -------- ------------- ------------ --------
Balance at December 31, 1997......... 9,425 94 1,140 (176) - (16,961) (15,903)
Issuance of Common Stock upon
exercise of options................ 272 3 31 - - - 34
Issuance of common stock warrant..... - - 14 - - - 14
Amortization of warrants............. - - - 176 - - 176
Net loss............................. - - - - - (2,322) (2,322)
-------- -------- --------- -------- ------------- ------------ --------
Balance at December 31, 1998......... 9,697 97 1,185 - - (19,283) (18,001)
Issuance of Common Stock upon
exercise of options................ 107 1 64 - - - 65
Stock options granted in exchange of
services........................... - - 21 - - - 21
Deferred stock-based compensation.... - - 828 - (828) - -
Amortization of deferred stock-based
compensation....................... - - - - 107 - 107
Net loss............................. - - - - - 142 142
-------- -------- --------- -------- ------------- ------------ --------
Balance at December 31, 1999......... 9,804 98 2,098 - (721) (19,141) (17,666)
Issuance of Common Stock upon
exercise of options (unaudited).... 131 1 122 - - - 123
Deferred stock-based compensation
(unaudited)........................ - - 410 - (410) - -
Amortization of deferred stock-based
compensation (unaudited)........... - - - - 364 - 364
Net loss (unaudited)................. - - - - - (582) (582)
-------- -------- --------- -------- ------------- ------------ --------
Balance at June 30, 2000
(unaudited)........................ 9,935 $ 99 $ 2,630 $ - $ (767) $ (19,723) $(17,761)
======== ======== ========= ======== ============= ============ ========
|
The accompanying notes are an integral part of these financial statements.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
------------------------------------------------
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
---------------------------- -----------------
1997 1998 1999 1999 2000
------- -------- ------- ------- -------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss)..................................... $(2,016) $ (2,322) $ 142 $ 42 $ (582)
Adjustments to reconcile net profit (loss) to net cash
used in operating activities:
Depreciation and amortization....................... 1,027 1,031 901 460 268
Issuance of stock options for services.............. - - 21 - -
Warrant costs....................................... 161 190 - - -
Amortization of deferred stock-based compensation... - - 107 20 364
Changes in current assets and liabilities:
Accounts receivable............................... (5,074) 4,016 1,063 938 469
Inventories....................................... (873) 2,709 3,393 2,847 (189)
Prepaid expenses and other assets................. 749 257 (210) (37) (24)
Deferred revenue.................................. - - 2,045 1,640 1,833
Payable to related party.......................... (1,035) 91 - - -
Accounts payable.................................. (1,497) (3,776) (3,837) (4,228) (251)
Accrued expenses and other liabilities............ 2,062 (3,350) 6 303 53
------- -------- ------- ------- -------
Net cash provided by (used in) operating
activities.................................... (6,496) (1,154) 3,631 1,985 1,941
------- -------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................... (828) (134) (726) (198) (37)
Release of restricted cash held as collateral for line
of credit........................................... 6,136 - - - -
Maturity and sale of short-term investments........... 765 775 - - -
------- -------- ------- ------- -------
Net cash provided by (used in) investing
activities.................................... 6,073 641 (726) (198) (37)
------- -------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable............................ (4,219) (6,923) - - -
Proceeds from issuance of convertible preferred
stock............................................... 1,595 8,061 - - 5,200
Proceeds from issuance of common stock................ 29 34 65 27 123
------- -------- ------- ------- -------
Net cash provided by (used in) financing
activities.................................... (2,595) 1,172 65 27 5,323
------- -------- ------- ------- -------
Net increase/(decrease) in cash and cash equivalents.... (3,018) 659 2,970 1,814 7,227
Cash and cash equivalents at beginning of period........ 12,109 9,091 9,750 9,750 12,720
------- -------- ------- ------- -------
Cash and cash equivalents at end of period.............. $ 9,091 $ 9,750 $12,720 $11,564 $19,947
======= ======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE:
Interest paid......................................... $ 151 $ 160 $ - $ - $ -
======= ======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE FOR NON-CASH FINANCING
AND INVESTING ACTIVITIES:
Reduction of obligations under notes payable in
connection with termination of capacity
commitments......................................... $ - $(22,540) $ - $ - $ -
======= ======== ======= ======= =======
Reduction of other long-term assets in connection with
termination of capacity commitments................. $ - $ 22,540 $ - $ - $ -
======= ======== ======= ======= =======
Issuance of convertible preferred stock upon
conversion of debt.................................. $ 6,703 $ - $ - $ - $ -
======= ======== ======= ======= =======
|
The accompanying notes are an integral part of these financial statements.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Monolithic System Technology, Inc. (the "Company") was incorporated in California on September 16, 1991 to design, develop and market high performance semiconductor memory products and technologies used by the semiconductor industry and electronic product manufacturers.
The Company has developed an innovative embedded-memory technology, called 1T-SRAM, which the Company licenses on a non-exclusive and worldwide basis to semiconductor companies and electronic product manufacturers. From its inception in 1991 through 1998, the Company focused primarily on the sale of stand-alone memory products. In the fourth quarter of 1998, the Company changed its business model to focus primarily on the licensing of its 1T-SRAM technology.
USE OF ESTIMATES
The preparation of financial statements in accordance 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 assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
REPORTING PERIODS
The Company operates and reports financial results on a 52-53 week fiscal year. In 1997, 1998 and 1999, the fiscal years ended on January 4, 1998, January 3, 1999 and January 2, 2000, respectively. For convenience, the Company has presented its fiscal year as ending on December 31 for all periods. The six-month periods presented ended on July 4, 1999 and July 2, 2000. For convenience, the Company has presented the six-month period as ending on June 30 in both years.
INTERIM RESULTS (UNAUDITED)
The interim financial statements as of June 30, 2000 and for the six months ended June 30, 1999 and 2000 are unaudited. In the opinion of management, these interim financial statements have been prepared on the same basis as the audited financial statements and reflect all adjustments, consisting only of normal, recurring adjustments necessary for the fair presentation of the results of interim periods. The financial data and other information disclosed in these notes to the financial statements for the related periods are unaudited. The results of the interim periods are not necessarily indicative of the results to be expected for future periods.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investment instruments with a maturity of three months or less when purchased. The fair value of these investment instruments approximated their costs at the respective balance sheet dates.
INVENTORIES
Inventories are stated at the lower of cost, determined using the first-in, first-out method, or market.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets, generally 3 years.
The Company evaluates the recoverability of its long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost of disposal. No losses from impairment have been recognized in the financial statements.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment to customers. Provisions for potential warranty liability and estimated returns are recorded at the time revenue is recognized.
Contract revenues from licensing activities consist of fees paid for engineering development and engineering support services. For contracts involving performance specifications that the Company has not yet met, the Company defers the recognition of revenue until the licensee manufactures products that meet the contract performance specifications. Fees billed prior to revenue recognition are recorded as deferred contract revenue.
Licensing contracts provide for royalty payments at a stated rate. Agreements require licensees to report the manufacture or sale of products that include the Company's technology after the end of the quarter in which the sale or manufacture occurs. The Company will recognize royalties in the quarter in which the licensee's report is received.
COST OF REVENUE
Cost of product revenue consists primarily of costs associated with the manufacture, assembly and test of the Company's stand-alone memory products by independent, third-party contractors.
Cost of contract revenue consists primarily of deferred engineering costs directly related to development projects specified in agreements we have with licensees of our memory technology. To the extent that the amount of engineering costs does not exceed the amount of the related contract revenue, these costs are deferred on a contract-by-contract basis from the time the Company has established technological feasibility of the product to be developed under the contract. This occurs when the Company has completed all of the activities necessary to establish that the licensee's product can be produced to meet the performance specifications when incorporating the Company's technology. Deferred costs are charged to cost of contract revenue when the related revenue is recognized.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. The Company has not capitalized any software development costs to date and is in compliance with Statement of Financial Accounting Standards No. 86 ("SFAS
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
No. 86"), "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Capitalization of software development costs begins upon
the establishment of technological feasibility of the product. After
technological feasibility is established, material software development costs
are capitalized. The capitalized cost is then amortized on a straight-line basis
over the estimated product life, or on the ratio of current revenues to total
projected product revenues, whichever is greater. To date, the period between
achieving technological feasibility, which the Company has defined as the
establishment of a working model which typically occurs when beta testing
commences, and the general availability of such software has been short, and as
such, software development costs qualifying for capitalization have been
insignificant.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements in accordance with the provisions of APB No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees" and complies with the disclosure provisions of Statement of Financial Accounting Standard No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost is, in general, recognized based on the excess, if any, of the fair market value of the Company's stock on the date of grant over the amount an employee must pay to acquire the stock. Equity instruments issued to non-employees are accounted for in accordance with the provision of SFAS No. 123 and Emerging Issues Task Force 96-18. Deferred stock-based compensation is being amortized using the graded vesting method in accordance with Financial Accounting Standards Board Interpretation No. 28 ("FIN No. 28") over the vesting period of each respective option, which is generally four years. Under the graded vesting method, each option grant is separated into portions based on its vesting terms which results in acceleration of amortization expense for the overall award.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common and potential common equivalent shares outstanding during the period. The calculation of diluted net loss per share excludes potential common shares if the effect is anti-dilutive. Potential common shares are composed of incremental shares of common stock issuable upon the exercise of stock options and warrants and common stock issuable upon conversion of preferred stock.
PRO FORMA BALANCE SHEET INFORMATION (UNAUDITED)
Immediately prior to the effective date of the Company's initial public offering, the Company's outstanding convertible preferred stock will automatically convert into common stock. The pro forma effects of this transaction are unaudited and have been reflected in the accompanying pro forma stockholders' equity (deficit) as of June 30, 2000.
PRO FORMA NET INCOME (LOSS) PER SHARE (UNAUDITED)
Pro forma net income (loss) per share for the year ended December 31, 1999 and the six months ended June 30, 2000 is computed using the weighted average number of common shares outstanding, including the conversion of the Company's convertible preferred stock into the Company's common stock effective upon the closing of the Company's initial public offering, as if such conversion occurred at January 1, 1999 or at date of original
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
issuance, if later. The calculation of pro forma diluted net income (loss) per
share excludes incremental common stock issuable upon the exercise of stock
options and warrants as the effect would be anti-dilutive.
INCOME TAXES
The Company accounts for deferred income taxes under the liability approach whereby the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities are recognized as deferred tax assets and liabilities. A valuation allowance is established for any deferred tax assets for which realization is uncertain.
COMPREHENSIVE INCOME
Financial Accounting Standards Statement No. 130 "Reporting Comprehensive Income"("SFAS No. 130") requires the disclosure of comprehensive income, defined as all changes in equity during a period except for investments by owners and distributions to owners. For the three years ended December 31,1999 and the six months ended June 30, 2000, the Company did not have comprehensive income other than net income.
SEGMENT REPORTING
Financial Accounting Standards Board Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS No. 131") requires that companies report separately in the financial statements certain financial and descriptive information about operating segments profit or loss, certain specific revenue and expense items and segment assets. The Company operates in one segment, using one measurement of profitability for its business. The Company has sales outside the United States which are described in Note 11. All long-lived assets are maintained in the United States.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 133 ("SFAS No. 133"), "Accounting for Derivatives and Hedging Activities." This statement establishes accounting and reporting standards of derivative instruments and requires recognition of all derivatives as assets or liabilities in the balance sheet and measurement of those instruments at fair value. The statement is effective for fiscal years beginning after June 15, 2000. The Company will adopt the standard no later than the first quarter of fiscal year 2001 and management does not expect a material impact on the Company's financial statements.
In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides interpretive guidance on the recognition, presentation and disclosure of revenue in financial statements under certain circumstances. The Company adopted the provisions of SAB 101 in these financial statements for all periods presented.
In March 2000, the FASB issued Interpretation No. 44 ("FIN No. 44"), "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25." FIN No. 44 establishes guidance for the accounting for stock option grants or modifications to existing stock option awards and is effective for option grants made after June 30, 2000, but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. FIN 44 also establishes guidance for the repricing of stock options and determining whether a grantee is an employee, for which the guidance was effective after December 15, 1999
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
and modifying a fixed option to add a reload feature, for which guidance was
effective after January 12, 2000. The Company does not expect the adoption of
certain of the provisions of FIN No. 44 prior to June 30, 2000 to have a
material effect on the financial statements. The Company does not expect the
adoption of certain of the provisions of FIN No. 44 prior to June 30, 2000 to
have a material effect on the financial statements. The Company does not expect
the adoption of the remaining provisions to have a material effect on the
financial statements.
NOTE 2 - RELATED PARTY TRANSACTIONS:
M-ONE
In 1994, the Company completed the spin-off of a majority of its equity interest in M-One Technology Corporation ("M-One"), a subsidiary in Taiwan through a stock distribution of M-One's shares and sold its remaining interest in M-One. Responsibility for the intended business activities of M-One were assumed by the Company in 1995. The Company then became directly responsible for the production and sale of its products. Due to continued operating losses and significant accumulated deficits and difficult market conditions, M-One ceased its operations in early 1997 and terminated all of its employees. As of December 31, 1997, M-One had no assets and the Company had accrued certain liabilities related to the obligations of M-One. As of March 31, 2000, the Company had filed papers with the appropriate authorities in Taiwan to terminate M-One's existence.
FINANCING TRANSACTIONS
In 1996, the Company entered into note and warrant purchase agreements with two directors, certain preferred stockholders and other unrelated parties, borrowing an aggregate of $13.1 million. The notes had an interest rate of 8.25% per annum and a maturity date of May 31, 1998. Each agreement holder received a warrant to purchase a number of common stock shares determined by dividing half the principal amount of the note signed by the holder by the exercise price of the warrant at the time of subscription. The exercise price ranged from $6.50 to $8.50. These warrants had an expiration date of May 31, 1998. The Company estimated the fair market value of the warrants was $141,000, using the Black-Scholes method. The following assumptions were applied when estimating the fair value of these warrants: dividend yield of 0%, risk-free rate of 6.18%, term of 2 years and volatility of 40%. The value of the warrants was amortized as interest expense over the term of the note. Amortization of these warrants amounted to $37,000 in 1996.
In June 1997, upon cancellation of the note and warrant purchase agreements, $6.7 million of the principal was converted into Series F preferred stock at a conversion price of $5.50 per share. In connection with this conversion, all of the outstanding warrants held by the noteholders were exchanged for new warrants. The Company estimated the fair value of the new warrants was $136,000 (Note 8), which approximates the value of the old warrant. The Company continued to amortize the remaining deferred warrant cost as interest expense. Interest expense for the years ended December 31, 1997 and 1998 amounted to $54,000 and $46,000 respectively.
In May 1998, the Company repaid the remaining balance of $6.4 million and the accrued interest owed under the notes.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - WAFER FOUNDRY AGREEMENT:
Under the terms of a 1996 agreement with the Company's foundry to ensure that the Company would be supplied with a certain minimum number of wafers, the Company signed six promissory notes totaling $23,380,000 with varying due dates ranging from 1997 through 2000. The notes did not bear interest until they became due, at which date a rate of 10% per annum was applied on any unpaid amounts. The Company paid $840,000 in 1997 in accordance with the agreement. Upon recording the notes, the Company recorded an asset in the same amount representing its right to future wafer production.
In connection with this agreement, the Company issued a warrant to the foundry to purchase 3,392,310 shares of the Company's common stock at a price of $6.50 per share. The Company determined the value of the warrant was $237,000 using the Black-Scholes method. The following assumptions were applied when estimating the fair value of these warrants: dividend yield of 0%, risk-free rate of 6.18%, term of 2.17 years and volatility of 40%. The value of the warrant was amortized over the period of benefit of the agreement. Amortization expense amounted to $100,000 during the year ended December 31, 1997.
On January 1, 1998 (prior to the close of fiscal 1997), the agreement was amended. The terms of this amendment canceled the promissory notes and the Company signed five new promissory notes totaling $22,540,000 with due dates ranging from November 1999 through June 2001. The other terms of the original agreement remained substantially the same.
On August 6, 1998, the amended agreement with the foundry was terminated. The terms of the termination canceled the existing promissory notes totaling $22,540,000 and the right to future wafer production. Accordingly, the amount of the notes and corresponding asset in the same amount representing the right to future production was reversed.
In conjunction with the termination of the foundry agreement, the Company issued a new warrant to the foundry to purchase 1,200,000 shares of the Company's common stock at the price of $6.50 per share to replace the old warrant agreement with the foundry. The new warrant expires in November 2002. The fair value of the new warrant was determined to be $127,000 based on the Black-Scholes method. This amount was expensed immediately in 1998 because the warrant related to the termination of the agreement.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - DETAILS OF BALANCE SHEET COMPONENTS (IN THOUSANDS):
-------------------------------
DECEMBER 31,
----------------- JUNE 30,
1998 1999 2000
------- ------- -----------
(UNAUDITED)
CASH AND CASH EQUIVALENTS:
Cash...................................................... $ 1,466 $ 1,720 $ 656
Certificates of deposit and commercial paper.............. 8,284 11,000 19,291
------- ------- ---------
$ 9,750 $12,720 $ 19,947
======= ======= =========
ACCOUNTS RECEIVABLE:
Trade accounts receivable................................. $ 2,954 $ 1,790 $ 1,322
Less: Allowance for doubtful accounts..................... (300) (199) (200)
------- ------- ---------
$ 2,654 $ 1,591 $ 1,122
======= ======= =========
INVENTORIES:
Work-in-progress.......................................... $ 2,740 $ 728 $ 1,080
Finished goods............................................ 1,702 321 158
------- ------- ---------
$ 4,442 $ 1,049 $ 1,238
======= ======= =========
PREPAID EXPENSES AND OTHER CURRENT COSTS:
Deferred costs of contract revenue........................ $ - $ 184 $ -
Prepaid expenses and other assets......................... 83 120 338
------- ------- ---------
$ 83 $ 304 $ 338
======= ======= =========
PROPERTY AND EQUIPMENT:
Equipment, fixtures and fittings.......................... $ 2,376 $ 2,559 $ 2,553
Software.................................................. 1,150 1,369 1,412
------- ------- ---------
3,526 3,928 3,965
Less: Accumulated depreciation and amortization........... (2,573) (3,150) (3,418)
------- ------- ---------
$ 953 $ 778 $ 547
======= ======= =========
ACCRUED EXPENSES AND OTHER LIABILITIES:
Sales return reserve...................................... $ 200 $ 293 $ 255
Accrued wages and employee benefits....................... 164 212 394
Assembly costs............................................ 301 179 220
Professional fees......................................... 54 63 36
Other..................................................... 339 317 212
------- ------- ---------
$ 1,058 $ 1,064 $ 1,117
======= ======= =========
|
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAXES:
The provision for income taxes consist of the following (in thousands):
------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Current portion:
U.S. federal.............................................. $ - $ - $ 65
State..................................................... - - 2
-------- -------- --------
- - 67
Deferred.................................................... - - -
-------- -------- --------
$ - $ - $ 67
======== ======== ========
|
No current provision or benefit for federal and state income taxes was provided for the years ended December 31, 1997 and 1998 as the Company incurred net operating losses for income tax purposes. No deferred provision or benefit for income taxes has been recorded as the Company is in a net deferred tax asset position for which a full valuation allowance has been provided due to the uncertainty as to the realization.
Deferred tax assets consist of the following (in thousands):
-----------------
DECEMBER 31,
-----------------
1998 1999
------- -------
DEFERRED TAX ASSETS:
Federal and state loss carryforwards...................... $ 4,819 $ 4,555
Inventory................................................. 96 363
Reserves and accruals..................................... 234 293
Depreciation and amortization............................. - 404
Research and development credit carryforwards............. 897 1,139
------- -------
6,046 6,754
Less: Valuation allowance................................... (6,046) (6,754)
------- -------
Net deferred tax asset...................................... $ - $ -
======= =======
|
As of December 31, 1999, the Company had net operating loss carryforwards of approximately $15,000,000 and $9,000,000 for federal and state income tax purposes, respectively. These losses are available to reduce taxable income and expire from 2002 through 2019. Because of certain changes in the ownership of the Company in December 1996, there is an annual limitation of approximately $774,000 on the use of approximately $10,000,000 net operating loss carryforwards pursuant to Section 382 of the Internal Revenue Code.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - NET INCOME (LOSS) PER SHARE:
The following table sets forth the computation of basic and diluted net income
(loss) per share for the periods indicated (in thousands, except per share
amounts):
-----------------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
Numerator:
Net income (loss)............................ $(2,016) $(2,322) $ 142 $ 42 $ (582)
======= ======= ======= ======= =======
Denominator:
Shares used in computing net income (loss)
per share:
Basic...................................... 9,323 9,626 9,727 9,708 9,856
======= ======= ======= ======= =======
Diluted.................................... 9,323 9,626 23,320 22,735 9,856
======= ======= ======= ======= =======
Net income (loss) per share:
Basic........................................ $ (0.22) $ (0.24) $ 0.01 $ 0.00 $ (0.06)
======= ======= ======= ======= =======
Diluted...................................... $ (0.22) $ (0.24) $ 0.01 $ 0.00 $ (0.06)
======= ======= ======= ======= =======
Antidilutive securities including options,
warrants, convertible preferred stock not
included in net loss per share calculation... 18,741 17,515 - - 18,201
======= ======= ======= ======= =======
Pro forma:
Shares used above............................ 9,727 9,856
Pro forma adjustment to reflect weighted
average effect of the assumed conversion of
convertible preferred stock................ 12,081 12,403
------- -------
Shares used in computing pro forma net income
(loss) per share attributable to common
stockholders
Basic........................................ 21,808 22,259
======= =======
Diluted...................................... 23,320 22,259
======= =======
Pro forma net income (loss) per share
attributable to common stockholders
Basic........................................ $ 0.01 $ (0.03)
======= =======
Diluted...................................... $ 0.01 $ (0.03)
======= =======
|
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - MANDATORILY REDEEMABLE PREFERRED STOCK:
The Company is authorized to issue 9,500,000 shares of Preferred Stock, which had been designated Series A through H as follows (in thousands, except per share amounts):
---------------------------------------------------------------------------------------------------------------
CONVERSION
SERIES RATIO PRICE PER SHARE SHARES AMOUNT
------------------------------------------------------------ ---------- --------------- -------- -------
A........................................................... 1 to 3 $ 1.00 500 $ 500
B........................................................... 1 to 3 2.00 1,000 2,000
C........................................................... 1 to 3 5.00 1,010 5,050
D........................................................... 1 to 3 7.50 300 2,250
E........................................................... 1 to 3 16.00 264 4,232
F........................................................... 1 to 1 5.50 1,225 6,703
F-1......................................................... 1 to 1 5.50 290 1,595
G........................................................... 1 to 1 6.00 1,343 8,061
-------- -------
Balance at December 31, 1998 and 1999....................... 5,932 30,391
H (unaudited)............................................... 1 to 1 $ 8.00 650 5,200
-------- -------
Balance at June 30, 2000 (unaudited)........................ 6,582 $35,591
|
------------------
SHARES AMOUNT
-------- -------
Balance at December 31, 1996................................ 3,074 $14,032
Issuance of Series F Preferred Shares....................... 1,225 6,703
Issuance of Series F-1 Preferred Shares..................... 290 1,595
-------- -------
Balance at December 31, 1997................................ 4,589 22,330
Issuance of Series G Preferred Shares....................... 1,343 8,061
-------- -------
Balance at December 31, 1998 and 1999....................... 5,932 30,391
Issuance of Series H Preferred Shares (unaudited)........... 650 5,200
-------- -------
Balance at June 30, 2000 (unaudited)........................ 6,582 $35,591
======== =======
|
The rights, preferences, privileges and restrictions with respect to the Company's Preferred Stock are as follows:
CONVERSION
Each issued share of Series A, B, C, D and E Preferred Stock is convertible, at the option of the holder, into three shares of Common Stock. Each issued share of Series F, F-1, G and H Preferred Stock is convertible, at the option of the holder, into one share of Common Stock. All issued Preferred Stock will be automatically converted at the close of a public offering of the Company's Common Stock at a price not less than $8.00 per share and an aggregate offering price to the public of not less than $7,500,000. The conversion price of the Series A, B, C, D, E, F, F-1, G and H Preferred Stock is $0.33, $0.67, $1.67, $2.50, $5.33, $5.50, $5.50, $6.00 and $8.00 per share, respectively. A total of 12,730,000 shares of Common Stock have been reserved for issuance upon the conversion of the Preferred Stock.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - MANDATORILY REDEEMABLE PREFERRED STOCK: (CONTINUED) REDEMPTION
Convertible Preferred Stock is redeemable upon a change in control or sale of substantially all of the assets of the Company at a redemption price equal to the liquidation preferences as described below.
DIVIDENDS
Holders of Series A, B, C, D, E, F, F-1, G and H Preferred Stock are entitled to receive non-cumulative dividends at the annual rate of $0.10, $0.20, $0.50, $0.75, $1.60, $0.55, $0.57, $0.59 and $0.80 per share, respectively, if and when declared by the Board of Directors. Such dividends are payable in preference to any dividends for Common Stock declared by the Board of Directors.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company, the holders of Series A, B, C, D, E, F, F-I, G and H Preferred Stock are entitled to a distribution in preference to holders of Common Stock, at an amount up to their respective original issue price, plus any declared but unpaid dividends. A merger, acquisition, sale of voting control or sale of substantially all of the assets of the Company, in which the shareholders of the Company do not own a majority (50% or more) of the outstanding shares of the surviving corporation is deemed to be a liquidation.
VOTING
The holders of Series A, B, C, D, E, F, F-1, G and H Preferred Stock have one vote for each share of Common Stock into which such shares may be converted.
SERIES F AND F-1 PREFERRED STOCK
In conjunction with the issuance of Series F and F-1 Preferred Stock in 1997, the Company issued warrants to purchase 1,515,000 shares of its Common Stock at $5.50 per share. The warrants are exercisable immediately and expire in April 2001. As of December 31, 1999, no warrants were exercised.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - COMMON STOCK WARRANTS:
The following table summarizes the activity of outstanding warrants (in thousands, except per share amounts):
--------------------------------------------------------------------------------------------------------------
WARRANTS
EXERCISE EXERCISABLE AT
COMMON STOCK PRICE PER EACH YEAR
UNDER WARRANTS SHARE END
-------------- -------------- --------------
Outstanding at December 31, 1996............................ 5,386 $6.50-$8.50 4,786
Granted to Series F and F-1 Preferred Stockholders.......... 1,515 $5.50
Cancelled warrants, previously granted to credit
providers................................................. (865) $6.50
------------
Outstanding at December 31, 1997............................ 6,036 $5.50-$8.50 5,636
Granted to a foundry........................................ 1,200 $6.50
Granted to a Company's advisor.............................. 167 $6.50
Expired and cancelled warrants, previously granted to a
foundry and credit providers.............................. (3,921) $6.50
------------
Outstanding at December 31, 1998, December 31, 1999 and
June 30, 2000 (unaudited)................................. 3,482 $5.50-$8.50 3,482
============
|
The following table summarizes the outstanding warrants as of December 31, 1999 (in thousands, except per share amounts):
-------------------------------------------------------------------------------------------------------------------
FAIR MARKET
COMMON EXERCISE VALUE OF THE
STOCK UNDER PRICE WARRANT AT
DESCRIPTION OF WARRANTS ISSUANCE DATE WARRANTS PER SHARE ISSUANCE DATE EXPIRATION DATE
-------------------------------------- ------------- ------------ --------- ------------- ---------------
Warrant, permitting cashless
exercises, issued for marketing
purposes............................ June 1996 600 $ 8.50 $ 258 June 2001
Warrant issuance in connection with
Series F and F-1 Convertible
Preferred Stock financing (Note 2).. November 1997 1,515 $ 5.50 $ 136 April 2001
Warrant issued to an advisor.......... March 1998 167 $ 6.50 $ 14 January 2002
Warrant issued to a foundry in
connection with termination of a
capacity agreement (Note 3)......... August 1998 1,200 $ 6.50 $ 127 November 2002
------------
Total outstanding and exercisable at
December 31, 1999 and June 30, 2000
(unaudited)......................... 3,482
============
|
The following assumptions were applied when estimating the fair value of the above warrants using the Black-Scholes option pricing model: dividend yield of 0%, risk-free interest rate of 5.45%-5.84%, terms of 3.5 years to 4.25 years and volatility of 40%-60%.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK OPTIONS:
COMMON STOCK OPTION PLANS
The 1992 Stock Option Plan (the "1992 Plan") authorizes the Board of Directors to grant incentive stock options and nonqualified stock options to employees, directors and consultants for up to 3,300,000 shares of Common Stock. Under the 1992 Plan, incentive stock options are to be granted at a price not less than 100% of the fair value of the stock at the date of grant, as determined by the Board of Directors. Nonqualified stock options are to be granted at a price not less than 85% of the fair value of the stock at the date of grant, as determined by the Board of Directors. Options generally vest over a four year period and are exercisable for a maximum period of ten years after the date of grant. The 1992 Plan was terminated in 1996 and no further options were granted under the plan.
In 1996, the Company adopted the 1996 Stock Plan (the "1996 Plan") which authorizes the Board of Directors to grant incentive stock options and nonqualified stock options to employees, directors and consultants for up to 2,500,000 shares of Common Stock. The option terms under the 1996 Plan are substantially the same as the 1992 Plan except that options granted under the 1996 Plan may be exercised immediately. Common Stock purchased pursuant to the exercise of an unvested option is subject to re-purchase by the Company, at the exercise price, under certain conditions. There were no shares of common stock subject to repurchase at 1997, 1998 and 1999. Options generally vest over a four year period and are exercisable for a maximum period of ten years after the date of grant. In March 1997, the Company canceled 918,500 options representing all unexercised options with exercise prices greater than $1.00, and immediately reissued the options with an exercise price of $1.00.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK OPTIONS: (CONTINUED)
A summary of activity under the 1992 and 1996 Plans is as follows (in thousands,
except per share amounts):
-------------------------------------------
OPTIONS OUTSTANDING
--------------------
NUMBER
AVAILABLE OF EXERCISE WEIGHTED
FOR GRANT SHARES PRICE AVERAGE
--------- ------ ----------- --------
Balance at December 31, 1996......................... 1,695 2,337 $0.33-$2.75 $ 1.20
Granted.............................................. (1,524) 1,524 $1.00 $ 1.00
Cancelled............................................ 1,685 (1,685) $0.07-$2.75 $ 1.75
Exercised............................................ - (209) $0.33-$1.00 $ 0.16
--------- ------
Balance at December 31, 1997......................... 1,856 1,967 $0.33-$1.00 $ 0.69
Authorized........................................... 600 -
Granted.............................................. (915) 915 $1.00 $ 1.00
Cancelled............................................ 658 (658) $0.33-$1.00 $ 0.89
Exercised............................................ - (272) $0.33-$1.00 $ 0.11
Terminated under 1992 Plan........................... (621) - -
--------- ------
Balance at December 31, 1998......................... 1,578 1,952 $0.03-$1.00 $ 0.85
Granted.............................................. (557) 557 $1.00 $ 1.00
Cancelled............................................ 161 (161) $0.50-$1.00 $ 0.99
Exercised............................................ - (106) $0.03-$1.00 $ 0.63
Terminated under 1992 Plan........................... (13) - -
--------- ------
Balance at December 31, 1999......................... 1,169 2,242 $0.03-$1.00 $ 0.88
Granted (unaudited).................................. (408) 408 $4.00-8.00 $ 7.83
Cancelled (unaudited)................................ 203 (203) $1.00-$6.00 $ 1.32
Exercised (unaudited)................................ - (131) $0.17-$1.00 $ 0.94
--------- ------
Balance at June 30, 2000 (unaudited)................. 964 2,316 $0.03-$4.00 $ 0.89
========= ======
|
Information relating to stock options outstanding at December 31, 1999 is as follows (in thousands, except per share amounts):
--------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ------------------------------
WEIGHTED AVERAGE
NUMBER REMAINING CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------------------- ----------- --------------------- ---------------- ----------- ----------------
$0.03-$0.50................ 279 3.22 $ 0.07 279 $ 0.07
$0.83...................... 3 5.85 $ 0.83 3 $ 0.83
$1.00...................... 1,960 8.31 $ 1.00 625 $ 1.00
----------- -----------
2,242 907
=========== ===========
|
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK OPTIONS: (CONTINUED)
APB NO. 25 DEFERRED COMPENSATION COST TO EMPLOYEES
During the year ended December 31, 1999 and the six months ended June 30, 2000, the Company recorded deferred compensation of approximately $828,000 and $410,000, respectively. This deferred compensation represents the difference between the grant price and the fair value for financial statement reporting purposes of the Company's common stock options granted during this period. Deferred compensation expense is being amortized using the graded vesting method, in accordance with SFAS No. 123 and FASB Interpretation No. 28, over the vesting period of each respective option, generally four years. Under the graded vesting method, each option grant is separated into portions based on their vesting terms which results in acceleration of amortization expense for the overall award. The accelerated amortization pattern results in expensing approximately 52% of the total award in year 1, 27% in year 2, 15% in year 3 and 6% in year 4.
Deferred compensation expense was allocated among the associated expense categories as follows (in thousands):
---------------------------
SIX MONTHS
YEARS ENDED ENDED JUNE
DECEMBER 31, 30,
------------- -----------
1998 1999 1999 2000
----- ----- ---- ----
(UNAUDITED)
Cost of contract revenue.................................... $ - $ - $ - $ 22
Research and development.................................... - 56 11 152
Selling, general and administrative......................... - 51 9 190
---- ---- ---- ----
$ - $107 $ 20 $342
---- ---- ---- ----
$ - $107 $ 20 $364
==== ==== ==== ====
|
SFAS NO. 123 PRO FORMA DISCLOSURES
Had compensation cost for the Company's option plans been determined based on the fair value at the grant dates, as prescribed in SFAS 123, the Company's net income (loss) would have been as follows (in thousands, except per share amounts):
-----------------------------------------------
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
Net income (loss):
As reported.................................... $(2,016) $(2,322) $ 142 $ 42 $ (582)
======= ======= ======= ======= =======
Pro forma...................................... $(2,351) $(2,491) $ (34) $ (46) $ (934)
======= ======= ======= ======= =======
Pro forma net income (loss) per share
Basic and diluted............................ $ (0.26) $ (0.26) $ (0.00) $ (0.00) $ (0.09)
======= ======= ======= ======= =======
|
The fair value of each grant is estimated on the date of grant using the Black-Scholes method with the following assumptions used for grants during the applicable period: dividend yield of 0% for all periods: risk-free interest
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK OPTIONS: (CONTINUED)
rates of 6.5%, 5.0% and 6.0% for options granted during 1997, 1998 and 1999,
respectively; a weighted average expected option life of five years for all
periods; and a volatility factor of 0% for all periods. The weighted average
fair value of options granted during 1997, 1998 and 1999 was $0.45, $1.00 and
$1.87, respectively.
NOTE 10 - EMPLOYEE BENEFITS:
RETIREMENT SAVINGS PLAN
Effective January 1997, the Company adopted the MoSys 401(k) Plan (the "Savings Plan") which qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code. All full-time employees who are at least 21 years old are eligible to participate in the Savings Plan at the time of hire. Participants may contribute up to 15% of their earnings to the Savings Plan. A discretionary matching amount may be made by the Company. The Company did not make any contributions in the years ended December 31, 1997, 1998 and 1999.
NOTE 11 - BUSINESS SEGMENTS, CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS:
The Company operates in a single industry segment. This industry segment is characterized by rapid technological change and significant competition.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited with high credit quality institutions.
The Company sells its products and technology to customers in the Far East, North America and Europe (in thousands).
-----------------------------------------------
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
United States.................................... $10,592 $18,454 $ 6,156 $3,315 $3,011
Japan............................................ 980 2,209 1,156 927 510
Taiwan........................................... 22,859 15,365 7,614 3,725 847
Europe........................................... 391 253 433 178 120
------- ------- ------- ------ ------
Total............................................ $34,822 $36,281 $15,359 $8,145 $4,488
======= ======= ======= ====== ======
|
One customer accounted for 12% of net sales in fiscal 1997. Three customers accounted for 29%, 11% and 10% of net sales in fiscal 1998. Two customers accounted for 16% and 11% of net sales in fiscal 1999. One customer accounted for 48% of gross accounts receivable at December 31, 1997. Two customers accounted for 33% (unaudited) and 13% (unaudited) of net sales in the six months ended June 30, 2000. Two customers accounted for 29% and 12% of gross accounts receivable at December 31, 1998. Four customers accounted for 28%, 14%, 13% and 11% of gross accounts receivable at December 31, 1999. Three customers accounted for 47% (unaudited), 13% (unaudited) and 11% (unaudited) of gross accounts receivable at June 30, 2000. The Company performs ongoing credit evaluations of its customers' financial condition and maintains an allowance for uncollectible accounts receivable based upon the expected collectibility of all accounts receivable. Write off
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - BUSINESS SEGMENTS, CONCENTRATION OF CREDIT RISK AND SIGNIFICANT
CUSTOMERS: (CONTINUED)
accounts receivable were $0, $0, $161,000 and $0 (unaudited) in years ended
December 31, 1997,1998 and 1999 and the six months ended June 30, 2000,
respectively.
NOTE 12 - OTHER COMMITMENTS AND CONTINGENCIES:
The Company leases its facility and certain equipment under non-cancelable operating leases which expire in 2001. The leases provide for monthly payments and are being charged to operations ratably over the lease terms. In addition to the minimum lease payments, the Company is responsible for property taxes, insurance and certain other operating costs.
Future minimum lease payments under non-cancelable operating leases as of December 31, 1999 are as follows (in thousands):
------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, OPERATING LEASES
------------------------------------------------------------ ----------------
2000........................................................ $ 149
2001........................................................ 134
-------------
Total minimum payments...................................... $ 283
=============
|
Rent expense under operating leases totaled $367,000, $138,000, $134,000 and $70,000 (unaudited) for the years ended December 31, 1997,1998 and 1999 and the period ended June 30, 2000, respectively.
In the normal course of business, the Company from time to time may receive and make inquiries with regard to possible patent infringement. Management believes that it is unlikely that the outcome of these patent infringement inquiries would have a material adverse effect on the Company's financial position or results of operations.
NOTE 13 - SUBSEQUENT EVENTS:
On July 27, 2000, the Board of Directors authorized the reincorporation of the Company in the State of Delaware subject to shareholder approval at a forthcoming special meeting of shareholders.
Following the reincorporation, the Company is authorized to issued 120,000,000 shares of $0.01 par value common stock and 20,000,000 shares of $0.01 par value preferred stock. The Board of Directors has the authority to issued the undesignated preferred stock in one or more series and to fix the rights, preferences, privileges and restriction thereof.
BENEFIT PLANS
2000 EMPLOYEE STOCK OPTION PLAN
The Company's 2000 employee stock option plan ("2000 plan") will be adopted in connection with its reincorporation in the state of Delaware.
A total of 5,000,000 shares of common stock have been reserved for issuance under the 2000 plan. In addition, the 2000 plan provides for an annual increase in the number of shares reserved under the plan on January 1 of each year, equal to the lesser of 500,000 shares, two percent of the Company's outstanding shares of common
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - SUBSEQUENT EVENTS: (CONTINUED)
stock on such date or a lesser amount determined by the board of directors. The
2000 plan provides for grants to employees, including officers and employee
directors, of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, or the code, and for grants of
nonstatutory stock options to employees, including officers and employee
directors, and to consultants. The purpose of the 2000 plan is to attract and
retain the best available personnel and to encourage stock ownership by
employees, officers and consultants in order to give them a greater personal
stake in the Company's success. The 2000 plan is administered by the board of
directors or by a committee appointed by the board, which identifies optionees
and determines the terms of options granted, including the exercise price,
number of shares subject to the option and the timing and terms of exercise.
The term of options granted under the 2000 plan may not exceed ten years. The term of all incentive stock options granted to an optionee who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the Company's stock may not exceed five years. Generally, 25% of the options granted under the 2000 plan will vest and become exercisable on the first anniversary of the date of grant, and 1/48th of the options will vest and become exercisable each month thereafter.
The exercise price of incentive stock options granted under the 2000 plan must be at least equal to the fair market value of the shares on the date of grant. The exercise price of nonstatutory stock options granted under the 2000 plan will be determined by the board of directors, but in no event will be less than 85% of the fair market value of the common stock on the date of grant. The exercise price of any incentive stock option or nonstatutory stock option granted to a ten-percent stockholder must equal at least 110% of the fair market value of the common stock on the date of grant.
2000 EMPLOYEE STOCK PURCHASE PLAN
The Company's 2000 employee stock purchase plan will be adopted in connection with its Delaware reincorporation. A total of 200,000 shares of common stock will be reserved for issuance under the purchase plan. In addition, the purchase plan provides for an annual increase in the number of shares reserved under the plan on January 1 of each year, equal to the lesser of 100,000 shares, one percent of the Company's outstanding shares of common stock on such date or a lesser amount determined by the board of directors. The purchase plan, which is intended to qualify under Section 423 of the code, will be administered by the board of directors or a committee appointed by the board of directors.
Employees, including officers and employee directors but excluding 5% stockholders, are eligible to participate if they are customarily employed for at least 20 hours per week and for more than five months in any calendar year. The purchase plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 10% of an employee's compensation. Employees will be permitted to invest a maximum of $25,000 in any offering period.
The purchase plan will be implemented in a series of overlapping offering periods, each to be approximately 12 months in duration. The initial offering period under the purchase plan will begin on the pricing date of this offering and expires on the third enrollment date, which is the first day of the third offering period. Offering periods will begin on the first trading day on or after January 1 and July 1 of each year and end on the last trading day in the period ending twelve months later. Each participant will be granted an option on the first day of the offering period, and such option will be automatically exercised on the last day of each offering period. The purchase price of the common stock under the purchase plan will be equal to 85% of the lesser of the fair market value per share of common stock on the start date of the offering period or on the date on which the
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - SUBSEQUENT EVENTS: (CONTINUED)
option is exercised. Employees may end their participation in an offering period
at any time during that period, and participation ends automatically on
termination of employment with the Company. The purchase plan will terminate in
June 2010, unless sooner terminated by the board of directors.
As of the date of this report, no shares have been issued under the purchase plan.
[back inside cover]
A picture of an integrated circuit that incorporates the MoSys 1T-SRAM technology, which is positioned on two sections of the integrated circuit. Each block of 1T-SRAM is highlighted by a black rectangular border. Above the picture the title reads "An example of an integrated circuit incorporating MoSys' 1T-SRAM technology." Below the picture, a caption reads "The 1T-SRAM blocks occupy over 30% of the integrated circuit area."
[LOGO]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by the Company (the "Registrant") in connection with the offering of the securities being registered, other than the underwriting discounts and commissions. All of the amounts shown are estimates except for the SEC registration fee, and the NASD filing fee and the Nasdaq National Market filing fee.
SEC registration fee........................................ $13,200
NASD filing fee*............................................
Nasdaq National Market filing fee*..........................
Blue Sky fees and expenses..................................
Printing and engraving expenses*............................
Legal fees and expenses*....................................
Accounting fees and expenses*...............................
Transfer agent and registrar fees and expenses*.............
Directors' and Officers' insurance premiums*................
Miscellaneous expenses*.....................................
-------
Total*...................................................... $
=======
|
* To be added by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act").
As permitted by the DGCL, the Registrant's bylaws provide that the Registrant shall indemnify its directors and officers, and may indemnify its employees and other agents, to the fullest extend permitted by law. The bylaws also permit the Registrant to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the bylaws would permit indemnification. The Registrant intends to obtain officer and director liability insurance with respect to liabilities arising out of certain matters, including matters arising under the Securities Act.
The Registrant also has entered into agreements with certain of its directors and executive officers and intends to enter into agreements with its remaining officers and directors that, among other things, indemnify them for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by them in any action or proceeding, including any action by or in the right of the Registrant, arising out of such person's services as a director or officer of the Registrant, any subsidiary of the Registrant or any other company or enterprise to which the person provides services at the request of the Registrant.
Reference is made to Section 7 of the Underwriting Agreement, a copy of which is filed as Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of the directors and officers of the Registrant who sign the registration statement against certain liabilities, including those arising under the Securities Act, in certain circumstances.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 31, 1997, the Registrant has issued and sold the following unregistered securities. None of these sales involved an underwriter, finder or other agent or the payment of any selling commission to any person.
1. From May 31, 1997 to May 5, 2000 the Registrant issued and sold 673,319 shares of common stock to employees and consultants at prices ranging from $0.03 to $1.00 per share upon exercise of stock options pursuant to the Registrant's 1992 Stock Option Plan and 1996 stock plan, for an aggregate purchase price of approximately $215,000.
2. In November 30, 1997, the Registrant issued and sold an aggregate of 290,000 shares of Series F-1 preferred stock to three investors for an aggregate purchase price of $1,595,000 and issued warrants to such investors to acquire an aggregate of 290,000 shares of common stock at a per share exercise price of $5.50.
3. On March 7, 1998, the Registrant issued warrants to Wei Yen to acquire an aggregate of 166,667 shares of common stock at a per share exercise price of $5.50.
4. On April 30, 1998, the Registrant issued and sold an aggregate of 1,343,433 shares of Series G preferred stock to six investors for an aggregate purchase price of $1,343,433.
5. On November 2, 1998, pursuant to the termination of a previous agreement and warrants, the Registrant issued warrants to TSMC to acquire an aggregate of 1,200,000 shares of common stock at a per share exercise price of $6.50.
6. On May 13, 2000 the Registrant issued and sold an aggregate of 650,000 Shares of Series H preferred stock to two investors for an aggregate purchase price of $5,200,000 pursuant to a written agreement dated April 4, 2000.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Regulation S under the Securities Act,
Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
providing the offering and sale of Securities outside the United States,
transactions by an issuer not involving a public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided under such Rule 701. The purchasers of securities in each such
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof, and appropriate legends were affixed to the share certificates and
instruments issued in such transactions.
ITEM 16. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
1.1* Form of Underwriting Agreement
2.1 Merger Agreement regarding the Registrant's reincorporation
in Delaware
3.1 Amended and Restated Articles of Incorporation of the
Registrant
3.2 Bylaws of the Registrant, as amended
3.3* Restated Certificate of Incorporation of the Registrant, to
be in effect on the Registrant's reincorporation in Delaware
3.4 Bylaws of the Registrant, to be in effect on the
Registrant's reincorporation in Delaware
4.1* Specimen common stock certificate
4.2 Third Amended and Restated Investor Rights Agreement dated
September 27, 1997
4.3* Rights Agreement, to be in effect on the Registrant's
reincorporation in Delaware
5.1* Opinion of McCutchen, Doyle, Brown & Enersen, LLP
|
II-2
10.1 Form of Indemnity Agreement between the Registrant and each
of its directors and executive officers
10.2 1992 Stock Option Plan and form of Option Agreement
thereunder
10.3 1996 Stock Plan and form of Option Agreement thereunder
10.4 Form of Restricted Stock Purchase Agreement
10.5 2000 Employee Stock Option Plan and form of Option Agreement
thereunder
10.6 2000 Employee Stock Purchase Plan and form of Subscription
Agreement thereunder
10.7 Standard Industrial Lease, dated September 24, 1996, between
the Registrant and McCandless Properties
10.8 First Amendment to Lease, dated June 30, 2000, between the
Registrant and McCandless Properties
10.9+ Agreement between Nintendo Co., Ltd. and the Registrant
dated August 31, 1999
10.10+ License Agreement between NEC Corporation and the Registrant
dated January 31, 1999
10.11+ License Agreement between NEC Corporation and the Registrant
dated December 17, 1999
10.12 Employment Agreement between Registrant and F. Judson
Mitchell dated July 17, 2000
23.1 Consent of PricewaterhouseCoopers, LLP Independent
Accountants
23.2* Consent of McCutchen, Doyle, Brown & Enersen, LLP (included
in Exhibit 5.1)
24.1 Powers of Attorney (see page II-4)
27.1 Financial Data Schedule
|
* To be supplied by amendment
+ Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer of controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this registration statement on Form S-1 to be signed on our behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale, State of California, on the 4th day of August, 2000.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
By /s/ FU-CHIEH HSU
-----------------------------------------
Fu-Chieh Hsu
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Fu-Chieh Hsu and F. Judson Mitchell, and each one of them, acting individually and without the other, as his or her attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
------------------------------------------------------------------------------------------------------
SIGNATURE TITLE DATE
------------------------------------------------ ----------------------------------- ---------------
/s/ FU-CHIEH HSU Chairman of the Board, President
-------------------------------------- and Chief Executive Officer August 4, 2000
Fu-Chieh Hsu (Principal Executive Officer)
/s/ F. JUDSON MITCHELL Vice President, Finance and Chief
-------------------------------------- Financial Officer (Principal August 4, 2000
F. Judson Mitchell Financial and Accounting Officer)
/s/ CARL E. BERG
-------------------------------------- Director August 4, 2000
Carl E. Berg
/s/ DENNY R. S. KO
-------------------------------------- Director August 4, 2000
Denny R. S. Ko
/s/ WING-YU LEUNG
-------------------------------------- Director August 4, 2000
Wing-Yu Leung
|
II-4
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
Monolithic System Technology, Inc.
Our audits of the financial statements referred to in our report dated August 3, 2000 appearing in this Registration Statement on Form S-1 also included an audit of the financial statement schedule listed in Item 14(a)(2) of such Registration Statement. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statement.
/s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP San Jose, California August 3, 2000 |
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, 1999
(IN THOUSANDS)
BALANCE AT BALANCE
BEGINNING CHARGED TO CREDITED TO AT END OF
DESCRIPTION OF PERIOD EXPENSES EXPENSES PERIOD
----------- ---------- ---------- ----------- ---------
Allowance for doubtful accounts receivable:
Fiscal year ended December 31, 1997............... $147 $153 $ -- $300
Fiscal year ended December 31, 1998............... 300 -- -- 300
Fiscal year ended December 31, 1999............... 300 60 (161) 199
Six months ended June 30, 2000.................... 199 103 -- 200
|
EXHIBIT INDEX
1.1* Form of Underwriting Agreement
2.1 Merger Agreement regarding the Registrant's reincorporation
in Delaware
3.1 Amended and Restated Articles of Incorporation of the
Registrant
3.2 Bylaws of the Registrant, as amended
3.3* Certificate of Incorporation of the Registrant, to be in
effect on the Registrant's reincorporation in Delaware
3.4 Bylaws of the Registrant, to be in effect on the
Registrant's reincorporation in Delaware
4.1* Specimen common stock certificate
4.2 Third Amended and Restated Investor Rights Agreement dated
September 27, 1997
4.3* Rights Agreement, to be in effect on the Registrant's
reincorporation in Delaware
5.1* Opinion of McCutchen, Doyle, Brown & Enersen, LLP
10.1 Form of Indemnity Agreement between the Registrant and each
of its directors and executive officers
10.2 1992 Stock Option Plan and form of Option Agreement
thereunder
10.3 1996 Stock Plan and form of Option Agreement thereunder
10.4 Form of Restricted Stock Purchase Agreement
10.5 2000 Employee Stock Option Plan and form of Option Agreement
thereunder
10.6 2000 Employee Stock Purchase Plan and form of Subscription
Agreement thereunder
10.7 Standard Industrial Lease, dated September 24, 1996, between
the Registrant and McCandless Properties
10.8 First Amendment to Lease, dated June 30, 2000, between the
Registrant and McCandless Properties
10.9+ Agreement between Nintendo Co., Ltd. and the Registrant
dated August 31, 1999
10.10+ License Agreement between NEC Corporation and the Registrant
dated January 31, 1999
10.11+ License Agreement between NEC Corporation and the Registrant
dated December 17, 1999
10.12 Employment Agreement between Registrant and Judson Mitchell
dated July 17, 2000
23.1 Consent of PricewaterhouseCoopers, LLP Independent
Accountants
23.2* Consent of McCutchen, Doyle, Brown & Enersen, LLP (included
in Exhibit 5.1)
24.1 Powers of Attorney (see page II-4)
27.1 Financial Data Schedule
|
* To be supplied by amendment
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
Exhibit 2.1
MERGER AGREEMENT
This Merger Agreement (the "MERGER AGREEMENT") is entered into as of ________ __, 2000 by and among Monolithic System Technology, Inc., a California corporation ("MOSYS CALIFORNIA"), and Monolithic System Technology, Inc., a Delaware corporation and a wholly-owned subsidiary of MoSys California ("MOSYS DELAWARE" and, together with MoSys California, the "PARTIES").
RECITALS
MoSys Delaware is a newly incorporated corporation, without business or substantial assets or liabilities, formed and organized for the purpose of acting as the surviving corporation of the merger of MoSys California into MoSys Delaware (the "MERGER"). The purpose of the Merger is to reincorporate MoSys California as a Delaware corporation, and the Merger is intended to qualify as a mere change in identity, form, or place of organization under section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended.
AGREEMENT
NOW, THEREFORE, the parties do hereby agree as follows:
ARTICLE I
THE CONSTITUENT CORPORATIONS
1.1 MOSYS DELAWARE. MoSys Delaware is incorporated under the laws of the State of Delaware and will be the surviving corporation in the Merger. MoSys Delaware is authorized to issue an aggregate of 120,000,000 shares of Common Stock, $0.01 par value per share ("MOSYS DELAWARE COMMON STOCK"), and 20,000,000 shares of Preferred Stock, $0.01 par value per share, of which 500,000 shares are designated Series A Preferred Stock, 1,000,000 shares are designated Series B Preferred Stock, 1,010,000 shares are designated Series C Preferred Stock, 300,000 shares are designated Series D Preferred Stock, 264,487 shares are designated Series E Preferred Stock, 1,224,487 shares are designated Series F Preferred Stock, 290,000 shares are designated Series F-1 Preferred Stock, 1,343,433 shares are designated Series G Preferred Stock, and 650,000 shares are designated Series H Preferred Stock (collectively, with the Series A through Series G Preferred Stock, the "MOSYS DELAWARE PREFERRED STOCK").
1.2 MOSYS CALIFORNIA. MoSys California is incorporated under the laws of the State of California and will be the disappearing corporation in the Merger. MoSys California is authorized to issue an aggregate of 30,000,000 shares of Common Stock, no par value ("MOSYS CALIFORNIA COMMON STOCK"), of which 9,839,035 shares are outstanding as of the date of this Agreement; and 9,500,000 shares of Preferred Stock, no par value, of which 500,000 shares are designated Series A Preferred Stock, of which 500,000 shares are outstanding as of the date of this Agreement; 1,000,000 shares are designated Series B Preferred Stock, of which 1,000,000 shares are outstanding as of the date of this Agreement; 1,010,000 shares are designated Series C Preferred Stock, of which 1,010,000 shares are outstanding as of the date of this Agreement;
300,000 shares are designated Series D Preferred Stock, of which 300,000 shares are outstanding as of the date of this Agreement; 264,487 shares are designated Series E Preferred Stock, of which 264,487 shares are outstanding as of the date of this Agreement; 1,224,487 shares are designated Series F Preferred Stock, of which 1,224,487 shares are outstanding as of the date of this Agreement; 290,000 shares are designated Series F-1 Preferred Stock, of which 290,000 shares are outstanding as of the date of this Agreement; 1,343,433 shares are designated Series G Preferred Stock, of which 1,343,433 shares are outstanding as of the date of this Agreement; and 650,000 shares are designated Series H Preferred Stock, of which 650,000 shares are outstanding as of the date of this Agreement (collectively, with the Series A through Series G Preferred Stock, the "MOSYS CALIFORNIA PREFERRED STOCK").
ARTICLE II
THE MERGER
2.1 CONDITIONS TO CLOSING OF THE MERGER. Completion and effectiveness of the Merger shall not occur unless and until all of the following conditions have been met:
(a) All necessary approvals of the Merger by shareholders of MoSys California and the stockholder of MoSys Delaware shall have been obtained.
(b) MoSys California shall be and remain in good standing in the State of California, and MoSys Delaware shall be and remain in good standing in the State of Delaware.
2.2 CLOSING OF MERGER. As soon as all conditions to the Merger have been satisfied, this Merger Agreement, along with certificates meeting the requirements of the California General Corporation Law and the Delaware General Corporation Law, shall be filed with the Secretary of State of California and the Secretary of State of Delaware. At the time such filings are both effected, or, if later, at the date specified pursuant to Section 103(d) of the Delaware General Corporation Law, the Merger shall become effective ("EFFECTIVE TIME").
2.3 EFFECT OF MERGER.
(a) At the Effective Time, MoSys California shall be merged into MoSys Delaware and the separate corporate existence of MoSys California shall thereupon cease. MoSys Delaware shall be the surviving corporation in the Merger (the "SURVIVING CORPORATION") and the separate corporate existence of MoSys Delaware, with all its purposes, objects, rights, privileges, powers, immunities and franchises, shall continue unaffected and unimpaired by the Merger.
(b) MoSys Delaware, as the Surviving Corporation, shall succeed to all of the rights, privileges, powers, immunities and franchises of MoSys California, all of the properties and assets of MoSys California and all of the debts, choses in action and other interests due or belonging to MoSys California and shall be subject to, and responsible for, all of the debts, liabilities and obligations of MoSys California with the effect set forth in the California General Corporation Law and the Delaware General Corporation Law, as applicable.
ARTICLE III
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
3.1 CERTIFICATE OF INCORPORATION. At the Effective Time, the Certificate of Incorporation of MoSys Delaware, as the Surviving Corporation, shall continue in the form in effect immediately prior to the Effective Time.
3.2 BYLAWS. At the Effective Time, the Bylaws of MoSys Delaware, as the Surviving Corporation, shall continue in the form in effect immediately prior to the Effective Time.
ARTICLE IV
MANNER AND BASIS OF CONVERTING CAPITAL STOCK AND SECURITIES
4.1 CONVERSION OF STOCK AND OPTIONS. At the Effective Time:
(a) Each share of MoSys California Common Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by the constituent corporations, the holder of such share, or any other person, be converted into and exchanged for one fully paid and nonassessable share of MoSys Delaware Common Stock.
(b) Each share of MoSys California Series A Preferred Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by the constituent corporations, the holder of such share, or any other person, be converted into and exchanged for one fully paid and nonassessable share of MoSys Delaware Series A Preferred Stock.
(c) Each share of MoSys California Series B Preferred Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by the constituent corporations, the holder of such share, or any other person, be converted into and exchanged for one fully paid and nonassessable share of MoSys Delaware Series B Preferred Stock.
(d) Each share of MoSys California Series C Preferred Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by the constituent corporations, the holder of such share, or any other person, be converted into and exchanged for one fully paid and nonassessable share of MoSys Delaware Series C Preferred Stock.
(e) Each share of MoSys California Series D Preferred Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by the constituent corporations, the holder of such share, or any other person, be converted into and exchanged for one fully paid and nonassessable share of MoSys Delaware Series D Preferred Stock.
(f) Each share of MoSys California Series E Preferred Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by the constituent corporations, the holder of such share, or any other person, be converted into and exchanged for one fully paid and nonassessable share of MoSys Delaware Series E Preferred Stock.
(g) Each share of MoSys California Series F Preferred Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by the constituent corporations, the holder of such share, or any other person, be converted into and exchanged for one fully paid and nonassessable share of MoSys Delaware Series F Preferred Stock.
(h) Each share of MoSys California Series F-1 Preferred Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by the constituent corporations, the holder of such share, or any other person, be converted into and exchanged for one fully paid and nonassessable share of MoSys Delaware Series F-1 Preferred Stock.
(i) Each share of MoSys California Series G Preferred Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by the constituent corporations, the holder of such share, or any other person, be converted into and exchanged for one fully paid and nonassessable share of MoSys Delaware Series G Preferred Stock.
(j) Each share of MoSys California Series H Preferred Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by the constituent corporations, the holder of such share, or any other person, be converted into and exchanged for one fully paid and nonassessable share of MoSys Delaware Series H Preferred Stock.
(k) MoSys Delaware, as the Surviving Corporation, shall assume the stock option plans (including the 1996 Stock Plan and the 1992 Stock Option Plan) and all other employee benefit plans of MoSys California. Each outstanding and unexercised option or warrant to purchase shares of MoSys California Common Stock shall become an option or warrant to purchase MoSys Delaware Common Stock on the basis of one (1) share of MoSys Delaware Common Stock for each share of MoSys California Common Stock issuable pursuant to any such option or warrant on the same terms and conditions and at an exercise price per share equal to the exercise price per share applicable to any such MoSys California option or warrant at the Effective Time. A number of shares of MoSys Delaware Common Stock shall be reserved for issuance upon the exercise of options and warrants equal to the number of shares of MoSys California Common Stock so reserved immediately prior to the Effective Time. Each share of MoSys California Common Stock that is reserved but unissued under the 1996 Stock Plan and the 1992 Stock Option Plan shall be canceled.
(l) Each share of MoSys Delaware Common Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action by
MoSys Delaware, the holder of such shares or any other person, be canceled and returned to the status of authorized but unissued shares.
4.2 EXCHANGE CERTIFICATES. (a) After the Effective Time, each holder of an outstanding certificate representing shares of MoSys California Common Stock or MoSys California Preferred Stock may be asked to surrender the same for cancellation to an exchange agent, whose name will be delivered to such holders prior to any requested exchange (the "Exchange Agent"), and each such holder shall be entitled to receive in exchange therefor a certificate or certificates representing the number of shares of MoSys Delaware Common Stock or MoSys Delaware Preferred Stock, as the case may be, into which the surrendered shares were converted as herein provided. Until so surrendered, each outstanding certificate theretofore representing shares of MoSys California Common Stock or MoSys California Preferred Stock shall be deemed for all purposes to represent the number of shares of MoSys Delaware Common Stock or MoSys Delaware Preferred Stock, as the case may be, into which the shares of MoSys California Common Stock or MoSys California Preferred Stock were converted in the Merger.
(b) The registered owner on the books and records of MoSys Delaware or the Exchange Agent of any such outstanding certificate shall, until such certificate shall have been surrendered for transfer or conversion or otherwise accounted for to MoSys Delaware or the Exchange Agent, have and be entitled to exercise all voting and other rights with respect to and to receive dividends and other distributions upon the shares of MoSys Delaware Common Stock or MoSys Delaware Preferred Stock, as the case may be, represented by such outstanding certificate as provided above.
(c) Each certificate representing MoSys Delaware Common Stock or MoSys Delaware Preferred Stock so issued in the Merger shall bear the same legends, if any, with respect to the restrictions on transferability as the certificates of MoSys California so converted and given in exchange therefore, unless otherwise determined by the Board of Directors of MoSys Delaware in compliance with applicable laws, or other such additional legends as are agreed upon by the holder and MoSys Delaware.
(d) If any certificate for shares of MoSys Delaware Common Stock or MoSys Delaware Preferred Stock is to be issued to a person or entity ("PERSON") other than the Person in whose name the certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the certificate so surrendered will be properly endorsed and otherwise in proper form for transfer, that such transfer otherwise be proper and comply with applicable securities laws, and that the person requesting such transfer pay to the Exchange Agent any transfer or other taxes payable by reason of the issuance of such new certificate in a name other than that of the registered holder of the certificate surrendered or establish to the satisfaction of MoSys Delaware that such tax has been paid or is not payable.
(e) If any certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate to be lost, stolen or destroyed and, if required by MoSys Delaware, the posting by such Person of a bond in such reasonable amount as MoSys Delaware may direct as indemnity against any claim that may be made against it with
respect to such certificate, MoSys Delaware will cause a new certificate to be issued in exchange for such lost, stolen or destroyed certificate.
ARTICLE V
TERMINATION AND AMENDMENT
5.1 TERMINATION. This Merger Agreement may be terminated by either party at any time prior to the Effective Time.
5.2 AMENDMENT. This Merger Agreement may be amended by the Parties at any time before or after approval hereof by the shareholders of MoSys California and MoSys Delaware, but, after any such approval, no amendment which by law requires the further approval of the shareholders of any of MoSys California and/or MoSys Delaware may be made without such approval having first been obtained. This Merger Agreement may not be amended except by an instrument in writing signed on behalf of each of the Parties.
5.3 COUNTERPARTS. This Merger Agreement may be executed in counterparts.
5.4 LAW GOVERNING. This Merger Agreement shall be interpreted in accordance with and governed by the laws of the State of Delaware, without regard to principles of conflicts of law.
5.5 SEVERABILITY. If any of the provisions of this Merger Agreement are determined to be void or unenforceable, such provision shall be severed from this agreement without affecting the validity and enforceability of any of the other provisions hereof.
* * *
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as of the date first written above.
MONOLITHIC SYSTEM TECHNOLOGY, INC., MONOLITHIC SYSTEM TECHNOLOGY, A CALIFORNIA CORPORATION INC., A DELAWARE CORPORATION ----------------------------------- ----------------------------- By: Fu-Chieh Hsu By: Fu-Chieh Hsu Title: President Title: President ----------------------------------- ----------------------------- By: By: -------------------------------- -------------------------- Title: Secretary Title: Secretary |
MONOLITHIC SYSTEM TECHNOLOGY, INC.,
A CALIFORNIA CORPORATION
CERTIFICATE OF APPROVAL OF MERGER AGREEMENT
Fu-Chieh Hsu and Wing-Yu Leung certify that:
1. They are the president and secretary, respectively of Monolithic System Technology, Inc., a California corporation.
2. The Merger Agreement in the form attached as EXHIBIT A was duly approved by the board of directors and the shareholders of the corporation.
3. The following classes of shares are issued and outstanding and entitled to vote: 9,839,035 shares of Common Stock and 6,582,472 shares of Preferred Stock. The approval of more than 50% of the shares of each class is required to approve the Merger Agreement.
4. The principal terms of the Merger Agreement in the form attached were approved by a vote of a number of shares of each class which exceeded the vote required.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Date: , 2000 ----------------------------
--------- ---- Fu-Chieh Hsu, President
Date: , 2000 ----------------------------
--------- ---- Wing-Yu Leung, Secretary
|
MONOLITHIC SYSTEM TECHNOLOGY, INC.,
A DELAWARE CORPORATION
CERTIFICATE OF APPROVAL OF MERGER AGREEMENT
Fu-Chieh Hsu and Wing-Yu Leung certify that:
1. They are the president and secretary, respectively of Monolithic System Technology, Inc., a Delaware corporation.
2. The Merger Agreement in the form attached as EXHIBIT A was duly approved by the board of directors and the sole stockholder of the corporation.
3. The following classes of shares are issued and outstanding and entitled to vote: 100 shares of Common Stock. The approval of more than 50% of the shares of such class is required to approve the Merger Agreement.
4. The principal terms of the Merger Agreement in the form attached were approved by a vote of a number of shares of each class which exceeded the vote required.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.
Date: , 2000 ---------------------------
--------- ---- Fu-Chieh Hsu, President
Date: , 2000 ---------------------------
--------- ---- Wing-Yu Leung, Secretary
|
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MONOLITHIC SYSTEM TECHNOLOGY, INC.
The undersigned, Fu-Chieh Hsu and Wing-Yu Leung, hereby certify that:
1. They are the duly elected and acting President and Secretary, respectively, of Monolithic System Technology, Inc., a California corporation.
2. The Articles of Incorporation of this corporation are amended and restated to read in full as follows:
I.
The name of this corporation is Monolithic System Technology, Inc.
II.
The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.
III.
This corporation is authorized to issue two classes of stock, designated "Common Stock" and "Preferred Stock." The total number of shares which this corporation is authorized to issue is 39,500,000 shares. The number of shares of Common Stock which this corporation is authorized to issue is 30,000,000 shares. The number of shares of Preferred Stock which this corporation is authorized to issue is 9,500,000 shares. The Preferred Stock may be issued from time to time in one or more series. Of the Preferred Stock, 500,000 shares shall be designated Series A Preferred Stock ("Series A Preferred"), 1,000,000 shares shall be designated Series B Preferred Stock ("Series B Preferred"), 1,010,000 shares shall be designated Series C Preferred Stock ("Series C Preferred"), 300,000 shares shall be designated Series D Preferred Stock ("Series D Preferred"), 264,487 shares
shall be designated Series E Preferred Stock ("Series E Preferred"), 1,224,552 shares shall be designated Series F Preferred Stock ("Series F Preferred"), 290,000 shares shall be designated Series F-1 Preferred Stock ("Series F-1 Preferred"), 1,343,433 shares shall be designated Series G Preferred Stock ("Series G Preferred") and 1,200,000 shares shall be designated Series H Preferred ("Series H Preferred). The Board of Directors of this corporation is authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation and par value of any series and to fix the number of shares of any series.
The Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred, the Series F Preferred, the Series F-1 Preferred, the Series G Preferred and the Series H Preferred shall have the rights, preferences, privileges and restrictions set forth below.
SECTION 1. DIVIDEND RIGHTS OF PREFERRED STOCK. The holder of each share of `Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred, Series F-1, Series G and Series H Preferred shall be entitled to receive, prior and in preference to any declaration and payment of any dividend (payable other than in stock of the corporation) on the Common Stock, non-cumulative dividends at an annual rate equal to $0.1 0, $0.20, $0.50, $0.75, $1.60, $0.55, $0.55, $0.60 and $.80 per share, respectively, when and as declared by the Board of Directors. Dividends, if paid, or if declared and set apart for payment, must be paid on, or declared and set apart for payment on, all series of Preferred Stock contemporaneously, and if less than full dividends are paid or declared and set apart for payment, the same percentage of the dividend rate will be paid on or declared and set apart for payment on each series of Preferred Stock.
In the event that the corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the corporation or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of Preferred Stock were the holders of the number of shares of Common Stock of the corporation into which their respective shares of Preferred Stock are convertible at the Conversion Prices (as defined in paragraph 3(a) below) in effect as of the record date fixed for the determination of the holders of Common Stock of the corporation entitled to receive such distribution.
SECTION 2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the corporation, either voluntarily or involuntarily, the holders of the Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the corporation to the holders of the Common Stock, an amount per share equal to $1.00 plus any declared but unpaid dividends for each share of Series A Preferred then held by them, an amount per share equal to $2.00 plus any declared but unpaid dividends for each share of Series B Preferred then held by them, an amount per share equal to $5.00 plus any declared but unpaid dividends for each share of Series C Preferred then held by
them, an amount per share equal to $7.50 plus any declared but unpaid dividends for each share of Series D Preferred then held by them, an amount per share equal to $16.00 plus any declared but unpaid dividends for each share of Series E Preferred then held by them, an amount per share equal to $5.50 plus any declared but unpaid dividends for each share of Series F Preferred then held by them, an amount per share equal to $5.50 plus any declared but unpaid dividends for each share of Series F-1 Preferred then held by them and an amount per share equal to $6.00 plus any declared but unpaid dividends for each share of Series G Preferred then held by them and an amount per share equal to $8.00 plus any declared but unpaid dividends for each share of Series H Preferred then held by them. If, upon the occurrence of such event, the assets thus distributed among the holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred, Series F-1 Preferred, Series G Preferred and Series H Preferred then held by them shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the corporation legally available for distribution shall be distributed among the holders of all series of the Preferred Stock in proportion to the aggregate preferential amounts owed the holders of the then outstanding shares of each series of Preferred Stock upon a liquidation, dissolution or winding up of the corporation; and no amount shall be paid or set apart for payment on any series of the Preferred Stock unless, at the same time, amounts in like proportion to the respective preferential amounts to which the other outstanding series of the Preferred Stock are entitled shall be paid or set apart for payment on the outstanding other series.
(b) Upon the completion of the distribution required by subparagraph (a) of this Section 2, any remaining assets of this corporation shall be distributed ratably among the holders of Common Stock and Preferred Stock based on the number of shares of Common Stock held by each assuming conversion of all outstanding Preferred Stock into Common Stock at the then applicable Conversion Price (as defined in paragraph 3(a) below).
(i) For purposes of this Section 2, a liquidation, dissolution or winding up of the corporation shall be deemed to be occasioned by and to include (A) the corporation's sale of all or substantially all of its assets or (B) any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) which will result in the holders of the outstanding voting equity securities of the corporation immediately prior to such transaction or series of related transactions holding securities representing less than 50% of the voting power of the surviving entity immediately following such transaction or series of related transactions.
(ii) In any such events, if the consideration received by the corporation is other than cash or indebtedness, its value will be deemed to be its fair market value. In the case of publicly traded securities, fair market value shall mean the closing market price of such securities on the date such consolidation, merger or sale is consummated. If a consideration is in a form other than publicly traded securities, its value shall be determined by the Board.
SECTION 3. CONVERSION.
The holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred and Series F-1 Preferred, Series G Preferred and Series H Preferred shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred, each share of Series B Preferred, each share of Series C Preferred, each share of Series D Preferred, each share of Series E Preferred, each share of Series F Preferred, each share of Series F-1 Preferred, each share of Series G Preferred and each share of Series H shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined, in the case of the Series A Preferred, by dividing One Dollar ($ 1.00) by the Series A Conversion Price, in the case of the Series B Preferred, by dividing Two Dollars ($2.00) by the Series B Conversion Price, in the case of the Series C Preferred, by dividing Five Dollars ($5.00) by the Series C Conversion Price, in the case of the Series D Preferred, by dividing Seven Dollars and Fifty Cents ($7.50) by the Series D Conversion Price, in the case of the Series E Preferred by dividing Sixteen Dollars ($16.00) by the Series E Conversion Price, in the case of the Series F Preferred by dividing Five Dollars and Fifty Cents ($5.50) by the Series F Conversion Price, in the case of the Series F-1 Preferred by dividing Five Dollars and Fifty Cents ($5.50) by the Series F-I Conversion Price, in the case of the Series G Preferred by dividing Six Dollars ($6.00) by the Series G Conversion Price, and in the case of the Series H Preferred by dividing Eight Dollars ($8.00) by the Series H Conversion Price, each determined as hereinafter provided and as in effect at the time of conversion. The price at which shares of Common Stock shall be deliverable upon conversion of shares of Series A Preferred (the "Series A Conversion Price") shall initially be Thirty-three and One-third Cents ($.333) per share of Common Stock, the price at which shares of Common Stock shall be deliverable upon conversion of shares of Series B Preferred (the "Series B Conversion Price") shall initially be Sixty-six and Two-third Cents ($.667) per share of Common Stock, the price at which shares of Common Stock shall be deliverable upon conversion of shares of Series C Preferred (the "Series C Conversion Price") shall initially be One Dollar and Sixty-six and Two-third cents ($1.667) per share of Common Stock, the price at which shares of Common Stock shall be deliverable upon conversion of shares of Series D Preferred (the "Series D Conversion Price") shall initially be Two Dollars and Fifty Cents ($2.50) per share of Common Stock, the price at which shares of Common Stock shall be delivered upon conversion of shares of Series E Preferred shall initially be Five Dollars and Thirty-three and One-third Cents ($5.333), the price at which shares of Common Stock shall be delivered upon conversion of shares of Series F Preferred shall initially be Five Dollars and Fifty Cents ($5.50), the price at which shares of Common Stock shall be delivered upon conversion of shares of Series F-1 Preferred shall initially be Five Dollars and Fifty Cents ($5.50), the price at which shares of Common Stock shall be delivered upon conversion of shares of Series G Preferred shall initially be Six Dollars ($6.00) and the price at which shares of Common Stock shall be delivered upon conversion of shares of Series H Preferred shall initially be Eight Dollars ($8.00). The term "Conversion Price" as used herein shall refer to the respective Conversion Price for each series of Preferred Stock as the context so requires. The initial Conversion Price shall be subject to adjustment as hereinafter provided.
Upon conversion, all declared and unpaid dividends on the Preferred Stock shall be paid either in cash or in shares of Common Stock of the corporation, at the election of the corporation, wherein the shares of Common Stock shall be valued at the fair market value at the time of such conversion, as determined by the Board of Directors of the corporation.
(b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price upon the earlier to occur of (i) the closing of an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the corporation to the public at a price per share (prior to underwriter commissions and offering expenses) of not less than $8.00, appropriately adjusted for any recapitalization, and an aggregate offering price to the public of not less than $7,500,000, or (ii) the written consent of the holders of at least a majority of the then outstanding shares of Preferred (on an as converted to Common basis). In the event of the automatic conversion of the Preferred under subsection (1) above, the person(s) entitled to receive Common upon such conversion of Preferred shall not be deemed to have converted such Preferred until immediately prior to the closing of such sale of securities.
(c) MECHANICS OF CONVERSION. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the corporation at such office that he elects to convert the same; PROVIDED, HOWEVER, that in the event of an automatic conversion pursuant to Section 3(b), the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the corporation or its transfer agent, and provided further that the corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the corporation or its transfer agent as provided above, or the holder notifies the corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the corporation to indemnify the corporation from any loss incurred by it in connection with such certificates. The corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, or in the case of automatic conversion on the date of closing of the offering, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this Section 3(d), the following definitions shall apply:
(A) `Options' shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities.
(B) `Original Issue Date' shall mean, for each series, the date on which a share of that series of the Preferred Stock was first issued.
(C) `Convertible Securities' shall mean any evidences of indebtedness, Preferred Stock, or other securities convertible into or exchangeable for Common Stock.
(D) `Additional Shares of Common' shall mean all shares of Common Stock issued (or, pursuant to Section 3(d)(iii), deemed to be issued) by the corporation after the Original Issue Date, other than shares of Common Stock issued, issuable or, pursuant to Section 3(d)(Iii), deemed to be issued:
(a) upon conversion of shares of Preferred Stock;
(b) to officers, directors or employees of, or consultants to, the corporation pursuant to a stock grant, option plan or purchase plan or other employee stock incentive program or arrangement approved by the Board of Directors;
(c) as a dividend or distribution on Preferred Stock; and
(d) in connection with any transaction for which adjustment is made pursuant to Section 3(d)(vi) hereof
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the Conversion Price of a particular share of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share for an Additional Share of Common issued or deemed to be issued by the corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue, for such share of Preferred Stock.
(iii) OPTIONS AND CONVERTIBLE SECURITIES. In the event the corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 3(d)(v) hereof) of such Additional Shares of Common would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common are deemed to be issued:
(A) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities, in each case, pursuant to their respective terms;
(B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if-.
(a) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange, and
(b) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the corporation for the Additional Shares of Common deemed to have been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clauses (B) or (C) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuance of Additional Shares of Common between the original adjustment date and such readjustment date; and
(E) in the case of an Option which expires by its terms not more than 30 days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of such Option, whereupon such adjustment shall be made in the same manner provided in clause (C) above.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES
OF COMMON. In the event this corporation shall issue Additional Shares of Common
(including Additional Shares of Common deemed to be issued pursuant to Section
3(d)(iii)) without consideration or for a consideration per share less than the
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price theretofore in effect by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of
Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common so issued would purchase at such Conversion Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common so issued; provided further that, for the purposes of this Section 3(d)(iv), all shares of Common Stock issuable upon exercise, conversion or exchange of outstanding Options or Convertible Securities, as the case may be, shall be deemed to be outstanding, and immediately after any Additional Shares of Common are deemed issued pursuant to Section 3(d)(iii), such Additional Shares of Common shall be deemed to be outstanding.
(v) DETERMINATION OF CONSIDERATION. For purposes of this Section 3(d), the consideration received by the corporation for the issue of any Additional Shares of Common shall be computed as follows:
(A) CASH AND PROPERTY. Such consideration shall:
(a) insofar as it consists of cash, be computed at the aggregate amount of cash received by the corporation excluding amounts paid or payable for accrued interest or accrued dividends;
(b) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board; and
(c) in the event Additional Shares of Common are issued together with other shares or securities or other assets of the corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (a) and (b) above, as determined in good faith by the Board.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the corporation for Additional Shares of Common deemed to have been issued pursuant to Section 3(d)(iii), relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, as determined in Section 3(d)(iii) hereof.
(vi) ADJUSTMENTS FOR SUBDIVISIONS, STOCK DIVIDENDS, COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK. In the event the corporation effects a subdivision or combination of its outstanding shares of Common Stock into a greater or smaller number of shares without a proportionate and corresponding subdivision or combination of its outstanding shares of Preferred
Stock, then and in each such event the Conversion Price shall be increased or decreased proportionally.
(vii) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, any distribution payable in securities of the corporation other than shares of Common Stock and other than as otherwise adjusted in this Section 3, then and in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the corporation which they would have received had their shares of Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 3 with respect to the rights of the holders of the Preferred Stock.
(viii) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than in an event provided for in Section 3(d) above), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Preferred Stock immediately before that change.
(e) NO IMPAIRMENT. The corporation will not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 3, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Stock.
(g) NOTICES OF RECORD DATE. In the event of any taking by the corporation of the record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, the corporation shall mail to each holder of Preferred Stock, at least twenty (20) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.
(h) RESERVATION OF STOCK. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all the then outstanding shares of the Preferred Stock, the corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Any reserve of its authorized but unissued shares of Common Stock established by the corporation in accordance with this paragraph may not be diminished without the consent of the holders of a majority of the outstanding Preferred Stock.
(i) NO REISSUANCE OF SERIES A, B, C, D, E, F, F-1, G OR H PREFERRED. No share or shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred, Series F- 1 Preferred, Series G Preferred or Series H Preferred acquired by the corporation by reason of purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the corporation shall be authorized to issue.
(j) NOTICES. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his or her address appearing on the books of the corporation.
SECTION 4. VOTING MATTERS. Except as otherwise required by law, each share of Common Stock issued and outstanding shall have one vote. Each share of Preferred Stock issued and outstanding shall have the number of votes equal to the number of shares of Common Stock into which the Preferred Stock is convertible as adjusted from time to time pursuant to Section 3 hereof. The holder of each share of Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the by-laws of the corporation and shall vote with the holders of the Common Stock and upon any matter submitted to a vote of shareholders, except those matters required by law to be submitted to a class vote (in which case, except as otherwise required by law, the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred, Series F-1 Preferred, Series G Preferred and Series H Preferred shall vote together as a class).
SECTION 5. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of this corporation not expressly provided for to the contrary herein shall be vested in the Common Stock.
SECTION 6. CONSENT FOR CERTAIN REPURCHASES OF COMMON STOCK DEEMED TO BE DISTRIBUTIONS. Each holder of Preferred Stock shall be deemed to have consented, for purposes of Section 502, 503 and 506 of the California Corporations Code, to distributions made by the corporation in connection with the repurchase of shares of Common Stock issued to or held by employees or consultants upon termination of their employment or services or pursuant to agreements providing for the right of said repurchase between the corporation and such persons.
IV.
Section 1. LIMITATION OF DIRECTORS' LIABILITY. The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.
SECTION 2. INDEMNIFICATION OF CORPORATE AGENTS. This corporation is
authorized to provide for, through bylaw provisions or through agreements with
the agents, or both, the indemnification of agents (as defined in Section 317 of
the California General Corporation Law) of the corporation in excess of that
expressly permitted by said Section 317 for said agents to the fullest extent
permissible under California law, subject to the limitations set forth in
Section 204 of the California General Corporation Law with respect to actions
for breach of duty to this corporation or its shareholders.
SECTION 3. REPEAL OR MODIFICATION. Any repeal or modification of the foregoing provisions of this Article IV shall not adversely affect any right of indemnification or limitation of liability of an agent of this corporation relating to acts or omissions occurring prior to such repeal or modification."
The foregoing amendment and restatement has been duly approved by the Board of Directors of this corporation.
The foregoing amendment has been duly approved by the holders of the requisite number of shares of the corporation in accordance with Sections 902 and 903 of the California Corporations Code. The total number of outstanding shares of each class entitled to vote with respect to the foregoing amendment and restatement was 9,804,907 shares of Common Stock, 500,000 shares of the Series A Preferred Stock, 1,000,000 shares of the Series B Preferred Stock, 1,010,000 shares of the Series C Preferred Stock, 300,000 shares of the Series D Preferred Stock, 264,487 shares of Series E Preferred Stock, 1,224,552 shares of the Series F Preferred Stock, 290,000 shares of the Series F-1 Preferred Stock and 1,343,433 shares of Series G Preferred Stock. The number of shares voting in favor of the foregoing amendment equaled or exceeded the vote required. The required vote was a majority of the outstanding shares of Common Stock and a majority of the outstanding shares of Series A, Series B, Series C, Series D, Series E, Series F and Series F-1 and Series G each class of stock voting separately.
The undersigned further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge.
Executed at Sunnyvale, California this 4th day of April, 2000.
EXHIBIT 3.2
BYLAWS
OF
MONOLITHIC SYSTEM TECHNOLOGY, INC.*
* As amended effective March 15, 1994.
TABLE OF CONTENTS
PAGE
ARTICLE I. CORPORATE OFFICES.......................................................1
1.1 PRINCIPAL OFFICE..........................................................1
1.2 OTHER OFFICES.............................................................1
ARTICLE II. MEETINGS OF SHAREHOLDERS................................................1
2.1 PLACE OF MEETINGS.........................................................1
2.2 ANNUAL MEETING............................................................1
2.3 SPECIAL MEETING...........................................................2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS..........................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..............................3
2.6 QUORUM....................................................................3
2.7 ADJOURNED MEETING; NOTICE.................................................3
2.8 VOTING....................................................................4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.........................4
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...................5
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS...............6
2.12 PROXIES...................................................................6
2.13 INSPECTORS OF ELECTION....................................................6
ARTICLE III. DIRECTORS...............................................................7
3.1 POWERS....................................................................7
3.2 NUMBER OF DIRECTORS.......................................................7
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS..................................8
3.4 RESIGNATION AND VACANCIES.................................................8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..................................9
3.6 REGULAR MEETINGS..........................................................9
3.7 SPECIAL MEETINGS; NOTICE..................................................9
3.8 QUORUM....................................................................9
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3.9 WAIVER OF NOTICE.........................................................10
3.10 ADJOURNMENT..............................................................10
3.11 NOTICE OF ADJOURNMENT....................................................10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING........................10
3.13 FEES AND COMPENSATION OF DIRECTORS.......................................10
3.14 APPROVAL OF LOANS TO OFFICERS............................................11
ARTICLE IV. COMMITTEES.............................................................11
4.1 COMMITTEES OF DIRECTORS..................................................11
4.2 MEETINGS AND ACTION OF COMMITTEES........................................12
ARTICLE V. OFFICERS...............................................................12
5.1 OFFICERS.................................................................12
5.2 ELECTION OF OFFICERS.....................................................12
5.3 SUBORDINATE OFFICERS.....................................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS......................................12
5.5 VACANCIES IN OFFICES.....................................................13
5.6 CHAIRMAN OF THE BOARD....................................................13
5.7 PRESIDENT................................................................13
5.8 VICE PRESIDENTS..........................................................13
5.9 SECRETARY................................................................13
5.10 CHIEF FINANCIAL OFFICER..................................................14
ARTICLE VI. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS....14
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................................14
6.2 INDEMNIFICATION OF OTHERS................................................15
6.3 PAYMENT OF EXPENSES IN ADVANCE...........................................15
6.4 INDEMNITY NOT EXCLUSIVE..................................................15
6.5 INSURANCE INDEMNIFICATION................................................15
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6.6 CONFLICTS................................................................16
ARTICLE VII. RECORDS AND REPORTS..................................................16
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.............................16
7.2 MAINTENANCE AND INSPECTION OF BYLAWS.....................................17
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS....................17
7.4 INSPECTION BY DIRECTORS..................................................17
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER....................................17
7.6 FINANCIAL STATEMENTS.....................................................18
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...........................18
ARTICLE VIII. GENERAL MATTERS......................................................18
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING....................18
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS................................19
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.......................19
8.4 CERTIFICATES FOR SHARES..................................................19
8.5 LOST CERTIFICATES........................................................20
8.6 CONSTRUCTION; DEFINITIONS................................................20
ARTICLE IX. AMENDMENTS.............................................................20
9.1 AMENDMENT BY SHAREHOLDERS................................................20
9.2 AMENDMENT BY DIRECTORS...................................................20
|
BYLAWS
OF
MONOLITHIC SYSTEM TECHNOLOGY, INC.
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside such state and the corporation has one or more business offices in such state, then the board of directors shall fix and designate a principal business office in the State of California.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of shareholders shall be held on the second Monday of the fourth month in each corporation fiscal year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty
(30)) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of shareholders shall be given either (i) personally or (ii) by first-class mail or (iii) by third-class mail but only if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code)
on the record date for the shareholders' meeting, or (iv) by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any shareholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice.
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than forty-five (45) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership).
The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any shareholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or a vote by classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) if the candidates' names have been placed in nomination prior to commencement of the voting and the shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (ii) by distributing the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph
of Section 2.4 of these bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted.
All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, and (iv) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and
(b) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later.
The record date for any other purpose shall be as provided in Article VIII of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by voting in person at the meeting, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more shareholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than three
(3) nor more than five (5). The exact number of directors shall be four (4)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony, (iii) if the authorized number of directors is increased, or (iv)
if the shareholders fail, at any meeting of shareholders at which any director
or directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election other than to fill a vacancy created by removal, if by written consent, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation.
3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.7 of these bylaws, to the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services.
3.14 APPROVAL OF LOANS TO OFFICERS*
The corporation may, upon the approval of the board of directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the board of directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the Code) on the date of approval by the board of directors, and (iii) the approval of the board of directors is by a vote sufficient without counting the vote of any interested director or directors.
* This section is effective only if it has been approved by the shareholders in accordance with Sections 315(b) and 152 of the Code.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to:
(a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any committee;
(c) the fixing of compensation of the directors for serving on the board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or
(g) the appointment of any other committees of the board of directors or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there
is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.1, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the
corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Articles of Incorporation.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:
(1) That it would be inconsistent with a provision of the Articles of Incorporation, these bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the board of directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who holds at least one percent (1%) of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors, may (i) inspect and copy the records of shareholders' names, addresses, and shareholdings during usual business hours on five (5) days' prior written demand on the corporation, (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. Such list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate.
Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California the original or a copy of these bylaws as amended to date, which bylaws shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, then the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of these bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the shareholders, of the board of directors, and of any committee or committees of the board of directors shall be kept at such place or places as are designated by the board of directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind as well as the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney. The right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The board of directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days) before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 2.5 of these bylaws for giving notice to shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of the fiscal year, (ii) an income statement, (iii) a statement of changes in financial position for the fiscal year, and (iv) any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record.
7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days before the date of the request, and for a balance sheet of the corporation as of the end of that period, then the chief financial officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or by the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Code.
If the board of directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid. The board of directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the chairman of the board or the vice chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate ceases to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, then the authorized number of directors may be changed only by an amendment of the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended or repealed by the board of directors.
CERTIFICATE OF ADOPTION OF BYLAWS
OF
MONOLITHIC SYSTEM TECHNOLOGY, INC.
ADOPTION BY INCORPORATOR
The undersigned person appointed in the Articles of Incorporation to act as the Incorporator of Monolithic System Technology, Inc. hereby adopts the foregoing bylaws, comprising twenty-five (25) pages, as the Bylaws of the corporation.
Executed this 1st day of April 1992.
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
The undersigned hereby certifies that he is the duly elected, qualified, and acting Assistant Secretary of Monolithic System Technology, Inc. and that the foregoing Bylaws, comprising twenty-five (25) pages, were adopted as the Bylaws of the corporation on April 1, 1992, by the person appointed in the Articles of Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this 1st day of April 1992.
Secretary
Exhibit 3.4
BYLAWS
OF
MONOLITHIC SYSTEM TECHNOLOGY, INC.
A DELAWARE CORPORATION
ADOPTED EFFECTIVE AS OF ________ __, 2000
BYLAWS
OF
MONOLITHIC SYSTEM TECHNOLOGY, INC.
A DELAWARE CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE. The registered office of the Corporation shall be: 1209 Orange Street, City of Wilmington, County of Newcastle, State of Delaware. The name of the registered agent of the Corporation at such location is The Corporate Trust Company.
1.2 OTHER OFFICES. The Board of Directors may at any time establish other offices at any place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation.
2.2 ANNUAL MEETINGS. The annual meeting of stockholders shall be held each year on a date and at a time designated by the Board of Directors. At the meeting, directors shall be elected and any other proper business may be transacted. Notwithstanding the preceding sentence to the contrary, stockholders may act by written consent to elect directors; provided, however, that, if such consent is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.
2.3 SPECIAL MEETINGS. Special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors, the Chairman of the Board of Directors, the Chief Executive Officer or any individual holder of twenty five percent (25%) of the outstanding shares of common stock of the Corporation.
If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or facsimile telecommunication to the Chairman of the Board, the President or the Secretary of the Corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to
the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than 60 nor more than 90 days after the receipt of the request. If the notice is not given within 30 days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Written notice may also be given by facsimile telecommunication, in which case notice shall be deemed given upon the earlier of receipt or 24 hours after transmission. Notice may also be given by such other means as may be authorized from time to time under the General Corporation Law of the State of Delaware. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
2.6 ITEMS OF BUSINESS AT MEETINGS. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. Items of business at all meetings of the stockholders shall be, insofar as applicable, as follows:
- Call to order;
- Proof of notice of meeting or waiver thereof;
- Appointment of inspectors of election, if necessary;
- A quorum being present;
- Reports;
- Election of directors;
- Other business specified in the notice of the meeting;
- Voting; and
- Adjournment.
Any items of business not referred to in the foregoing may be taken up at the meeting as the chairman of the meeting shall determine.
No other business shall be transacted at any annual meeting of stockholders, except such business as may be: (i) specified in the notice of meeting (including stockholder proposals included in the Corporation's proxy materials under Rule 14a-8 of Regulation 14A under the Securities Exchange Act of 1934), (ii) otherwise brought before the meeting by or at the direction of the Board of Directors, or (iii) a proper subject for the meeting which is timely submitted by a stockholder of the Corporation entitled to vote at such meeting who complies with the notice requirements set forth below. For business to be properly submitted by a stockholder before any annual meeting under section (iii) of the preceding sentence, a stockholder must give timely notice in writing of such business to the Secretary of the Corporation. To be considered timely with respect to an annual meeting, a stockholder's notice must be received by the Secretary at the principal executive offices of the Corporation not less than 120 calendar days nor more than 150 calendar days before the date of the Corporation's proxy statement released to stockholders in connection with the prior year's annual meeting. However, if no annual meeting was held in the previous year, or if the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, a stockholder's notice must be received by the Secretary not later than 30 days before the date the Corporation commences mailing of its proxy materials in connection with the applicable annual meeting.
A stockholder's notice to the Secretary to submit business to an annual
meeting of stockholders shall set forth: (i) the name and address of the
stockholder, (ii) the number of shares of stock held of record and beneficially
by such stockholder, (iii) the name in which all such shares of stock are
registered on the stock transfer books of the Corporation, (iv) a representation
that the stockholder intends to appear at the meeting in person or by proxy to
submit the business specified in such notice, (v) a brief description of the
business desired to be submitted to the annual meeting, including the complete
text of any resolutions intended to be presented at the annual meeting, and the
reasons for conducting such business at the annual meeting, (vi) any personal or
other material interest of the stockholder in the business to be submitted, and
(vii) all other information relating to the proposed business which may be
required to be disclosed under applicable law. In addition, a stockholder
seeking to submit such business at the meeting shall promptly provide any other
information reasonably requested by the Corporation.
The chairman of the meeting shall determine all matters relating to the efficient conduct of the meeting, including, but not limited to, the items of business, as well as the maintenance of order and decorum. The chairman shall determine and declare that any putative business was not properly brought before the meeting in accordance with the procedures described by this Section 2.6, in which case such business shall not be transacted.
Notwithstanding the foregoing provisions of this Section 2.6, a stockholder who seeks to have any proposal included in the Corporation's proxy materials shall comply with the requirements of Rule 14a-8 under Regulation 14A of the Securities Exchange Act of 1934, as amended.
2.7 QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
2.8 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as provided in the preceding sentence, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
2.10 WAIVER OF NOTICE. Whenever notice regarding a stockholder meeting is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action required by this article to be taken at any annual or special meeting of stockholders of the Corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. In order that the Corporation may determine the stockholders entitled to notice of or
to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting.
If the Board of Directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held;
(ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and
(iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
2.13 PROXIES. Each stockholder entitled to vote at a meeting of
stockholders (or to express consent or dissent to corporate action in writing
without a meeting) may authorize another person or persons to act for him by a
written proxy, signed by the stockholder and filed with the Secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, facsimile telecommunication or other means) by
the stockholder or the stockholder's attorney-in-fact. Furthermore, the
Secretary of the Corporation may determine in the interests of the Corporation
to accept proxies granting authority by the methods approved by Section 212(c)
of the General Corporation Law of Delaware. The revocability of a proxy that
states on its face that it is irrevocable shall be governed by the provisions of
Section 212(e) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where
the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Such list shall presumptively determine the identify of the stockholders entitled to vote at the meeting and the number of shares held by each of them.
ARTICLE III
DIRECTORS
3.1 POWERS. Subject to the provisions of the General Corporation Law of Delaware and any limitation in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.
3.2 NUMBER, ELECTION. The Board of Directors shall consist of not less than three (3) nor more than seven (7) persons until changed by a proper amendment of this section. The exact number of directors shall initially be four, until changed by a resolution of the board of directors or by an amendment to this Bylaw. All of the directors shall be of legal age. Directors need not be stockholders. Except as otherwise provided by statute or these Bylaws, the directors shall be elected at the annual meeting of the stockholders for the election of directors at which a quorum is present, and the persons receiving a plurality of the votes cast at such election shall be elected. Each director shall hold office until the next annual meeting of the stockholders and until his successor shall have been duly elected and qualified or until his death, or until he shall have resigned, or until he shall have been removed, as hereinafter provided in these Bylaws, or as otherwise provided by statute or the Certificate of Incorporation.
3.3 QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. All of the directors shall be of legal age. Directors need not be stockholders. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal.
3.4 RESIGNATION AND VACANCIES. Any director may resign at any time upon written notice to the attention of the Secretary of the Corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.
Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or any executor, administrator, trust or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least twenty-five percent (25%) of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office as aforesaid, which election shall be governed by the provisions of
Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board.
3.7 SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the president or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telecommunications facsimile, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by facsimile, it shall be delivered personally or by telephone or to the telecommunications facsimile telephone number at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation. Notice also may be given by any other means authorized from time to time under the General Corporation Law of Delaware.
3.8 QUORUM. At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE. Whenever notice regarding a meeting of the Board of Directors is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor other purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS. The Board of Directors shall have the authority to fix the compensation of directors.
3.12 APPROVAL OF LOANS TO OFFICERS. The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a director of the Corporation or its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.
3.13 REMOVAL OF DIRECTORS. Unless otherwise restricted by statute, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to elect such director.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in the Bylaws of the Corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly required by this chapter to be submitted to stockholders for approval or (ii) adopt, amend or repeal any bylaw of the corporation.
4.2 COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting), with such changes in the context of
those Bylaws as are necessary to substitute the committee and its members for
the Board of Directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
Board of Directors or by resolution of the committee, that special meetings of
committees may also be called by resolution of the Board of Directors and that
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
Board of Directors may adopt rules for the government of any committee not
inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS. The officers of the Corporation shall be a Chief Executive Officer, a President, a Secretary, and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more assistant vice presidents, one or more assistant secretaries, and one or more Assistant Treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS. The Board of Directors may appoint, or empower the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
5.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the Board of Directors or as may be prescribed by these Bylaws. If there is no Chief Executive Officer or President, then the Chairman of the Board shall also be the chief executive officer of the Corporation and shall have the powers and duties prescribed in Section 5.7 of these Bylaws.
5.7 CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the Chief Executive Officer, or CEO, shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board, at all meetings of the Board of Directors.
5.8 PRESIDENT. In the absence or disability of the CEO, the President
shall (a) act as the Chief Executive Officer of the corporation, subject to the
control of the Board of Directors, and have general supervision, direction and
control of the business and affairs of the corporation, (b) preside at all
meetings of the shareholders and, in the absence of the Chairman of the Board
and the Chief Executive Officer, at all meetings of the Board of Directors, and
(c) call meetings of the shareholders and also the Board of Directors to be
held, subject to limitations prescribed by law or by these Bylaws, at such times
and at such places as the President shall deem proper and shall have such other
powers and duties as may be prescribed by the Board of Directors or these
Bylaws. The President shall also affix the signature of the Corporation to all
deeds, conveyances, mortgages, leases, obligations, bonds, certificates, and
other papers and instruments in writing which have been authorized by the Board
of Directors or which, in the judgment of the President, are to be executed on
behalf of the Corporation, the signed certificates for shares of stock of the
Corporation and,
subject to the direction of the Board of Directors, have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation.
5.9 VICE PRESIDENTS. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the President or the Chairman of the Board.
5.10 SECRETARY. The Secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.
5.11 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the Chief Executive Officer, President and directors, whenever they request it, an account of all his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws.
The Chief Financial Officer shall be the treasurer of the Corporation, unless otherwise determined by the Board of Directors.
5.12 ASSISTANT SECRETARY. The Assistant Secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may be prescribed by the Board of Directors or these Bylaws.
5.13 ASSISTANT TREASURER. The Assistant Treasurer, or, if there is more than one, the Assistant Treasurers, in the order determined by the stockholders or Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Chief Financial Officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the Chief Financial Officer and shall perform such other duties and have such other powers as may be prescribed by the Board of Directors or these Bylaws.
5.14 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of
the Board, the CEO, the President, any Vice President, the Chief Financial
Officer, the Secretary or Assistant Secretary of the Corporation, or any other
person authorized by the Board of Directors or the President or a Vice
President, is authorized to vote, represent, and exercise on behalf of the
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of the Corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
5.15 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS. Subject to the provisions of this Article VI, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Subject to the provisions of this Article VI, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another Corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Notwithstanding any other provision of this Article VI, no person shall be indemnified hereunder for any expenses or amounts paid in settlement with respect to any action to recover short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended.
6.3 SUCCESSFUL DEFENSE. To the extent that a director, officer or employee of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT. Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that the indemnification of the director, officer or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding or (ii) if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Notwithstanding the foregoing, a director, officer or employee of the Corporation shall be entitled to contest any determination that the director, officer or employee has not met the applicable standard of conduct set forth in Sections 6.1 and 6.2 by petitioning a court of competent jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a civil or criminal action, suit or proceeding, by an individual who may be entitled to indemnification pursuant to Section 6.1 or 6.2, may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer or employee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE; EFFECT OF INDEMNIFICATION AGREEMENTS. The provisions of a written indemnification agreement between the Corporation and any person subject to indemnity under this Article VI shall control over the provisions of this Article VI, which shall not apply to the Corporation and the person subject to indemnity under the written agreement. The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
6.7 INSURANCE. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation, as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI.
6.8 THE CORPORATION. For purposes of this Article VI, references to the "Corporation" shall include, in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors and officers, so that any person who is or was a director, officer or employee of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation, the provisions of Section 6.4) with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS. For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer or employee of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article VI.
6.10 INDEMNITY FUND. Upon resolution passed by the Board, the Corporation may establish a trust or other designated account, grant a security interest or use other means (including, without limitation, a letter of credit), to ensure the payment of certain of its obligations arising under this Article VI and/or agreements which may be entered into between the Corporation and its officers and directors from time to time.
6.11 INDEMNIFICATION OF OTHER PERSONS. The provisions of this Article VI shall not be deemed to preclude the indemnification of any person who is not a director or officer of
the Corporation or is not serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware or otherwise. The Corporation may, in its sole discretion, indemnify an employee, trustee or other agent as permitted by the General Corporation Law of the State of Delaware. The Corporation shall indemnify an employee, trustee or other agent where required by law.
6.12 SAVINGS CLAUSE. If this Article VI or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification hereunder against expenses (including attorney's fees), judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated, or by any other applicable law.
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS. The Corporation shall, either at its principal executive office or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. A stockholder of record shall have such rights to inspect such records of the Corporation as are provided by the General Corporation Law of the State of Delaware, subject to such conditions and restrictions on inspection rights as are provided by law.
7.2 INSPECTION BY DIRECTORS. Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS. From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. The Chief Executive Officer, the President and any Vice President are hereby authorized to enter into any contract and execute any instrument in the name of and on behalf of the Corporation.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman or Vice-Chairman of the Board of Directors, or the President or Vice President, and by the Chief Financial Officer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES. If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face of back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the
Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and canceled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.
8.7 DIVIDENDS. The directors of the Corporation, subject to any restrictions contained in the General Corporation Law of Delaware, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock. The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.
8.8 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.
8.9 SEAL. The Corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board of Directors, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS. The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
8.13 DEEMED CALIFORNIA CORPORATION. If Section 2115 of the California
General Corporation Law ("CGCL") applies to the Corporation, then the
Corporation and these Bylaws shall be governed by the CGCL to the extent (and
only to the extent) that Section 2115 applies and only until such time as
Section 2115 no longer applies to the Corporation.
ARTICLE IX
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed by a vote of a majority of the directors of the Board of Directors at a meeting or by written consent in accordance with Article III, or by an affirmative vote of the holders of a majority of the outstanding shares of stock having voting rights, voting as a single class.
* * *
CERTIFICATE OF ADOPTION OF BYLAWS
OF
MONOLITHIC SYSTEM TECHNOLOGY, INC.
A DELAWARE CORPORATION
Certificate by Secretary of Bylaws:
The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of Monolithic System Technology, Inc., a Delaware corporation and that the foregoing Bylaws were adopted as the Bylaws of the Corporation to be effective as of ________ __, 2000 by the board of directors of the Corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of __________ ___, 2000.
Exhibit 4.2
THIRD AMENDED AND RESTATED INVESTOR RIGHTS
AGREEMENT
This Third Amended and Restated Investor Rights Agreement (superseding the Second Amended and Restated Registration Rights Agreement) (the "Agreement") is made as of this 27th, day of September, 1997 by and among Monolithic System Technology, Inc., a California corporation (the "Company"), and the purchasers of its Preferred Stock and other equity securities ("Purchasers") listed on SCHEDULE 1 attached hereto.
I. REGISTRATION RIGHTS
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any successor agency.
"HOLDER" shall mean each Purchaser, and each future purchaser of any series of Preferred or of any other equity security of the Company and to whom the Company intends to grant the registration rights set forth herein, the Company, and any transferee of Registrable Securities who, pursuant to Section 15 below, is entitled to registration rights hereunder.
"PREFERRED" shall mean any series of Preferred Stock of the Company.
"RESTRICTED SECURITIES" shall mean the securities of the Company required to bear the legend set forth in Section 3 hereof (or any similar legend).
"REGISTRABLE SECURITIES" shall mean (i) shares of the Company's Common Stock issued or issuable upon the conversion of the Preferred; (ii) any Common Stock of the Company or other securities issued or issuable in respect of shares of the Preferred including upon exercise or conversion of any warrants or other rights to acquired Common Stock or Preferred in connection with the sale of any series of Preferred; and (iii) shares of the Company's Common Stock or other securities issued or issuable upon any conversion of the Preferred upon any stock split, stock dividend, recapitalization, or similar event; PROVIDED, HOWEVER, that any shares described in clauses (i)-(iii) above which have been resold to the public shall cease to be Registrable Securities upon such resale.
The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in complying with Sections 5, 6 and 7 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration but excluding all Selling Expenses.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and any fees of counsel to any Holder.
2. RESTRICTIONS ON TRANSFERABILITY. The Restricted Securities shall not be transferable except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. Each holder of Restricted Securities will cause any proposed transferee of the Restricted Securities held by such holder to agree to take and hold such Restricted Securities subject to the provisions and upon the conditions specified in this Agreement.
3. RESTRICTIVE LEGEND. Each certificate representing (i) the Preferred,
(ii) shares of the Company's Common Stock issued upon conversion of the
Preferred, and (iii) any other securities issued in respect of the Preferred
including upon exercise or conversion of any warrants or other rights to acquire
Common Stock or Preferred in connection with the sale of any series of Preferred
or Common Stock issued upon conversion of the Preferred upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event shall
(unless otherwise permitted by the provisions of Section 4 below) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 4. Prior to any proposed transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such Holder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall, if the Company so requests, be accompanied by either (i) an unqualified written opinion of legal counsel who shall be reasonably satisfactory to the Company, addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (ii) a "No Action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company; PROVIDED, HOWEVER, that no opinion or No Action letter need be obtained
with respect to a transfer to (A) a partner, active or retired, of a holder of
Restricted Securities, (B) the estate of any such partner, or (C) the spouse,
children, grandchildren or spouse of such children or grandchildren of any
holder or to trusts for the benefit of any holder or such persons, provided that
in such cases the transferee agrees in writing to be subject to the terms
hereof. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 3 above, except that such certificate shall not bear such restrictive
legend if the opinion of counsel for the Company such legend is not required in
order to establish compliance with any provisions of the Securities Act.
5. REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If at any time after six months following the completion date of the initial registered public offering of the Company's capital stock (the "IPO Date"), the Company shall receive from any Holder or group of Holders of Registrable Securities a written request that the Company effect any registration, qualification or compliance with respect to all or a part of the Registrable Securities, the anticipated gross offering price of which would exceed $2,000,000, the Company will:
(x) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and
(y) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 15 days after receipt of such written notice from the Company;
PROVIDED, HOWEVER, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 5:
(i) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(ii) After the Company has effected two (2) such registrations pursuant to this Section 5(a), such registrations have been declared or ordered effective and the securities offered pursuant to such registration have been sold.
Subject to the foregoing clauses (i) and (ii), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of any Holder or Holders. If, however, the Company shall furnish to the Holder or Holders requesting a registration statement pursuant to this Section 5 a certificate signed by the President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than 120 days after receipt of the request of the Holder or Holders requesting such registration; provided, however, that the Company may not utilize this right more than once in any twelve-month period.
(b) UNDERWRITING. If the Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 5(a) and the Company shall include such information in the written notice referred to in Section 5(a)(x). The right of any Holder to registration pursuant to Section 5 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Holders. Notwithstanding any other provision of this
Section 5, if the managing underwriter advises the Holders in writing that in
its view marketing factors require a limitation of the number of shares to be
underwritten, then, subject to the provisions of Section 5(a), the Company shall
so advise all Holders and the number of shares of Registrable Securities (if
any) that may be included in the registration and underwriting shall be
allocated among all Holders requesting inclusion in the registration in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities originally requested by such Holders to be included in the
registration statement. No Registrable Securities excluded from the underwriting
by reason of the managing underwriter's marketing limitation shall be included
in such registration.
If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the other Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration; provided, however, that if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 5(b). If the registration does not become effective due to the withdrawal of Registrable Securities, then either (1) the Holders requesting
registration shall reimburse the Company for expenses incurred in complying with the request or (2) the aborted registration shall be treated as effected for purposes of Section 5(a)(B).
6. COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If the Company shall determine to register any of its equity securities, either for its own account or the account of a security holder or holders exercising their respective demand registration rights, other than (i) the Company's initial public offering, (ii) a registration relating solely to employee benefit plans or (iii) a registration relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof, and
(ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 15 days after receipt of such written notice from the Company, by any Holder or Holders, provided that the Company may limit, to the extent so advised by the underwriters, the amount of Registrable Securities (if any) to be included in the registration by the Holders.
(b) ALLOCATION. In all registered public offerings, whether underwritten or not, the amount of Registrable Securities of Holders which are included in such registration, in accordance with the limitation set forth in Section 6(a)(ii) above, shall be allocated among all Holders requesting inclusion in the registration in proportion, as nearly as practicable, to the respective amounts of Registrable Securities originally requested by such Holders to be included in the registration statement.
7. REGISTRATION ON FORM S-3. The Company shall use its best efforts to qualify for registration on Form S-3, and to that end, the Company shall comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). After the Company has qualified for the use of Form S-3, each holder of Registrable Securities shall have the right to request an unlimited number of registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by each such holder), subject only to the following limitations:
(i) The Company shall not be obligated to cause a registration on Form S-3 to become effective prior to one hundred eighty (180) days following the effective date of a Company-initiated registration (other than a registration effected solely to qualify an employee benefit plan or to effect a business combination pursuant to Rule 145);
(ii) The Company shall not be obligated to cause a registration on Form S-3 to become effective prior to expiration of one hundred eighty (180) days following the effective date of the most recent registration pursuant to a request by a holder of Registrable Securities under Section 5 of this Agreement or pursuant to a request by a holder of registration rights under any other agreement of the Company granting Form S-3 demand registration rights;
(iii) The Company shall not be required to effect a registration pursuant to this Section 7, unless the Holder or Holders requesting registration propose to dispose of shares of
Registrable Securities having an aggregate disposition price (before deduction of underwriting discounts and expenses of sale) of at least $1,000,000;
(iv) The Company shall not be required to effect more than three (3) registrations pursuant to this Section 7, where each such registration has been declared or ordered effective and the securities offered pursuant to such registration have been sold; and
(v) The Company shall not be required to maintain and keep any such registration on Form S-3 effective for a period exceeding ten (10) days from the effective date thereof. The Company shall give notice to all Holders and all holders of registration rights under any other agreement of the Company granting Form S-3 or similar demand registration rights of the receipt of a request for registration pursuant to this Section 7 and shall provide a reasonable opportunity for all such other Holders, including holders of registration rights under any other agreement of the Company granting Form S-3 or similar demand registration rights, to participate in the registration. Subject to the foregoing, the Company will use its best efforts to effect promptly the registration of all shares of Registrable Securities on Form S-3 to the extent requested by the Holder or Holders thereof for purposes of disposition. In the event the Underwriter determines that market factors require a limitation on the number of shares to be underwritten, then shares shall be excluded from such registration and underwriting pursuant to the method described in Section 5(b).
8. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 5 or Section 6 shall be borne by the Company, and all Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to Section 7 shall be borne by the Holders of the securities
included in the registration on Form S-3, pro rata on the basis of the number of
shares so registered. All Selling Expenses relating to securities registered by
the Holders shall be borne by the Holders of such securities pro rata on the
basis of the number of shares so registered.
9. REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Agreement the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will furnish such number of prospectuses and other documents incident thereto as a Holder from time to time may reasonably request.
10. TERMINATION OF REGISTRATION RIGHTS. The registration rights granted pursuant to this Agreement shall terminate as to any Holder, at such time after the Company's initial public offering as the Registrable Securities held by such Holder may be sold within any three (3) month period pursuant to Rule 144.
11. LOCKUP AGREEMENT. In consideration for the Company agreeing to its obligations under this Agreement each Holder of Registrable Securities and each transferee pursuant to Section 15 hereof agrees (but only if each officer and director of the Company also agrees), in connection with the first registration of the Company's securities, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days)
from the effective date of such registration as the Company or the underwriters may specify. Each Holder agrees that the Company may instruct its transfer agent to place stop-transfer notations in its records to enforce the provisions of this Section 11.
12. INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners and such Holder's legal counsel and independent
accountants, and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Holder, each of its officers,
directors and partners and such Holder's legal counsel and independent
accountants, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder or underwriter and stated
to be specifically for use therein, and provided further, that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any such untrue statement, alleged untrue statement, omission, or alleged
omission made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective, or in the amended prospectus filed with the
Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any underwriter, or any Holder (if
there is no underwriter) or any party otherwise entitled to indemnification
hereunder, if a copy of the Final Prospectus was not furnished to the person or
entity asserting the loss, liability, claim, or damage at or prior to the time
such action is required by the Securities Act.
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and its legal counsel and independent accountants, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other such Holder, each of its
officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against
all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, legal counsel, independent accountants, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided, however, that the obligations of such Holders hereunder shall be limited to an amount equal to the gross proceeds before expenses and commissions to each such Holder of Registrable Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 12 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent, but only to the extent, that the Indemnifying Party's ability to defend against such claim or litigation is impaired as a result of such failure to give notice. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.
13. INFORMATION BY HOLDER. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement.
14. RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to:
(a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to then file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements);
(c) Furnish to Holders of Registrable Securities forthwith upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as a Holder of Registrable Securities may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder to sell any such securities without registration.
15. TRANSFER OF REGISTRATION RIGHTS. The right to cause the Company to
register securities granted the Purchasers hereunder may be assigned to a
transferee or assignee who acquires at least 6,750 shares of Preferred, or
Common Stock issued upon conversion thereof or Common Stock issued upon exercise
or conversion of any warrants or other rights to acquire Preferred or Common
Stock granted in connection with the sale of any series of Preferred
(appropriately adjusted for stock splits, recapitalizations and the like)
provided that the Company is given prior written notice of such assignment. In
addition, rights to cause the Company to register securities may be freely
assigned (a) to any constituent partner of a Holder of Registrable Securities,
where such Holder is a partnership, or (b) to the spouse, children,
grandchildren or spouse of such children or grandchildren of any Holder or to
trusts for the benefit of any Holder or such persons.
16. SUBSEQUENT REGISTRATION RIGHTS. In the event the Company should engage in a subsequent round or rounds of financing involving the sale of its capital stock or any security convertible into or exercisable for the purchase of its capital stock, at the election of the Company, the purchasers thereof shall be entitled to registration rights on parity, on a share-for-share basis, in all respects with those rights conferred upon the Purchasers and the Holders herein and the Purchasers acknowledge and agree that such registration rights may be granted by the Company pursuant to this Agreement without further modification or amendment and without the consent of any Purchaser or Holder herein.
II. INFORMATION RIGHTS
17. INFORMATION RIGHTS. The Company hereby covenants and agrees to furnish to each Holder for so long as such Holder is a holder of any shares of Preferred purchased by such person from the Company (or Common Stock issued upon conversion of the Preferred), as soon as practicable after the end of each fiscal year, and in any event within 90 days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such fiscal year, and consolidated statements of income and consolidated statements of changes in financial position of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles, provided that this Section 17 shall terminate and be of no further force or effect immediately upon an initial public offering. Each Holder who receives from the Company or its agents, directly or indirectly, any information which the Company has not made generally available to the public, pursuant to the preparation and execution of this Agreement or disclosure in connection therewith or pursuant to the provisions of this Section 17, acknowledges
and agrees that such information is confidential and for its use only in connection with evaluating its investment in the Company, and further agrees that it will not disseminate such information to any person other than its accountant, investment advisor or attorney and that such dissemination shall be only for purposes of evaluating its investment.
III. RIGHT OF FIRST REFUSAL
18. TRANSFERS OF SECURITIES. Before any Purchaser (which for purposes of this Section 18 shall include both the Purchasers and the holders of Common Stock) may transfer any of its shares of Preferred (including Common Stock issued upon conversion of the Preferred) or Common Stock (either referred to as "Shares"), such Shares shall first be offered to the Company as follows:
(a) The Purchaser desiring to transfer the Shares (the "Seller") shall deliver a notice ("Notice") to the Company stating (1) its bona fide intention to sell or transfer such shares, (2) the number of shares to be sold or transferred, (3) the price for which the Seller proposes to sell or transfer such shares and (4) the name of the proposed purchaser or transferee.
(b) Within thirty (30) days after delivery of the Notice, the Company may elect to purchase all or part of the shares referenced in the Notice, by delivery to the Seller of a written notice stating the number of shares it elects to purchase (referred to in this Section 18 as the "right of first refusal").
(c) In the event that the Company fails to exercise in full the right of first refusal within the period specified above, the Seller shall have one hundred twenty (120) days thereafter to sell the shares referenced in the Notice at a price and upon terms no more favorable to the purchaser thereof than specified in the Notice. In the event that the Seller has not sold such shares within such one hundred twenty (120) day period, the Seller shall not thereafter sell any of such shares without first offering such shares to the Company.
(d) The provisions of this Section 18 shall not apply (and no Notice shall be required) to a transfer of any shares (1) by a Purchaser to any constituent partner of a Purchaser, where such Purchaser is a partnership; provided, however, that any such transferee shall receive and hold such shares subject to the provisions of this Section 18 and there shall be no further transfer of such shares except in accordance herewith, and (ii) by a Purchaser as to shares sold as part of an initial public offering.
(e) The right of first refusal granted pursuant to this Section 18 shall expire immediately prior to the IPO Date.
(f) So long as this Section 18 is in effect, each certificate representing shares of the Company's Registrable Securities, and any additional Common Stock issued upon any stock split, recapitalization or similar event, held by a Holder shall be stamped or otherwise imprinted with a legend in the following form (in addition to any other legends required under applicable federal or state securities laws):
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A RIGHT OF FIRST REFUSAL WHEREBY THE COMPANY HAS THE RIGHT TO
PURCHASE THE SHARES REPRESENTED BY THIS CERTIFICATE PRIOR TO THE CONSUMMATION OF A SALE TO ANY OTHER PERSON. A COPY OF SUCH AGREEMENT MAY BE OBTAINED UPON A WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.
IV. GENERAL PROVISIONS
19. GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the State of California. The parties hereto agree to submit to the jurisdiction of the federal and state courts of the State of California with respect to the breach or interpretation of this' Agreement or the enforcement of any and all rights, duties, liabilities, obligations, powers, and other relations between the parties arising under this Agreement.
20. ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding among the parties regarding the subject matter herein and supersedes and replaces all prior registration rights agreements of the Company among the Company and any holders of its securities. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
21. NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon delivery to the party to be notified in person or by courier service or five (5) days after deposit with the United States mail, by registered or certified mail, postage prepaid, addressed (a) if to a Purchaser, to such Purchaser's address set forth on the signature pages hereto, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of any Registrable Securities, to such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Securities who has so furnished an address to the Company, or (c) if to the Company, to its address set forth on the signature page of this Agreement the attention of the Corporate Secretary, or at such other address as the Company shall have furnished to the Holders.
22. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
23. AMENDMENT. Any provision of this Agreement may be amended upon the written consent of the (i) Company and (ii) holders of a majority of the outstanding shares of the Registrable Securities; provided, however, that in the event the Company should grant registration rights to other purchasers in accordance with Section 16 above, such purchasers shall become "Purchasers" for all purposes of this Agreement upon execution of an acknowledgment of and agreement to the terms of this Agreement, whereupon such purchaser shall be deemed to be a "Purchaser" under this Agreement, without any further consent or approval of the other Purchasers. Any Purchaser may waive any of his or her rights or the Company's obligations hereunder without obtaining the consent of any other person.
IN WITNESS WHEREOF, the undersigned have executed this Third Amended and Restated investor Rights Agreement as of the date set forth above.
"COMPANY" MONOLITHIC SYSTEM TECHNOLOGY, INC.,
a California corporation
1020 Stewart Drive
Sunnyvale, California 94086
By:
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Fu-Chieh Hsu, President
"PURCHASERS"
------------------------------------------
(name of Purchaser)
By:
---------------------------------------
(signature)
------------------------------------------
(title)
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Exhibit 10.1
MONOLITHIC SYSTEM TECHNOLOGY, INC.
FORM
OF
INDEMNITY AGREEMENT
This Indemnification Agreement (the "AGREEMENT") is made as of ______ ___, 2000, by and between Monolithic System Technology, Inc., a Delaware corporation (the "COMPANY"), and ______________ ("INDEMNITEE").
RECITALS
The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and key employees, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers and key employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and agents of the Company may not be willing to continue to serve as agents of the Company without additional protection. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, and to indemnify its directors, officers and key employees so as to provide them with the maximum protection permitted by law.
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows:
1. CERTAIN DEFINITIONS; CONSTRUCTION OF PHRASES.
(a) "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the then outstanding securities of the Company that vote generally at elections ("VOTING SECURITIES"), (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets.
(b) References to the "Company" shall include, in addition to the Company, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which the Company (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
(c) "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).
(d) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement.
(e) "Reviewing Party" shall mean a majority of the Company's Board of Directors who are not parties to the particular Claim (even if less than a quorum) for which Indemnitee is seeking indemnification, or Independent Legal Counsel.
2. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) and other amounts actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders. Termination of any action,
suit or proceeding by judgment or settlement shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interest of
the Company. Notwithstanding the foregoing, no indemnification under this
Section 2(b) shall be made in respect of any claim, issue or matter as to which
Indemnitee shall have been finally adjudicated by court order or judgment to be
liable to the Company in the performance of Indemnitee's duty to the Company and
its stockholders unless and only to the extent that the court in which such
action or proceeding is or was pending shall determine upon application that, in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses which such court shall determine.
(c) REVIEW OF INDEMNIFICATION. Notwithstanding the foregoing,
(i) the obligations of the Company under Sections 2(a) and 2(b) (unless ordered
by a court) shall be subject to the condition that the Reviewing Party shall
authorize (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 2(d) hereof is involved) indemnification in the
specific case, upon a determination that indemnification of Indemnitee is proper
in the circumstances
because Indemnitee has met the applicable standard of conduct set forth in Sections 2(a) and 2(b), (ii) the obligation of the Company to make an advance of expenses pursuant to Section 4(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any advance of expenses until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any advance of expenses shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by the Reviewing Party shall be conclusive and binding on the Company and Indemnitee.
(d) CHANGE IN CONTROL. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), then, with respect to all matters arising prior to the Change in Control, the rights of Indemnitee to payments of expenses and advances of expenses under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel, if desired by Indemnitee, shall be selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees.
(e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding the other provisions of this Section 2, to the extent that Indemnitee has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 2(a) or Section 2(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith.
3. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment.
4. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. Except as otherwise determined pursuant to Section 2(c), the Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section 2(a) or Section 2(b) (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) PROCEDURE. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within thirty (30) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. It is the parties' intention that, if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.
(d) NOTICE OF INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 4(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated under Section 4(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company shall be entitled to assume the defense of such proceeding, with counsel reasonably acceptable to Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of other counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that Indemnitee shall have the right to employ additional counsel in any such proceeding at Company's expense if: (i) the employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding.
5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any additional rights to indemnification to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding.
6. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments,
fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.
7. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee.
8. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 9. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.
9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.
10. ATTORNEYS' FEES. In the event that any action is instituted by either Indemnitee or by or in the name of the Company under this Agreement, the prevailing party shall be entitled to such party's costs of suit and reasonable attorneys' fees, which shall be payable whether or not such action or proceeding is prosecuted to judgment.
11. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by confirmed facsimile or twenty-four (24) hours after being deposited with a nationally recognized overnight courier or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address or facsimile number as set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more counterparts, and delivery of a signed counterpart by facsimile transmission will constitute due execution and delivery of this Agreement.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs and legal representatives.
(g) SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights.
The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement.
MONOLOTHIC SYSTEM TECHNOLOGY, INC.
A Delaware Corporation
By:
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Title:
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Address: 1020 Stewart Drive
Sunnyvale, CA 94086
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AGREED TO AND ACCEPTED:
Address:
Facsimile Number:
Exhibit 10.2
MONOLITHIC SYSTEM TECHNOLOGY, INC.
1992 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or Nonstatutory Stock Options, at the discretion of the Board and as reflected in the terms of the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed, or the Board of Directors of the Company, if no Committee is appointed.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean the Committee appointed by the Board of Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is appointed.
(d) "COMMON STOCK" shall mean the Common Stock of the Company.
(e) "COMPANY" shall mean Monolithic System Technology, Inc., a California corporation.
(f) "CONSULTANT" shall mean any person who is engaged by the Company or any Parent or Subsidiary to render consulting services; the term Consultant shall not include directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, CONSULTANT OR DIRECTOR" shall mean the absence of any interruption or termination of service as an Employee, Consultant or Director. Continuous Status as an Employee, Consultant or Director shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that, in the case of an Incentive Stock Option, such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute.
(h) "DIRECTOR" hall mean a member of the Board of Directors of the Company.
(i) "EMPLOYEE" shall mean any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company.
(j) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
(k) "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(l) "NONSTATUTORY STOCK OPTION" shall mean an Option not intended to qualify as an Incentive Stock Option.
(m) "OPTION" shall mean a stock option granted pursuant to the Plan.
(n) "OPTIONED STOCK" shall mean the Common Stock subject to an Option.
(o) "OPTIONEE" shall mean an Employee or Consultant who receives an Option.
(p) "PARENT" shall mean a "parent corporation", whether now or hereafter existing, as defined in Section 425(e) of the Code.
(q) "PLAN" shall mean this 1992 Stock Option Plan.
(r) "SHARE" shall mean a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan.
(s) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 425(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares which may be
optioned and sold under the Plan is 900,000 shares of Common Stock.
If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. Notwithstanding any other provision of the Plan, shares issued under the Plan and later repurchased by the Company shall not become available for future grant or sale under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board of Directors of the Company, or by a committee appointed by the Board of Directors consisting of two (2) or more Directors, in accordance with the following provisions:
(i) Members of the Board who are either eligible for Options or have been granted Options may vote on any matters affecting administration of the Plan or the grant of Options pursuant to the Plan; provided, however, no member of the Board shall act upon the
granting of an Option to himself or herself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting of options to him or her.
(ii) The Committee shall administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may prescribe. Once appointed, a Committee shall continue to serve until otherwise directed by the Board of Directors. Subject to the foregoing, from time to time the Board of Directors may increase the size of the Committee and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan.
(b) POWERS OF THE BOARD. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion: (i) to grant
Incentive Stock Options or Nonstatutory Stock Options; (ii) to determine, upon
review of relevant information and in accordance with Section 8(b) of the Plan,
the fair market value of the Common Stock; (iii) to determine the exercise price
per share of Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the Employees,
Consultants and Directors to whom, and the time or times at which, Options shall
be granted and the number of shares to the represented by each Option; (v) to
interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations
relating to the Plan; (vii) to determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the holder
thereof, modify or amend each Option (including the exercise price thereof);
(viii) to accelerate the exercise date of any Option, consistent with the
provisions of Section 5 of the Plan, provided that in the event of a transaction
described in Section 11 of the Plan any such acceleration can occur only as
contemplated by the provisions of Section 11 of the Plan; (ix) to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the grant of an option previously granted by the Board; and (x) to make all
other determinations deemed necessary or advisable for the administration of the
Plan.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees, Consultants and Directors. Incentive Stock Options may be granted only to Employees. An Employee, Consultant or Director who has been granted an Option may, if he is otherwise eligible, be granted an additional Option or Options.
(b) No Incentive Stock Option may be granted to an Employee which, when aggregated with all other incentive stock options granted to such Employee by the Company or any Parent or Subsidiary, would result in Shares having an aggregate fair market value (determined for each Share as of the date of grant of the incentive stock option covering such Share) in excess of $100,000 becoming first available for purchase upon exercise of one or more incentive stock options during any calendar year.
(c) Section 5(b) of the Plan shall apply only to an Incentive Stock Option evidenced by an "Incentive Stock Option Agreement" which sets forth the intention of the Company
and the Optionee that such Option shall qualify as an Incentive Stock Option.
Section 5(b) of the Plan shall not apply to any Option evidenced by a
"Nonstatutory Stock Option Agreement" which sets forth the intention of the
Company and the Optionee that such Option shall be a Nonstatutory Stock Option.
(d) The Plan shall not confer upon any Optionee any right with respect to continuation of employment with, consulting relationship with, or membership on the Board of Directors of, the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such employment, consulting relationship or membership on the Board of Directors at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be ten (10) years from the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement. However, in the case of an Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the fair market value per Share on the date of grant or, if the Incentive Stock Option is amended to reduce the per Share exercise price, less than 110% of the fair market value per Share on the date the Board approves such amendment.
(B) granted to any Employee, the per Share exercise price shall be no less than 100% of the fair market value per Share on the date of grant or, if the Incentive Stock Option is amended to reduce the per Share exercise price, 100% of the fair market value per Share on the date the Board approves such amendment.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the fair market value per Share on the date of the grant or, if the Nonstatutory Stock Option
is amended to reduce the per Share exercise price, 110% of the fair market value per Share on the date the Board approves the amendment.
(B) granted to any person, the per Share exercise price shall be no less than 85% of the fair market value per Share on the date of grant or, if the Nonstatutory Stock Option is amended to reduce the per Share exercise price, 85% of the fair market value per Share on the date the Board approves the amendment.
(b) The fair market value per Share shall be determined by the Board in its discretion; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the mean of the bid and asked prices (or the closing price per share if the Common Stock is listed on the National Association of Securities Dealers Automated Quotation ("NASDAQ") National Market System) of the Common Stock for the date of grant (or date of approval of an amendment to reduce the exercise price per Share, as the case may be), as reported in the Wall Street Journal (or, if not so reported, as otherwise reported by the NASDAQ System) or, in the event the Common Stock is listed on a stock exchange, the fair market value per Share shall be the closing price on such exchange on such date, as reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board and may consist entirely of (i) cash, (ii) check, (iii) delivery of other shares of Common Stock of the Company, which (A) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a value equal to the exercise price of the Shares as to which the Option is being exercised, (iv) promissory note, (v) delivery of a properly executed exercise notice together with such other documentation as the Company and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, (vi) any combination of such methods of payment, or (vii) such other consideration and method of payment for the issuance of Shares to the extent permitted under the California Corporations Code.
9. EXERCISE OF OPTION.
(a) (i) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted hereunder shall be exercisable at such times and under such conditions as may determined by the Board, with vesting not occuring at a lesser rate than 20% per year. Performance criteria shall be an applicable to the conditions under which an optionee can exercise for those optionees earning $65,000 or more per year, and who have the requisite (a) sophistication to evaluate the criteria used, and (b) authority and control to effecute it.
(ii) An Option may not be exercised for a fraction of a Share.
(iii) An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such stock certificate promptly upon exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
(iv) Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. In the event of termination of an Optionee's Continuous Status as an Employee, Consultant or Director (as the case may be), such Optionee may exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination (or to such greater extent as the Board may determine). Any such exercise must occur within the period set forth in the written option agreement which, in the case of an Incentive Stock Option, shall be no more than three (3) months after the date of termination. The Option shall terminate on the date of such termination of Continuous Status as an Employee, Consultant or Director to the extent of the number of shares of Optioned Stock as to which the Option was not exercisable on the date of such termination, as set forth in the written option agreement or as the Board may otherwise determine. To the extent the Optionee fails, within the time period specified in the written option agreement, to exercise the Option for those shares of Optioned Stock as to which he or she is entitled to exercise, the Option shall terminate upon the expiration of such time period.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 9(b) above, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant or Director as a result of his disability, he or she may exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination (or to such greater extent as the Board may determine). Any such exercise must occur within the period set forth in the written option agreement which, in the case of an Incentive Stock Option, shall be no more than twelve (12) months after the date of such termination (and in any event such exercise must be on or before the expiration date of the Option as set forth in the written option agreement). The Option shall terminate on the date of such termination of Continuous Status as an Employee, Consultant or Director to the extent of the number of shares of Optioned Stock as to which the Option was not exercisable on the date of such termination, as set forth in the written option agreement or as the Board may otherwise determine. To the extent the Optionee fails, within the time period specified in the written option agreement, to exercise the Option for those shares of Optioned Stock as to which he or she is entitled to exercise, the Option shall terminate upon the expiration of such time period.
(d) DEATH OF OPTIONEE. In the event of the death during the term of the Option of an Optionee:
(i) who is at the time of his death an Employee, Consultant or Director of the Company and who shall have been in Continuous Status as an Employee, Consultant or Director since the date of grant of the Option, the Option may be exercised by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to
the extent, and within the time period, set forth in the Option Agreement (or such greater extent or time period as the Board may determine) subject to the limitation set forth in Section 5(b).
(ii) within three (3) months after the termination of Continuous Status as an Employee or Consultant, the Option may be exercised by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent, and within the time period, set forth in the Option Agreement (or such greater extent or time period as the Board may determine).
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action.
12. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the discretion of the Board, Optionees may satisfy withholding obligations as provided in this paragraph. When an Optionee incurs tax liability in connection with an Option, which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a fair market value equal to the amount required to be withheld. The fair market value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Board and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of the Board.
In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date.
13. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date on which the Board makes the determination granting such Option. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b 3 under the Exchange Act or under Section 422 of the Code (or any other applicable law or regulation), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.
16. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
17. OPTION AGREEMENT. Options shall be evidenced by written option agreements in such form as the Board shall approve.
18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted as provided in Section 6. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law.
19. INFORMATION TO OPTIONEE. The Company shall provide to each Optionee, during the period for which such Optionee has one or more Options outstanding, copies of all annual reports and other information which are provided to all shareholders of the Company. The Company shall not be required to provide such information to key employees whose duties in connection with the Company assure their access to equivalent information.
Exhibit 10.3
MONOLITHIC SYSTEM TECHNOLOGY, INC.
1996 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1996 Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries, and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options as determined by the Administrator at the time of grant of an Option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" shall mean the Board or any of its Committees appointed pursuant to Section 4 of the Plan.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a Committee appointed by the Board of Directors in accordance with Section 4 of the Plan.
(e) "COMMON STOCK" shall mean the Common Stock of the Company.
(f) "COMPANY" shall mean Monolithic System Technology, Inc., a California corporation.
(g) "CONSULTANT" shall mean any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services and who is compensated for such services. The term "Consultant" shall not include Directors who are not compensated for their services or who are paid only a Director's fee by the Company.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean that the employment or consulting relationship with the Company or any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed 90 days unless reemployment upon expiration of such
leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave, any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
(i) "DIRECTOR" shall mean a member of the Board of Directors of the Company.
(j) "EMPLOYEE" shall mean any person, including Officers, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient to constitute "employment" by the Company.
(k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
(l) "FAIR MARKET VALUE" shall mean, as of any date, the value of Common Stock, determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on The Nasdaq Stock Market (but not on the National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
(m) "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(n) "NONSTATUTORY STOCK OPTION" shall mean an Option not intended to qualify as an Incentive Stock Option.
(o) "OFFICER" shall mean a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(p) "OPTION" shall mean a stock option granted pursuant to the Plan.
(q) "OPTIONED STOCK" shall mean the Common Stock subject to an Option.
(r) "OPTIONEE" shall mean an Employee or Consultant who receives an Option.
(s) "PARENT" shall mean a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
(t) "PLAN" shall mean this 1996 Stock Plan.
(u) "RULE 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.
(v) "SHARE" shall mean a share of the Common Stock, as adjusted in accordance with Section 11 below.
(w) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is [2,500,000] Shares. The Shares may be authorized but unissued or reacquired Common Stock.
If an Option should expire or become unexercisable without having been exercised in full, the unpurchased Shares that were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Notwithstanding any other provision of the Plan, Shares that have actually been issued under the Plan upon exercise of an Option shall not be returned to the Plan and shall not become available for future distribution under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a Committee appointed by the Board.
(b) Plan Procedure After the Date, if any, upon which the Company becomes Subject to the Exchange Act.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to Directors, non-Director Officers, and Employees who are neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With respect to grants of Options to Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted in such a manner as to permit the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause), and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan.
(iii) ADMINISTRATION WITH RESPECT TO OTHER EMPLOYEES AND CONSULTANTS. With respect to grants of Options to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of California corporate and securities laws, of the applicable securities laws of other states, of the Code, and of any applicable rule or regulation of any stock exchange or market system on which Shares may be traded (the "APPLICABLE LAWS"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause), and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted hereunder;
(iv) to determine the number of Shares to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted hereunder;
(vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted;
(ix) to provide for the early exercise of Options for the purchase of unvested Shares, subject to such terms and conditions as the Administrator may determine; and
(x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations, and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options granted under the Plan.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if otherwise eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. Notwithstanding such designation, however, to the extent that the aggregate Fair Market Value of the Shares subject to an Optionee's Incentive Stock Options granted by the Company or any Parent or Subsidiary, that become exercisable for the first time during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option shall confer upon any Optionee any right with respect to continuation of his or her employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause.
(d) Upon the issuance by the Company or a successor corporation of any class of common equity securities required to be registered under Section 12 of the Exchange Act or upon the Plan's being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants of Options to Employees:
(i) No Employee shall be granted, in any fiscal year of the Company, Options to purchase more than 500,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 11.
(iii) If an Option is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 12), the canceled Option shall be counted against the limit set forth in Section 5(d)(i). For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company as described
in Section 11 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in the applicable option agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the applicable option agreement.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per-share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per-Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant or, if the Incentive Stock Option is amended to reduce the per-Share exercise price, no less than 110% of the Fair Market Value per Share on the date the Board approves such amendment.
(B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per-Share on the date of grant or, if the Incentive Stock Option is amended to reduce the per-Share exercise price, no less than 100% of the Fair Market Value per Share on the date the Board approves such amendment.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per-Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant.
(B) granted to any other person, the per-Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist entirely of (i) cash, (ii) check, (iii) promissory note, (iv) other Shares that (x) in the case of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which such Option shall be exercised, (v) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (vi) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider whether acceptance of such consideration may be reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. (i) Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. Notwithstanding the foregoing, in no case at a rate of less than 20% per year over five (5) years from the date the Option is granted.
(ii) An Option may not be exercised for a fraction of a Share.
(iii) An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) hereof. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 hereof.
(iv) Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the ninety-first (91st) day following such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the applicable option agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee
does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her disability, the Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. If such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE.
(i) In the event of the death during the term of the Option of an Optionee who is at the time of death an Employee or Consultant of the Company and who shall have been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of the term of such Option as set forth in the applicable option agreement) by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent set forth in the applicable option agreement.
(ii) In the even of the death of the Optionee during the term of the Option and within three (3) months after the termination of such Optionee's Continuous Status as an Employee or Consultant, the Option may be exercised at any time within six (6) months following the date of death (but in no event later than the date of the term of such Option as set forth in the applicable option agreement) by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent and within the time period, set forth in the applicable Option Agreement.
(iii) If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after the Optionee's death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(e) RULE 16b-3. Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option shall terminate immediately prior to the consummation of such proposed action.
(c) MERGER. In the event of a merger of the Company with or into
another corporation, or the sale of all or substantially all of the assets of
the Company, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Board shall have the discretion either
(i) to permit each Optionee to exercise the Option as to all of the Optioned
Stock, including Shares as to which it would not otherwise be exercisable or
(ii) to terminate the Option with respect to unvested Shares. If an Option is
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of fifteen (15) days from the date of such
notice, and the Option shall terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or asset sale, the Option confers the right to purchase,
for each Share subject to the Option immediately prior to the merger or asset
sale, the consideration (whether stock, cash, or other securities or property)
received in the merger or asset sale by holders of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however,
that if such consideration received in the merger or asset sale was not solely Common Stock of the successor corporation or its parent, the Board may, with the consent of the successor corporation and the participant, provide for the consideration to be received upon the exercise of the Option, for each Share subject to the Option, to be solely common stock of the successor corporation or its parent equal in fair market value to the per Share consideration received by holders of Common Stock in the merger or asset sale.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the National Association of Securities Dealers or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.
15. RESERVATION OF SHARES. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of
the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
16. OPTION AGREEMENTS. Options shall be evidenced by written agreements in such form as the Administrator shall approve from time to time.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws.
18. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
1996 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Stock Option Agreement.
I. AGREEMENT
1. GRANT OF OPTION. Monolithic Systems Technology, Inc., a California corporation (the "Company"), hereby grants to the Optionee (the "Optionee") named in the Notice of Stock Option Grant (the "Notice of Grant"), an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the 1996 Stock Option Plan (the "Plan") adopted by the Company, which is incorporated herein by reference.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an ISO as defined in
Section 422 of the Code. However, if this Option is intended to be an ISO, to
the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be
treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION. This Option shall be exercisable during its term in accordance with the provisions of Section 9 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) Subject to subsections 2(i)(b) through 2(i)(e) below, this Option shall be exercisable cumulatively according to the vesting schedule set out in the Notice of Grant. Alternatively, at the election of the Optionee, this option may be exercised in whole or in part at any time as to Shares which have not yet vested. For purposes of this Stock Option Agreement, Shares subject to Option shall vest based on continued employment of Optionee with the Company. Vested Shares shall not be subject to the Company's repurchase right (as set forth in the Restricted Stock Purchase Agreement, attached hereto as Exhibit C-1).
(b) As a condition to exercising this Option for unvested Shares, the Optionee shall execute the Restricted Stock Purchase Agreement.
(c) This Option may not be exercised for a fraction of a Share.
(d) In the event of Optionee's death, disability or other termination of the employment or consulting relationship, the exercisability of the Option is governed by Sections 7, 8 and 9 below, subject to the limitation contained in subsection 2(i)(e).
(e) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Grant.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by written notice (in the form attached as Exhibit A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and, together with an executed copy of the Restricted Stock Purchase Agreement, if applicable, shall be delivered in person or by certified mail to the Secretary of the Company. The written notice and Restricted Stock Purchase Agreement shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice and Restricted Stock Purchase Agreement accompanied by the Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B, and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) duly executed full promissory note in the form attached hereto as Exhibit D (the "Note"); or
(iv) to the extent permitted by the Administrator, delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price.
5. NOTE TERMS. With respect to the Note, the parties agree to the following:
(i) The Note shall become payable in full upon termination or cessation of the Optionee's employment with or services to the Company for any reason.
(ii) As security for the payment of the Note and any renewal, extension or modification thereof, the Optionee hereby grants to the Company, pursuant to the Security Agreement attached hereto as Exhibit E, a security interest in and pledges with and delivers to the Company the certificate or certificates representing the Shares (or such other collateral as may be acceptable to the Company).
(iii) In the event of any foreclosure of the security interest, the Company may sell the Shares at a private sale or may itself repurchase any or all of the Shares. The parties acknowledge that, prior to the establishment of a public market for the Shares of the Company, the securities laws applicable to the sale of the Shares make a public sale of the Shares commercially unreasonable. The parties agree that the repurchasing of said Shares by the Company, or by any person to whom the Company may have assigned its rights hereunder, is commercially reasonable if made at a price determined by the Board of Directors in its discretion, fairly exercised, representing what would be the fair market value of the Shares diminished by any limitation on transferability, whether due to the size of the block of Shares or the restrictions of applicable securities laws.
(iv) In the event of default in payment when due of any indebtedness under the Note, the Company may elect then, or at any time thereafter, to exercise all rights available to a secured party under the California Commercial Code, including the right to sell the Shares at a private or public sale or repurchase the Shares as provided above. The proceeds of any sale shall be applied in the following order:
(a) To pay all reasonable expenses of the Company in enforcing this Agreement, including without limitation reasonable attorneys' fees and legal expenses incurred by the Company.
(b) In satisfaction of the remaining indebtedness under the Note.
(c) To the Optionee, any remaining proceeds.
(v) Upon full payment by the Optionee of all amounts due on Optionee's Note, the Escrow Holder shall deliver to the Optionee the certificate or certificates representing the Shares in
the Escrow Holder's possession belonging to the Optionee, the blank stock assignment and the executed original of the Note marked "cancelled" by the Company, and the Escrow Holder shall be discharged of all further obligations hereunder; provided, however, that the Escrow Holder shall nevertheless retain said certificate or certificates and stock assignment as escrow agent if so required pursuant to other restrictions imposed pursuant to this Agreement.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.
7. TERMINATION OF RELATIONSHIP. In the event an Optionee's Continuous Status as an Employee or Consultant terminates, Optionee may, to the extent the Option was vested at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not vested in this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate.
8. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6
above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of his or her disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Stock Option Agreement), exercise the Option to the extent the
Option was vested at the date of such termination; provided, however, that if
such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an ISO such ISO shall cease to be treated
as an ISO and shall be treated for tax purposes as an NSO on the ninety-first
(91st) day following such termination. To the extent that Optionee is not vested
in the Option at the date of termination, or if Optionee does not exercise such
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
9. DEATH OF OPTIONEE. In the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent the Option was vested at the date of death. To the extent that Optionee is not vested in the Option at the date of death, or if the Option is not exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
10. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
11. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. The limitations set out in Section 7 of the Plan regarding Options designated as ISOs and Options granted to more than ten percent (10%) stockholders shall apply to this Option.
12. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of this Option of some of the federal and state tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) EXERCISE OF ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability or state income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise.
(ii) EXERCISE OF ISO FOLLOWING DISABILITY. If the Optionee's Continuous Status as an Employee or Consultant terminates as a result of disability that is not total and permanent disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Optionee must exercise an ISO within 90 days of such termination for the ISO to be qualified as an ISO.
(iii) EXERCISE OF NSO. There may be a regular federal income tax liability and state income tax liability upon the exercise of an NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. If the Optionee is subject to Section 16 of the Securities Act of 1934, as amended, the date of income recognition may be deferred for up to six months.
(iv) DISPOSITION OF SHARES. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and state income tax purposes. In the case of an ISO, if Shares transferred pursuant to the
Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and state income tax purposes. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares.
(v) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee.
(vi) SECTION 83(b) ELECTION FOR UNVESTED SHARES PURCHASED PURSUANT TO NONQUALIFIED STOCK OPTIONS. With respect to the exercise of a nonqualified stock option for unvested Shares, an election may be filed by the Optionee with the Internal Revenue Service and, if necessary, the proper state taxing authorities, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase. This will result in a recognition of taxable income to the Optionee on the date of exercise, measured by the excess, if any, of the fair market value of the Shares, at the time the Option is exercised over the purchase price for the Shares. Absent such an election, taxable income will be measured and recognized by Optionee at the time or times on which the Company's Repurchase Option lapses. Optionee is strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing of the Election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as Exhibit C-4 for reference.
(vii) SECTION 83(b) ELECTION FOR UNVESTED SHARES PURCHASED PURSUANT TO INCENTIVE STOCK Options. With respect to the exercise of an incentive stock option for unvested Shares, an election may be filed by the Optionee with the Internal Revenue Service and, if necessary, the proper state taxing authorities, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase for alternative minimum tax purposes. This will result in a recognition of income to the Optionee on the date of exercise, for alternative minimum tax purposes, measured by the excess, if any, of the fair market value of the Shares, at the time the option is exercised, over the purchase price for the Shares. Absent such an election, alternative minimum taxable income will be measured and recognized by Optionee at the time or times on which the Company's Repurchase Option lapses. Optionee is strongly encouraged to seek the advice of his or her tax consultants in connection with
the purchase of the Shares and the advisability of filing of the Election under
Section 83(b) and similar tax provisions. A form of Election under Section 83(b)
for alternative minimum tax purposes is attached hereto as Exhibit C-5 for
reference.
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S BEHALF.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
EXHIBIT A
1996 STOCK PLAN
EXERCISE NOTICE
Monolithic System Technology, Inc.
1020 Stewart Drive
Sunnyvale, California 94086
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of Monolithic System Technology, Inc. (the "Company") under and pursuant to the Monolithic System Technology, Inc. 1996 Stock Option Plan (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated _________, 19__ (the "Option Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.
3. RIGHTS AS STOCKHOLDER. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan.
Optionee shall enjoy rights as a stockholder until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation.
4. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s).
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(c) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall terminate as to any Shares 90 days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended.
5. MARKET STAND-OFF AGREEMENT. Optionee hereby agrees that if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall only apply to the first registration statement of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period.
6. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.
7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
Optionee understands that transfer of the Shares may be restricted by Section 260.141.11 of the Rules of the California Corporations Commissioner.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns.
9. INTERPRETATION. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or by the Company forthwith to the Company's Board of Directors or the committee thereof that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or committee shall be final and binding on the Company and on Optionee.
10. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and construed in accordance with the laws of the State of California excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
11. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown
below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party.
12. FURTHER INSTRUMENTS. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.
13. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the full Exercise Price for the Shares.
14. ENTIRE AGREEMENT. The Plan and Notice of Grant/Option Agreement are incorporated herein by reference. This Agreement, the Plan, the Option Agreement, the Restricted Stock Purchase Agreement, and the Investment Representation Statement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof.
Submitted by: Accepted by:
OPTIONEE: MONOLITHIC SYSTEM TECHNOLOGY, INC.
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(Print Name) By:
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(Signature) Title:
ADDRESS:
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EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE : -----------------------------------
COMPANY : MONOLITHIC SYSTEM TECHNOLOGY, INC.
SECURITY : COMMON STOCK
AMOUNT : -----------------------------------
DATE : -----------------------------------
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In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act").
(b) Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event.
(e) Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Commissioner of Corporations of California. Optionee has read the applicable Commissioner's Rules with respect to such restriction, a copy of which is attached.
EXHIBIT C-1
1996 STOCK OPTION PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ____________________________________ (the "Purchaser") and Monolithic System Technology, Inc., a California corporation (the "Company"), as of __________________, 199__.
RECITALS
(1) Pursuant to the exercise of the stock option granted to Purchaser
under the Company's 1996 Stock Plan and pursuant to the Stock Option Agreement
(the "Option Agreement") dated ___________ by and between the Company and
Purchaser with respect to such grant, which Option Agreement is hereby
incorporated by reference, Purchaser has elected to purchase _________ shares of
the Company's Common Stock of which ________ shares are not, as of the date
hereof, vested (the "Unvested Shares") under the vesting schedule set forth in
Section I of the Option Agreement, which for purposes of the definition of
"Unvested Shares" shall continue to be given effect in this Restricted Stock
Purchase Agreement. The Unvested Shares and the shares subject to the Option
Agreement that have become vested are sometimes collectively referred to herein
as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's election to exercise the option, Purchaser must execute this Restricted Stock Purchase Agreement, which sets forth the rights and obligations of the parties with respect to Shares acquired upon exercise of the Option.
2. REPURCHASE OPTION.
(a) If Purchaser's employment or consulting relationship with the Company is terminated for any reason, including for cause, death, and disability, the Company shall have the right and option to purchase from Purchaser, or Purchaser's personal representative, as the case may be, all of the Purchaser's Unvested Shares as of the date of such termination at the price paid by the Purchaser for such Shares (the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its Repurchase Option by delivering personally or by registered mail, to Purchaser (or his transferee or legal representative, as the case may be), within ninety (90) days of the termination, a notice in writing indicating the Company's intention to exercise the Repurchase Option and setting forth a date for closing not later than thirty (30) days from the mailing of such notice. The closing shall take
place at the Company's office. At the closing, the holder of the certificates for the Unvested Shares being transferred shall deliver the stock certificate or certificates evidencing the Unvested Shares, and the Company shall deliver the purchase price therefor.
(c) At its option, the Company may elect to make payment for the Unvested Shares to a bank selected by the Company. The Company shall avail itself of this option by a notice in writing to Purchaser stating the name and address of the bank, date of closing, and waiving the closing at the Company's office.
(d) If the Company does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within ninety (90) days following the termination, the Repurchase Option shall terminate.
3. TRANSFERABILITY OF THE SHARES; ESCROW.
(a) Purchaser hereby authorizes and directs the secretary of the Company, or such other person designated by the Company, to transfer the Unvested Shares as to which the Repurchase Option has been exercised from Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option under Section 1, Purchaser hereby appoints the secretary, or any other person designated by the Company as escrow agent, as its attorney-in-fact to sell, assign and transfer unto the Company, such Unvested Shares, if any, repurchased by the Company pursuant to the Repurchase Option and shall, upon execution of this Agreement, deliver and deposit with the secretary of the Company, or such other person designated by the Company, the share certificates representing the Unvested Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached as Exhibit C-3 hereto, until the Company exercises its purchase right as provided in Section 1, until such Unvested Shares are vested, or until such time as this Agreement no longer is in effect. Upon vesting of the Unvested Shares, the escrow agent shall promptly deliver to the Purchaser the certificate or certificates representing such Shares in the escrow agent's possession belonging to the Purchaser, and the escrow agent shall be discharged of all further obligations hereunder; provided, however, that the escrow agent shall nevertheless retain such certificate or certificates as escrow agent if so required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it may do or omit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee shall hold such Shares subject to all
the provisions hereof and the Exercise Notice executed by the Purchaser with respect to any Unvested Shares purchased by Purchaser and shall acknowledge the same by signing a copy of this Agreement.
3. MARKET STAND-OFF AGREEMENT. Purchaser hereby agrees that if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, Purchaser shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall only apply to the first registration statement of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period.
4. OWNERSHIP, VOTING RIGHTS, DUTIES. This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of Purchaser, except as specifically provided herein.
5. LEGENDS. The share certificate evidencing the Shares issued hereunder shall be endorsed with the following legends (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
6. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company after the date of this Agreement.
7. NOTICES. Notices required hereunder shall be given in person or by registered mail to the address of Purchaser shown on the records of the Company, and to the Company at their respective principal executive offices.
8. SURVIVAL OF TERMS. This Agreement shall apply to and bind Purchaser and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.
9. SECTION 83(b) ELECTIONS.
(a) ELECTION FOR UNVESTED SHARES PURCHASED PURSUANT TO NONQUALIFIED STOCK OPTIONS. Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of a nonqualified stock option for Unvested Shares, that unless an election is filed by the Purchaser with the Internal Revenue Service and, if necessary, the proper state taxing authorities, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase, there will be a recognition of taxable income to the Optionee, measured by the excess, if any, of the fair market value of the Shares, at the time the Company's Repurchase Option lapses over the purchase price for the Shares. Optionee represents that Optionee has consulted any tax consultant(s) Optionee deems advisable in connection with the purchase of the Shares or the filing of the Election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as Exhibit C-4 for reference.
(b) ELECTION FOR UNVESTED SHARES PURCHASED PURSUANT TO INCENTIVE STOCK OPTIONS. Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of an incentive stock option for Unvested Shares, that unless an election is filed by the Purchaser with the Internal Revenue Service and, if necessary, the proper state taxing authorities, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase, there will be a recognition of income to the Optionee, for alternative minimum tax purposes, measured by the excess, if any, of the fair market value of the Shares, at the time the Company's Repurchase Option lapses over the purchase price for the Shares. Optionee represents that Optionee has consulted any tax consultant(s) Optionee deems advisable in connection with the purchase of the Shares or the filing of the Election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) for alternative minimum tax purposes is attached hereto as Exhibit C-5 for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER REQUESTS THE
COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
10. REPRESENTATIONS. Purchaser has reviewed with his own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Purchaser understands that he (and not the Company) shall be responsible for his own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
11. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with applicable state laws.
Purchaser represents that he has read this Agreement and is familiar with its terms and provisions. Purchaser hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set forth above.
"COMPANY"
MONOLITHIC SYSTEM TECHNOLOGY, INC.
"PURCHASER"
EXHIBIT C-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and transfer unto _____________________ (__________) shares of the Common Stock of __________________________ standing in my name of the books of said corporation represented by Certificate No. _____ herewith and do hereby irrevocably constitute and appoint __________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between ________________________ and the undersigned dated ______________, 19__.
Dated: _______________, 19
Signature:
INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its "repurchase option," as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser.
EXHIBIT C-3
JOINT ESCROW INSTRUCTIONS
______ , 19__
Monolithic System Technology, Inc.
1020 Stewart Drive
Sunnyvale, California 94086
Attention: Corporate Secretary
Dear ____________:
As Escrow Agent for both Monolithic System Technology, Inc. (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Company's repurchase option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities.
Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you.
4. Upon written request of the Purchaser, but no more than once per calendar year, unless the Company's repurchase option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company's repurchase option. Within 120 days after cessation of Purchaser's continuous employment by or services to the Company, or any parent or subsidiary of the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company's repurchase option.
5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days' advance written notice to each of the other parties hereto.
COMPANY: Monolithic System Technology, Inc.
1020 Stewart Drive
Sunnyvale, California 94086
Attn: Corporate Secretary
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PURCHASER:
ESCROW AGENT: Corporate Secretary
Monolithic System Technology, Inc.
1020 Stewart Drive
Sunnyvale, California 94086
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16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of California.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
EXHIBIT C-4
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the above-referenced Federal Tax Code, to include in taxpayer's gross income for the current taxable year, the amount of any compensation taxable to taxpayer in connection with his receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME: TAXPAYER: ___________ SPOUSE: ____________
ADDRESS: ____________________________________________
IDENTIFICATION NO.: TAXPAYER:_____________ SPOUSE: ____________
TAXABLE YEAR: ___________________________________
2. The property with respect to which the election is made is described as follows: __________ shares (the "Shares") of the Common Stock of Monolithic System Technology, Inc. (the "Company").
3. The date on which the property was transferred is: ___________ , 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, on certain events. This right lapses with regard to a portion of the Shares based on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms
will never lapse, of such property is:
$_________________.
6. The amount (if any) paid for such property is:
$_________________.
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED
EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: ___________________, 19__ __________________________________
(signature of Taxpayer)
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19__ ___________________________________
EXHIBIT C-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the provisions of Sections 55-56 and 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer's alternative minimum taxable income for the current taxable year, as compensation for services, the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property.
1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME: TAXPAYER: ___________ SPOUSE: ____________
ADDRESS: ____________________________________________
IDENTIFICATION NO.: TAXPAYER:_____________ SPOUSE: ____________
TAXABLE YEAR: ___________________________________
2. The property with respect to which the election is made is described as follows: __________shares (the "Shares") of the Common Stock of Monolithic System Technology, Inc. (the "Company").
3. The date on which the property was transferred is: _______________.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, at its original purchase price, on certain events. This right lapses with regard to a portion of the Shares over time.
5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is:
$_______________
6. The amount paid for such property is:
$_______________
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED
EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: _________________________, Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19__ _____________________________________
EXHIBIT D
PROMISSORY NOTE
___________, 19___
$_____________
For value received, the undersigned promises to pay to Monolithic System Technology, Inc., a California corporation (the "Company"), or order, at its principal office the principal sum of $__________ with interest thereof at the rate of ________ percent (__%) per annum, compounded __________ annually, on the unpaid balance of the principal sum. Said principal and interest shall be due on the fourth anniversary of the date of this Note.
Should the undersigned fail to make full payment of any installment of principal or interest for a period of 10 days or more after the due date thereof, the whole unpaid balance on this Note of principal and interest shall become immediately due at the option of the holder of this Note.
This Note is subject to the terms of the Restricted Stock Purchase Agreement, dated as of __________________. This Note is secured by a pledge of the Company's Common Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default.
In the event of the undersigned shall cease to be an employee of the Company for any reason, this Note shall, at the option of the Company, be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be immediately due and payable.
Principal payable in lawful money of the United States of America. THE
PRIVILEGE IS RESERVED TO PREPAY ANY PORTION OF THE NOTE AT ANY TIME.
Should suit be commenced to collect this Note or any portion thereof, such sum as the Court may deem reasonable shall be added hereto as attorneys' fees. The maker waives presentment for payment, protest, notice of protest and notice of non-payment of this Note.
Name: ________________________________
Signature: ___________________________
EXHIBIT E
SECURITY AGREEMENT
This Security Agreement is made as of _________________ between Monolithic System Technology, Inc., a California corporation ("Pledgee"), and _________________________________ ("Pledgor").
RECITALS
Pursuant to Pledgor's purchase of Shares under the Restricted Stock Purchase Agreement dated _________________ (the "Agreement"), between Pledgor and Pledgee and Pledgor's election under the terms of the Agreement to pay for such shares with Pledgor's promissory note (the "Note"), Pledgor has purchased __________ shares of Pledgee's Common Stock (the "Shares") at a price of $_____ per share, for a total purchase price of $__________. The Note and the obligations thereunder are as set forth in Exhibit D to the Agreement.
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of the transfer of the Shares to Pledgor under the Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number ______, duly endorsed in blank or with executed stock powers, and herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold said certificate subject to the terms and conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Agreement, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows:
(a) PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note.
(b) ENCUMBRANCES. The Shares are free of all other encumbrances, defenses and liens (other than restrictions on transfer imposed by applicable securities laws), and Pledgor will not further encumber the Shares without the prior written consent of Pledgee.
(c) MARGIN REGULATIONS. In the event that Pledgee's Common Stock is now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"),
Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations.
3. VOTING RIGHTS. During the term of this pledge and so long as all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the pledge any stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by the Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this pledge, subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the Agreement or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code.
7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules under Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee.
9. TERM. The within pledge of Shares shall continue until the payment of all indebtedness secured hereby, at which time the remaining pledged stock shall be promptly delivered to Pledgor, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder.
12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid.
13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators.
14. GOVERNING LAW. This Security Agreement shall be interpreted and governed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
"PLEDGOR" By:
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Name:
------------------------------
Signature:
------------------------------
Address:
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"PLEDGEE" MONOLITHIC SYSTEM TECHNOLOGY, INC.
a California corporation
By:
------------------------------
Title:
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Exhibit 10.4
2000 STOCK OPTION PLAN
FORM OF RESTRICTED
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ____________________________________ (the "Purchaser") and Monolithic System Technology, Inc., a California corporation (the "Company"), as of __________________, 20__.
RECITALS
Pursuant to the exercise of the stock option granted to the Purchaser under the Company's 2000 Stock Option Plan and pursuant to the Stock Option Agreement (the "Option Agreement") dated ___________, 20___ by and between the Company and the Purchaser with respect to such grant, which Option Agreement is hereby incorporated by reference, the Purchaser has elected to purchase _________ shares of the Company's Common Stock of which ________ shares are not, as of the date hereof, vested under the vesting schedule set forth in the Notice of Option Grant attached to the Option Agreement, shares of the Company's Common Stock that are not vested under said vesting schedule as of the date of determination are referred to in this Agreement as "Unvested Shares." The Unvested Shares and the shares subject to the Option Agreement that have become vested are sometimes collectively referred to herein as the "Shares."
As required by the Option Agreement, as a condition to the Purchaser's election to exercise the option, the Purchaser must execute and deliver this Restricted Stock Purchase Agreement, which sets forth the rights and obligations of the parties with respect to Shares acquired upon exercise of the Option.
2. REPURCHASE OPTION.
(a) If the Purchaser's employment or consulting relationship with the Company is terminated for any reason, including without limitation, for cause or on the death or disability of the Purchaser (a "Termination"), the Company shall have the right and option to purchase from the Purchaser, or the Purchaser's personal representative, as the case may be, all or any part of the Purchaser's Unvested Shares as of the date of such termination at the price paid by the Purchaser for such Unvested Shares (the "Repurchase Option").
(b) Upon the occurrence of a Termination, the Company may exercise its Repurchase Option by delivering personally or by registered mail, to the Purchaser (or his transferee or legal representative, as the case may be), within ninety (90) days of the Termination, a notice in writing indicating the Company's intention to exercise the Repurchase Option and setting forth a date for closing not later than thirty (30) days from the mailing of such notice. The closing shall take place at the Company's office. At the closing, the holder of the certificates for the Unvested Shares being transferred shall deliver the stock certificate or
certificates evidencing the Unvested Shares, and the Company shall deliver the purchase price therefor.
(c) If the Company does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within ninety (90) days following the termination, the Repurchase Option shall terminate.
3. TRANSFERABILITY OF THE SHARES; ESCROW.
(a) The Purchaser hereby authorizes and directs the secretary of the Company, or such other person designated by the Company, to transfer the Unvested Shares from the Purchaser to the Company.
(b) To insure the availability for delivery of the Purchaser's Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option under Section 1, the Purchaser hereby appoints the secretary, or any other person designated by the Company as escrow agent (either party, the "Escrow Agent"), as its attorney-in-fact to sell, assign and transfer unto the Company such Unvested Shares, if any, repurchased by the Company pursuant to the Repurchase Option. The Purchaser shall, upon execution of this Agreement, deliver and deposit with the Escrow Agent the share certificates representing the Unvested Shares, together with the stock assignment duly endorsed in blank, attached hereto as EXHIBIT C-2. The Unvested Shares and stock assignment shall be held by the Escrow Agent in escrow, pursuant to the Joint Escrow Instructions of the Company and the Purchaser attached as EXHIBIT C-3 hereto, until the Company exercises its purchase right as provided in Section 1, until such Unvested Shares are vested, or until such time as this Agreement no longer is in effect. Upon the vesting of all of the Unvested Shares, the Escrow Agent shall promptly deliver to the Purchaser the certificate or certificates representing such Shares in the Escrow Agent's possession belonging to the Purchaser, and the Escrow Agent shall be discharged of all further obligations hereunder; provided, however, that the Escrow Agent shall nevertheless retain such certificate or certificates as Escrow Agent if so required pursuant to other restrictions imposed pursuant to this Agreement.
(c) Neither the Company nor the Escrow Agent shall be liable for any act it may do or omit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee shall hold such Shares subject to all the provisions hereof and the Exercise Notice executed by the Purchaser with respect to any Unvested Shares and shall acknowledge the same by signing a copy of this Agreement.
3. MARKET STAND-OFF AGREEMENT. The Purchaser hereby agrees that, if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, the Purchaser shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; [provided, however, that such restriction shall only apply to the first registration
statement of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act.] The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period.
4. OWNERSHIP, VOTING RIGHTS, DUTIES. This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of the Purchaser, except as specifically provided herein.
5. LEGENDS. The share certificate evidencing the Shares issued hereunder shall be endorsed with the following legends (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND REPURCHASE OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF REPURCHASE ARE BINDING ON TRANSFEREES OF THESE SHARES.
6. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company after the date of this Agreement.
7. NOTICES. Notices required hereunder shall be given in person or by registered mail to the address of the Purchaser shown on the records of the Company, and to the Company, at their respective principal executive offices.
8. SURVIVAL OF TERMS. This Agreement shall apply to and bind the Purchaser and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.
9. SECTION 83(b) ELECTIONS.
(a) ELECTION FOR UNVESTED SHARES PURCHASED PURSUANT TO NONQUALIFIED STOCK OPTIONS. The Purchaser hereby acknowledges that he or she has been informed that, with respect
to the exercise of a nonqualified stock option for Unvested Shares, that unless an election is filed by the Purchaser with the Internal Revenue Service and, if necessary, the proper state taxing authorities, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase, there will be a recognition of taxable income to the Optionee, measured by the excess, if any, of the fair market value of the Shares, at the time the Company's Repurchase Option lapses over the purchase price for the Shares. The Optionee represents that the Optionee has consulted any tax consultant(s) the Optionee deems advisable in connection with the purchase of the Shares or the filing of the Election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as EXHIBIT C-4 for reference.
(b) ELECTION FOR UNVESTED SHARES PURCHASED PURSUANT TO INCENTIVE STOCK OPTIONS. The Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of an incentive stock option for Unvested Shares, that unless an election is filed by the Purchaser with the Internal Revenue Service and, if necessary, the proper state taxing authorities, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase, there will be a recognition of income to the Optionee, for alternative minimum tax purposes, measured by the excess, if any, of the fair market value of the Shares, at the time the Company's Repurchase Option lapses over the purchase price for the Shares. The Optionee represents that the Optionee has consulted any tax consultant(s) the Optionee deems advisable in connection with the purchase of the Shares or the filing of the Election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) for alternative minimum tax purposes is attached hereto as EXHIBIT C-5 for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S BEHALF.
10. REPRESENTATIONS. The Purchaser has reviewed with his own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Purchaser understands that he (and not the Company) shall be responsible for his own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
11. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with applicable state laws.
The Purchaser represents that he has read this Agreement and is familiar with its terms and provisions. The Purchaser hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Agreement.
* * *
IN WITNESS WHEREOF, this Restricted Stock Purchase Agreement is deemed made as of the date first set forth above.
"COMPANY"
MONOLITHIC SYSTEM TECHNOLOGY, INC.
"PURCHASER"
Exhibit 10.5
MONOLITHIC SYSTEM TECHNOLOGY, INC.
2000 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to Employees, Directors and Consultants of the Company and its Subsidiaries, and to promote the success of the Company's business. Options granted hereunder may be either Incentive Stock Options or Nonstatutory Stock Options at the discretion of the Committee and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder.
2. DEFINITIONS. As used herein, and in any Option granted hereunder, the following definitions shall apply:
"BOARD" shall mean the Board of Directors of the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" shall mean the Common Stock of the Company.
"COMMITTEE" shall mean the Committee appointed by the Board in accordance with Section 4(a) of the Plan. If the Board does not appoint or ceases to maintain a Committee, the term "COMMITTEE" shall refer to the Board.
"COMPANY" shall mean Monolithic System Technology, Inc.
"CONSULTANT" shall mean any independent contractor retained to perform services for the Company.
"CONTINUOUS EMPLOYMENT" shall mean the absence of any interruption or termination of service as an Employee, Director or Consultant by the Company or any Subsidiary. Continuous Employment shall not be considered interrupted during any period of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company and any Parent, Subsidiary or successor of the Company. A leave of absence approved by the Company shall include sick leave, military leave or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract.
"CORPORATE TRANSACTION" shall mean any of the following stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations) in connection with the complete liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is the surviving entity but in which securities possessing fifty percent (50%) or more of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger.
"COVERED EMPLOYEE" shall mean any individual whose
compensation is subject to the limitations on tax deductibility provided by
Section 162(m) of the Code and any Treasury Regulations promulgated thereunder
in effect at the close of the taxable year of the Company in which an Option has
been granted to such individual.
"DIRECTOR" shall mean a director of the Company.
"EFFECTIVE DATE" shall mean the date on which the Plan is initially approved by the stockholders in accordance with Section 19 of the Plan.
"EMPLOYEE" shall mean any person, including officers (whether or not they are directors), employed by the Company or any Subsidiary.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" shall mean (i) the closing price of a
Share on the national securities exchange on which the Shares are traded, or
(ii) if the Shares are not traded on a national securities exchange but are
quoted on a Market, the closing price on such Market, or (iii) if the Shares are
not traded on a national securities exchange or quoted on a Market, the fair
market value of a Share as determined by the Company's Board of Directors in
good faith, based upon such factors as they deem relevant. Notwithstanding the
preceding, for federal, state, and local income tax reporting purposes, fair
market value shall be determined by the Committee in accordance with uniform and
nondiscriminatory standards adopted by it from time to time. Such determination
shall be conclusive and binding on all persons.
"GRANT DATE" shall mean, with respect to an Option, the date that the Option is granted by the Committee.
"INCENTIVE STOCK OPTION" shall mean any option granted under this Plan and any other option granted to an Employee in accordance with the provisions of Section 422 of the Code and the Treasury Regulations promulgated thereunder.
"MARKET" shall mean the NASDAQ SmallCap Market or a regional stock exchange or an automated quotation system or over-the-counter market.
"NON-EMPLOYEE DIRECTOR" shall mean a director of the Company who qualifies as a Non-Employee Director as such term is defined in Section 240.16b-3(b)(3) of the General Rules and Regulations promulgated under the Exchange Act (the "GENERAL RULES AND REGULATIONS").
"NONSTATUTORY STOCK OPTION" shall mean an Option granted under the Plan that is subject to the provisions of Section 1.83-7 of the Treasury Regulations promulgated under Section 83 of the Code.
"OPTION" shall mean a stock option granted pursuant to the \ Plan.
"OPTION AGREEMENT" shall mean a written agreement between the Company and the Optionee regarding the grant and exercise of Options to purchase Shares and the terms and conditions thereof as determined by the Committee pursuant to the Plan.
"OPTIONED SHARES" shall mean the shares of Common Stock subject to an Option.
"OPTIONEE" shall mean an Employee, Non-Employee Director or Consultant who receives an Option.
"OUTSIDE DIRECTOR" shall mean a director of the Company who qualifies as an Outside Director as such term is used in Section 162(m) of the Code and defined in any applicable Treasury Regulations promulgated thereunder.
"PARENT" shall mean a parent corporation of the Company, whether now or hereafter existing, as defined by Section 424(e) of the Code.
"PLAN" shall mean this 2000 Stock Option Plan.
"REGISTRATION DATE" shall mean the effective date of the first registration of any class of the Company's equity securities pursuant to Section 12 of the Exchange Act.
"SECTION 162(m) EFFECTIVE DATE" shall mean the first date as of which the limitations on the tax deductibility of certain compensation provided by Section 162(m) of the Code and any Treasury Regulations promulgated thereunder are applicable to Options granted under the Plan.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECTION 16 PERSON" shall mean a person who, with respect to the Shares, is subject to Section 16 of the Exchange Act.
"SHARE" shall mean a share of the Common Stock subject to an Option, as adjusted in accordance with Section 12 of the Plan.
"SUBSIDIARY" shall mean a subsidiary corporation of the Company, whether now or hereafter existing, as defined in Section 424(f) of the Code.
"TERMINATION OF SERVICE" shall mean (a) in the case of an Employee, a cessation of the employee-employer relationship between the Employee and the Company or a Parent or Subsidiary for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, disability, or the disaffiliation of a Parent or Subsidiary, but excluding any such termination where there is a simultaneous reemployment by the Company or a Parent or Subsidiary; (b) in the case of a Consultant, a cessation of the service relationship between the Consultant and the Company or a Parent or Subsidiary for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, disability, or the disaffiliation of a Parent or Subsidiary, but excluding any such termination where there is a simultaneous re-engagement of the Consultant by the Company or a Parent or Subsidiary; and (c) in the case of a Director, a cessation of the Director's service on the Board or on the board of directors of a Parent or Subsidiary for any reason, including, but not by way of limitation, a termination by resignation, removal, death, disability, expiration of the term of directorship, or the disaffiliation of a Parent or Subsidiary, but excluding any such termination where there is a simultaneous reemployment by the Company or a Parent or Subsidiary.
"VESTING COMMENCEMENT DATE" shall mean, with respect to an Option, the date, determined by the Board, on which the vesting of the Option shall commence, which may be the Grant Date or a date prior to or after the Grant Date.
3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of the Plan, unless amended by the Board and the stockholders of the Company, the maximum aggregate number of Shares which may be optioned and sold under the Plan is Five Million (5,000,000) Shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001 equal to the lesser of either (i) 500,000 Shares, or (ii) two percent of the outstanding shares of the Company's common stock on such date. The Shares may be authorized but unissued or reacquired shares of Common Stock. If an Option expires or becomes unexercisable for any reason without having been exercised in full, or is surrendered pursuant to an Option exchange program, or if any unissued Shares are retained by the Company upon exercise of an Option in order to satisfy the exercise price for such Option or any withholding taxes due with respect to such Option, such unissued or retained Shares shall become available for other Option grants under the Plan, unless the Plan shall have been terminated.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board. The Board may appoint a Committee consisting of not less than two (2) members of the Board to administer the Plan, subject to such terms and conditions as the Board may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and, thereafter, directly administer the Plan. Members of the Board or Committee who are either eligible for Options or have been granted Options may vote on any matters affecting the administration of the Plan or the grant of Options pursuant to the Plan, except that no such member shall act upon the granting of an Option to themselves, but any such member may be counted in determining the existence of a quorum at any meeting of the Board or the Committee during which action is taken with respect to the granting of an Option to themselves.
The Committee shall meet at such times and places and upon such notice as the chairperson determines. A majority of the Committee shall constitute a quorum. Any acts by the Committee may be taken at any meeting at which a quorum is present and shall be by majority vote of those members entitled to vote. Additionally, any acts reduced to writing or approved in writing by all of the members of the Committee shall be valid acts of the Committee.
(b) PROCEDURE AFTER REGISTRATION DATE. Notwithstanding
subsection (a) above, after the Registration Date, (i) the Plan shall be
administered by either the full Board or a Committee of two (2) or more
directors, each of whom is a Non-Employee Director; or (ii) all Options granted
to Optionees who are officers or directors for purposes of Section 16(a) of the
Exchange Act shall prohibit the sale of the underlying Optioned Shares within
six (6) months of the date of grant. After such date, the Board shall take all
action necessary to administer the Plan so that all transactions involving
Options and Shares issued pursuant to the Plan shall be exempt from Section
16(b) of the Exchange Act in accordance with the then effective provisions of
Section 240.16b-3 et. seq. of the General Rules and Regulations; provided that
any amendment to the Plan required for compliance with such provisions shall be
made consistent with the provisions of Section 14 of the Plan and the General
Rules and Regulations.
(c) PROCEDURE AFTER SECTION 162(m) EFFECTIVE DATE. Notwithstanding subsections (a) and (b) above, after the Section 162(m) Effective Date, the Plan and all Option grants shall be administered and approved by a Committee comprised solely of two or more Outside Directors; or if the Committee consists of members in addition to the Outside Directors, such additional members must abstain from voting on or recuse themselves with respect to all option grants and other compensation matters submitted to the Committee with respect to any Covered Employee.
(d) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, and except as otherwise provided by the Board, the Committee shall have the authority: (i) to select the Employees, Directors and Consultants to whom Options may be granted from time to time hereunder; (ii) to determine whether and to what extent Options are granted hereunder; (iii) to determine, upon review of relevant information, the Fair Market Value of the Common Stock; (iv) to determine the exercise price of Options to be granted, the number of Shares to be represented by each Option and the vesting schedule for such Option; (v) to approve Option Agreements for use under the Plan, and to authorize the execution and delivery of Option Agreements on behalf of the Company; (vi) to interpret the Plan; (vii) to prescribe, amend, add and rescind rules and regulations relating to the Plan; (viii) to determine the terms and provisions of each Option granted under the Plan (which need not be identical) and, with the consent of the holder thereof, to modify or amend
any Option; (ix) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Committee; (x) to accelerate or (with the consent of the Optionee) defer an exercise date of any Option, subject to the provisions of Section 9(a) of the Plan; (xi) to determine whether Options granted under the Plan will be Incentive Stock Options or Nonstatutory Stock Options; and (xii) to make all other determinations deemed necessary or advisable for the administration of the Plan and take such other action not inconsistent with the terms of the Plan as the Committee deems appropriate.
(e) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and interpretations of the Committee shall be final and binding on all persons.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE FOR OPTIONS. Nonstatutory Stock Options under the Plan may be granted to Employees, Directors or Consultants whom the Committee, in its sole discretion, may designate from time to time. Incentive Stock Options may be granted only to Employees. An Employee, Director or Consultant who has been granted an Option, if he or she is otherwise eligible, may be granted an additional Option or Options. Each Option shall be designated in a written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by an Optionee during any calendar year (under all stock option plans of the Company and its Parents and Subsidiaries) exceeds $100,000, (determined as of the grant date) such Options shall be treated as Nonstatutory Stock Options. As of the Section 162(m) Effective Date, Options under the Plan shall be granted to Covered Employees upon satisfaction of the conditions to such grants provided pursuant to Section 162(m) and any Treasury Regulations promulgated thereunder. In addition, after the Section 162(m) Effective Date, the maximum number of Shares with respect to which Options may be granted during any calendar year to any Employee shall not exceed [1,000,000] Shares.
(b) NO RIGHT TO CONTINUING EMPLOYMENT, CONSULTING OR DIRECTOR RELATIONSHIP. Neither the establishment nor the operation of the Plan shall confer upon any Optionee or any other person any right with respect to continuation of employment or other service with the Company or any Parent or Subsidiary, nor shall the Plan interfere in any way with the right of the Optionee or the right of the Company (or any Parent or Subsidiary) to terminate such employment or service at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board and its approval by vote of the holders of the outstanding shares of the Company entitled to vote on the adoption of the Plan (in accordance with the provisions of Section 19 hereof). It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan.
7. TERM OF OPTION. Unless the Committee determines otherwise, the term of the Option shall be set forth in the Option Agreement. Notwithstanding this, in no event shall any Option be exercisable after the expiration of ten (10) years from the Grant Date thereof, and no Incentive Stock Option granted to any Employee who, at the date such Option is granted, owns
(within the meaning of Section 424(d) of the Code) more than ten percent (10%)
of the total combined voting power of all classes of the stock of the Company or
any Parent or Subsidiary shall be exercisable after the expiration of five (5)
years from the Grant Date.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. Except as provided in subsections (b) and
(c) below, the exercise price for the Shares to be issued pursuant to any Option
shall be such price as is determined by the Committee, which shall in no event
be less than: (i) in the case of Incentive Stock Options, the Fair Market Value
of such Shares on the Grant Date; or (ii) in the case of Nonstatutory Stock
Options, 85% of such Fair Market Value.
(b) TEN PERCENT STOCKHOLDERS. No Incentive Stock Option shall be granted to any Employee who, at the date such Option is granted, owns (within the meaning of Section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, unless the exercise price for the Shares to be issued pursuant to such Option is at least equal to 110% of the Fair Market Value of such Shares on the Grant Date.
(c) SECTION 162(m) LIMITATIONS. After the Section 162(m) Effective Date, the exercise price of any Option granted to a Covered Employee shall be at least equal to the Fair Market Value of the Shares on the Grant Date.
(d) CONSIDERATION. The consideration to be paid for the Optioned Shares shall be payment in cash or by check, cashier's check, certified check, or wire transfer, unless payment in some other manner, including by promissory note, other shares of the Company's Common Stock or such other consideration and method of payment for the issuance of Optioned Shares as may be permitted under the California Corporations Code, is authorized by the Committee at the time of the grant of the Option. Any cash or other property received by the Company from the sale of Shares pursuant to the Plan shall constitute part of the general assets of the Company.
(e) RELOAD OPTIONS. In the event the exercise price or tax withholding of an Option is satisfied by the withholding by the Company or the Optionee's employer of Shares otherwise deliverable to the Optionee, the Committee may issue the Optionee an additional Option, with terms identical to the Option Agreement under which the Option was exercised, but at an exercise price as determined by the Committee in accordance with the Plan.
9. EXERCISE OF OPTION.
(a) VESTING PERIOD. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Committee and as shall be permissible under the terms of the Plan, which shall be specified in the Option Agreement evidencing the Option. Unless the Committee specifically determines otherwise at the time of the grant of the Option, each Option shall vest and become exercisable, cumulatively, as to one-fourth of the Optioned Shares at the first anniversary of the Vesting Commencement Date and as to one thirty-sixty (1/36) of the remaining Optioned Shares at the end of each of the following thirty-six (36) months until all of the
Optioned Shares have vested, subject to the Optionee's Continuous Employment, but in no event will the Option vest at a rate of less than 20% per year over five (5) years from the date the Option is granted. An Option may not be exercised for fractional shares or for less than 100 Shares.
(b) EXERCISE PROCEDURES. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option Agreement by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. As soon as practicable following the exercise of an Option in the manner set forth above, the Company shall issue or cause its transfer agent to issue stock certificates representing the Shares purchased. Until the issuance of such stock certificates (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Shares notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other rights for which the record date is prior to the date of the transfer by the Optionee of the consideration for the purchase of the Shares, except as provided in Section 12 of the Plan.
(c) EXERCISE OF OPTION WITH STOCK. If an Optionee is permitted to exercise an Option by delivering shares of the Company's Common Stock, the Option Agreement covering such Option may include provisions authorizing the Optionee to exercise the Option, in whole or in part, by (i) delivering whole shares of the Company's Common Stock previously owned by such Optionee (whether or not acquired through the prior exercise of a stock option) having a Fair Market Value equal to the Option price; or (ii) directing the Company to withhold from the Shares that would otherwise be issued upon exercise of the Option that number of whole Shares having a Fair Market Value equal to the Option price. Shares of the Company's Common Stock so delivered or withheld shall be valued at their Fair Market Value at the close of the last business day immediately preceding the date of exercise of the Option, as determined by the Committee. Any balance of the Option price shall be paid in cash. Any Shares delivered or withheld in accordance with this provision shall again become available for purposes of the Plan and for Options subsequently granted thereunder. After the Registration Date, any exercise of an Option under Section 9(c)(i) or 9(c)(ii) above by a Section 16 Person shall comply with the relevant requirements of Section 240.16b-1 et. seq. of the General Rules and Regulations.
(d) TERMINATION OF STATUS AS EMPLOYEE, DIRECTOR OR CONSULTANT. If an Optionee shall cease to be an Employee, Director or Consultant for any reason other than permanent and total disability or death, he or she may, but only within thirty (30) days (or such other period of time as is determined by the Committee) after the date of Termination of Service, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of Termination of Service, subject to the condition that no Option shall be exercised after the expiration of the Option period.
(e) DISABILITY OF OPTIONEE. If an Optionee shall cease to be an Employee, Director or Consultant due to disability, and such Optionee was in Continuous Employment as an Employee, Director or Consultant from the Grant Date until the date of Termination of Service, the Option may be exercised at any time within six (6) months following the date of Termination of Service, but only to the extent of the accrued right to exercise at the time of Termination of Service, subject to the condition that no option shall be exercised after the expiration of the Option period.
(f) DEATH OF OPTIONEE. In the event of the death during the Option period of an Optionee who is at the time of his or her death an Employee, Non- Employee Director or Consultant and who was in Continuous Employment as such from the Grant Date until the date of death, the Option may be exercised at any time within six (6) months following the date of death by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest, inheritance or otherwise as a result of the Optionee's death, but only to the extent of the accrued right to exercise at the time of death, subject to the condition that no option shall be exercised after the expiration of the Option period.
(g) TAX WITHHOLDING. After the Registration Date, when an
Optionee is required to pay to the Company an amount with respect to tax
withholding obligations in connection with the exercise of an Option granted
under the Plan, the Optionee may elect prior to the date the amount of such
withholding tax is determined (the "TAX DATE") to make such payment, or such
increased payment as the Optionee elects to make by: (i) delivering cash; (ii)
delivering part or all of the payment in previously owned shares of Common Stock
(whether or not acquired through the prior exercise of an Option); and/or (iii)
irrevocably directing the Company to withhold from the Shares that would
otherwise be issued upon exercise of the Option that number of whole Shares
having a fair market value equal to the amount of tax required or elected to be
withheld (a "WITHHOLDING ELECTION"). If an Optionee's Tax Date is deferred
beyond the date of exercise and the Optionee makes a Withholding Election, the
Optionee will initially receive the full amount of Optioned Shares otherwise
issuable upon exercise of the Option, but will be unconditionally obligated to
surrender to the Company on the Tax Date the number of Shares necessary to
satisfy his or her minimum withholding requirements, or such higher payment as
he or she may have elected to make, with adjustments to be made in cash after
the Tax Date.
After the Registration Date, notwithstanding anything in the preceding paragraph to the contrary, any withholding of Shares with respect to taxes arising in connection with the exercise of an Option by any Section 16 Person shall satisfy the conditions for exemption therefrom set forth in Section 240.16b-1 et. seq. of the General Rules and Regulations.
Any adverse consequences incurred by the Optionee with respect to the use of shares of Common Stock to pay any part of the Option Price or of any tax in connection with the exercise of an Option, including, without limitation, any adverse tax consequences arising as a result of a disqualifying disposition within the meaning of Section 422 of the Code, shall be the sole responsibility of the Optionee.
10. TRANSFER OF OPTIONS. An Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee; provided that, upon approval by the Committee, an Option Agreement with respect to a Nonstatutory Stock Option may permit the Optionee to transfer vested options through a gift or domestic relations order in settlement of marital property rights to any of the following donees or transferees:
(i) any "family member," which includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, including adoptive relations, and any person sharing the employee's household (other than a tenant or employee);
(ii) a trust in which "family members" have more than 50% of the beneficial interest;
(iii) a foundation in which "family members" or the employee control the management of assets; and
(iv) any other entity in which the "family members" (or the employee) own more than 50% of the voting interests;
provided that (x) there may be no consideration for any such transfer, (y) the
Option Agreement pursuant to which such Options are granted, and any amendment
thereto, must be approved by the Committee, and must expressly provide for
transferability in a manner consistent with this Section 10, and (z) subsequent
transfers of transferred Options shall be prohibited except those in accordance
with this Section 10. Following transfer, any such Options shall continue to be
subject to the same terms and conditions as were applicable immediately prior to
transfer, provided that the term Optionee shall be deemed to refer to the
Transferee. The events of termination of service of Section 9 hereof or in the
Option Agreement shall continue to be applied with respect to the original
Optionee, following which the Options shall be exercisable by the transferee
only to the extent, and for the periods specified in the Option Agreement or
Section 9, as applicable.
11. AUTOMATIC OPTION GRANTS.
The provisions set forth in this Section 11 shall not be amended more than once every six months other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules promulgated thereunder. All grants of Options to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions:
(a) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors.
(b) Each Outside Director shall be automatically granted an option (an "AUTOMATIC DIRECTOR OPTION") to purchase 10,000 Shares at the first meeting of the Board following the Annual Meeting of Stockholders in each year, commencing with the 2001 Annual Meeting of Stockholders, provided that he or she is then an Outside Director and if, as of such date, he or she shall have served on the Board for at least the preceding six (6) months.
(c) The terms of an Automatic Director Option granted hereunder shall be as follows:
(i) the term of the Automatic Director Option shall be ten (10) years.
(ii) the exercise price per Share shall be one hundred percent (100%) of the Fair Market Value per Share on the date of grant of the Automatic Director Option. In the event that the date of grant of the Automatic Director Option is not a trading day, the exercise price per Share shall be one hundred percent (100%) of the Fair Market Value on the next trading day immediately following the date of grant of the Automatic Director Option.
(iii) subject to Section 10 hereof, the Automatic Director Option shall become exercisable as to 1/12th of the Shares subject to the Automatic Director Option on each monthly anniversary of its date of grant, provided that the Optionee continues to serve as a Director on such dates.
(iv) except as the terms of this Section 11 otherwise provide, the terms and conditions of this Plan shall apply to Automatic Director Options.
(d) In the event that any Automatic Director Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the total number of authorized Shares then available under the Plan, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) RECAPITALIZATION. Subject to any required action by the stockholders of the Company, the number of Optioned Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan, and the per share exercise price of each such Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, combination, reclassification, the payment of a stock dividend on the Common Stock or any other increase or decrease in the number of such shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been effected without receipt of consideration. Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.
(b) CORPORATE TRANSACTION. In the event of a proposed Corporate Transaction, the Committee shall notify the Optionee at least ten (10) calendar days prior to such proposed Corporate Transaction. Except as provided otherwise in individual Option Agreements, to the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed Corporate Transaction, unless the Option is assumed or an equivalent Option is substituted by the successor corporation or a parent or subsidiary of such
successor corporation. For the purposes of this subsection, the Option shall be considered assumed if, following the Corporate Transaction, the Option confers the right to purchase, for each Share subject to the Option immediately prior to the Corporate Transaction, the consideration (whether stock, cash, or other securities or property) received in the Corporate Transaction by holders of Common Stock for each Share subject to the Option held on the effective date of the Corporate Transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Corporate Transaction was not solely common stock of the successor corporation or its parent or subsidiary, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option for each Share subject to the Option to be solely common stock of the successor corporation or its parent or subsidiary equal in fair market value to the per share consideration received by holders of Common Stock in the Corporate Transaction.
13. TIME OF GRANTING OPTIONS. Unless otherwise specified by the Committee, the date of grant of an Option under the Plan shall be the Grant Date. Notice of the determination shall be given to each Optionee to whom an Option is so granted within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided, however, that any such amendment (a) shall comply with all applicable laws and stock exchange listing requirements, and (b) with respect to an increase in the number of Shares which may be optioned and sold under the Plan, shall be subject to any approval by stockholders of the Company required under the Code and applicable stock exchange listing requirements. Any such amendment or termination of the Plan shall not affect Options already granted, and such Options shall remain in full force and effect as if the Plan had not been amended or terminated.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with respect to an Option granted under the Plan unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or Market upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.
16. RESERVATION OF SHARES. During the term of this Plan, the Company will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of
the nonissuance or sale of such Shares as to which such requisite authority shall not have been obtained.
17. INFORMATION TO OPTIONEE. During the term of any Option granted under the Plan, the Company shall provide or otherwise make available to each Optionee a copy of its annual financial statement and any other financial information provided to its stockholders in accordance with the provisions of the Company's Bylaws and applicable law.
18. OPTION AGREEMENT. Options granted under the Plan shall be evidenced by Option Agreements.
19. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the Plan is adopted by the Board. Except as provided otherwise in Section 3, any amendments to the Plan requiring stockholder approval must be approved by the affirmative vote of the holders of a majority of the outstanding shares of voting stock present or represented and entitled to vote at a duly held meeting at which a quorum is present, or by the written consent of the stockholders in the manner provided by California law.
* * *
MONOLITHIC SYSTEM TECHNOLOGY, INC.
2000 STOCK OPTION PLAN
FORM OF
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the 2000 Stock Option Plan (the "Plan") shall have the same defined meanings in this Stock Option Agreement.
I. AGREEMENT
1. GRANT OF OPTION. Monolithic Systems Technology, Inc., a California corporation (the "Company"), hereby grants to the Optionee (the "Optionee") named in the attached Notice of Stock Option Grant (the "Notice of Grant") an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the Plan, which is incorporated herein by reference.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an ISO as defined in
Section 422 of the Code. However, if this Option is intended to be an ISO, to
the extent that the aggregate Fair Market value of the Shares with respect to
which Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (under all plans of the Company) exceeds $100,000, such
Options shall be treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION. This Option shall be exercisable during its term in accordance with the provisions of Section 8 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) Subject to subsections 2(i)(b) through 2(i)(e) below, this Option shall be exercisable cumulatively according to the vesting schedule set out in the Notice of Grant. [Alternatively, at the election of the Optionee, this option may be exercised in whole or in part at any time as to Shares which have not yet vested.] For purposes of this Stock Option Agreement, Options shall vest based on continued employment of the Optionee with the Company. [Vested Shares shall not be subject to the Company's repurchase right (as set forth in the Restricted Stock Purchase Agreement, attached hereto as EXHIBIT C-1).]
(b) [As a condition to exercising this Option for unvested Shares, the Optionee shall execute the Restricted Stock Purchase Agreement.]
(c) This Option may not be exercised for a fraction of a Share.
(d) In the event of the Optionee's death, disability or other termination of the employment or consulting relationship, the exercisability of the Option is governed by Sections 6, 7 and 8 below, subject to the limitation contained in subsection 2(i)(e).
(e) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Grant.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by
written notice (in the form attached as EXHIBIT A) which shall state the
election to exercise the Option and the number of Shares in respect of which the
Option is being exercised pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and, [together with an executed copy of
the Restricted Stock Purchase Agreement, if applicable,] shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
[and Restricted Stock Purchase Agreement] shall be accompanied by payment of the
Exercise Price. This Option shall be deemed to be exercised upon receipt by the
Company of such written notice and Restricted Stock Purchase Agreement
accompanied by the Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.
3. THE OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, the Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as EXHIBIT B.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check; or
(iii) to the extent permitted by the Administrator, delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price.
The Optionee may elect to pay the exercise price by authorizing a third party to sell shares subject to this Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation. As a condition to the exercise of this Option, the Company may require the Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.
6. TERMINATION OF RELATIONSHIP. In the event an Optionee's Continuous Status as an Employee or Consultant terminates, the Optionee may, to the extent the Option was vested at the date of such termination (the "Termination Date"), exercise the Option during the Termination Period set out in the Notice of Grant. To the extent that the Optionee was not vested in the Option at the date of such termination, or if the Optionee does not exercise the Option within the time specified herein, the Option shall terminate.
7. DISABILITY OF THE OPTIONEE. Notwithstanding the provisions of
Section 5 above, in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the date
of such termination (and in no event later than the expiration date of the term
of such Option as set forth in the Stock Option Agreement), exercise the Option
to the extent the Option was vested at the date of such termination; provided,
however, that if such disability is not a "disability" as such term is defined
in Section 22(e)(3) of the Code, in the case of an ISO, such ISO shall cease to
be treated as an ISO and shall be treated for tax purposes as an NSO on the
ninety-first (91st) day following such termination. To the extent that the
Optionee is not vested in the Option at the date of termination, or if the
Optionee does not exercise such Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
8. DEATH OF THE OPTIONEE. In the event of the termination of the Optionee's Continuous Status as an Employee or Consultant as a result of the death of the Optionee, the Option may be exercised at any time within six (6) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 9 below) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent the Option was vested at the date of death. To the extent that the Optionee is not vested in the Option at the date of death, or if the Option is not exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
10. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the
terms of this Option. The limitations set out in Section 7 of the Plan regarding Options designated as ISOs and Options granted to more than ten percent (10%) stockholders shall apply to this Option.
11. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of this Option of some of the federal and state tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) EXERCISE OF ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability or state income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise.
(ii) EXERCISE OF ISO FOLLOWING DISABILITY. If the Optionee's Continuous Status as an Employee or Consultant terminates as a result of disability that is not total and permanent disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Optionee must exercise an ISO within three months of such termination for the Option to be qualified as an ISO.
(iii) EXERCISE OF NSO. There may be a regular federal income tax liability and state income tax liability upon the exercise of an NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If the Optionee is an Employee, the Company will be required to withhold from the Optionee's compensation or collect from the Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. If the Optionee is subject to Section 16 of the Securities Act of 1934, as amended, the date of income recognition may be deferred for up to six months.
(iv) DISPOSITION OF SHARES. In the case of an NSO, if Shares are held for more than one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and state income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for more than one year after exercise and are disposed of not earlier than two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and state income tax purposes. If Shares purchased under an ISO are disposed of within one-year after date of exercise or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares.
(v) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option granted to the Optionee herein is an ISO, and if the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that the Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee.
[(vi) SECTION 83(b) ELECTION FOR UNVESTED SHARES PURCHASED
PURSUANT TO NONQUALIFIED STOCK OPTIONS. With respect to the exercise of a nonqualified stock option for unvested Shares, an election may be filed by the Optionee with the Internal Revenue Service and, if necessary, the proper state taxing authorities, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase. This will result in a recognition of taxable income to the Optionee on the date of exercise, measured by the excess, if any, of the fair market value of the Shares, at the time the Option is exercised over the purchase price for the Shares. Absent such an election, taxable income will be measured and recognized by the Optionee at the time or times on which the Company's Repurchase Option lapses. The Optionee is strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing of the Election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as EXHIBIT C-4 for reference.
(vii) SECTION 83(b) ELECTION FOR UNVESTED SHARES PURCHASED PURSUANT TO INCENTIVE STOCK OPTIONS. With respect to the exercise of an incentive stock option for unvested Shares, an election may be filed by the Optionee with the Internal Revenue Service and, if necessary, the proper state taxing authorities, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase for alternative minimum tax purposes. This will result in a recognition of income to the Optionee on the date of exercise, for alternative minimum tax purposes, measured by the excess, if any, of the fair market value of the Shares, at the time the option is exercised, over the purchase price for the Shares. Absent such an election, alternative minimum taxable income will be measured and recognized by the Optionee at the time or times on which the Company's Repurchase Option lapses. The Optionee is strongly encouraged to seek the advice of his or her tax consultants in connection with the purchase of the Shares and the advisability of filing of the Election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) for alternative minimum tax purposes is attached hereto as EXHIBIT C-5 for reference.
THE OPTIONEE ACKNOWLEDGES THAT IT IS THE OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON THE OPTIONEE'S BEHALF.]
MONOLITHIC SYSTEM TECHNOLOGY, INC.
THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). THE OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 2000 STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON THE OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE THE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
The Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option Agreement subject to all of the terms and provisions thereof. The Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Option Agreement. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or this Option Agreement. The Optionee further agrees to notify the Company upon any change in the residence address indicated below.
Residence Address:
EXHIBIT A
2000 STOCK OPTION PLAN
EXERCISE NOTICE
Monolithic System Technology, Inc.
1020 Stewart Drive
Sunnyvale, California 94086
1. EXERCISE OF OPTION. Effective as of today, ___________, 20__, the undersigned (the "Optionee") hereby elects to exercise the Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of Monolithic System Technology, Inc. (the "Company") under and pursuant to the Monolithic System Technology, Inc. 2000 Stock Option Plan (the "Plan") and the Stock Option Agreement dated _________, 20__ (the "Option Agreement").
2. REPRESENTATIONS OF THE OPTIONEE. The Optionee acknowledges that the Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.
3. RIGHTS AS STOCKHOLDER. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan.
The Optionee shall enjoy rights as a stockholder until such time as the Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal, as defined below. Upon such exercise, the Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and the Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation.
4. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by the Optionee or any permitted transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares
shall deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee (the "Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and offering the Shares at the Offered Price to the Company and its assignee(s).
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(c) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check or wire transfer), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFER. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall terminate as to any Shares 90 days after the first sale of Common Stock of the Company to the general public
pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended.
5. MARKET STAND-OFF AGREEMENT. The Optionee hereby agrees that if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, the Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; [provided, however, that such restriction shall only apply to the first registration statement of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act.] The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period.
6. TAX CONSULTATION. The Optionee understands that the Optionee may suffer adverse tax consequences as a result of the Optionee's purchase or disposition of the Shares. The Optionee represents that the Optionee has consulted with any tax consultants the Optionee deems advisable in connection with the purchase or disposition of the Shares and that the Optionee is not relying on the Company for any tax advice.
7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The Optionee understands and agrees that the Company may cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares, together with any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
The Optionee understands that transfer of the Shares may be restricted by Section 260.141.11 of the Rules of the California Corporations Commissioner.
(b) STOP-TRANSFER NOTICES. The Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon the Optionee and his or her heirs, executors, administrators, successors and assigns.
9. INTERPRETATION. Any dispute regarding the interpretation of this Agreement shall be submitted by the Optionee or by the Company forthwith to the Company's Board of Directors or the committee thereof that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or committee shall be final and binding on the Company and on the Optionee.
10. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
11. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party.
12. FURTHER INSTRUMENTS. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.
13. DELIVERY OF PAYMENT. The Optionee herewith delivers to the Company the full Exercise Price for the Shares.
14. ENTIRE AGREEMENT. The Plan and Notice of Grant/Option Agreement are incorporated herein by reference. This Agreement, the Plan, the Option Agreement, the Restricted Stock Purchase
Agreement, and the Investment Representation Statement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and the Optionee with respect to the subject matter hereof.
Submitted by: Accepted by:
OPTIONEE: MONOLITHIC SYSTEM TECHNOLOGY, INC.
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(Print Name) By:
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(Signature) Title:
Address:
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EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : MONOLITHIC SYSTEM TECHNOLOGY, INC.
SECURITY : COMMON STOCK
AMOUNT :
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DATE :
In connection with the purchase of the above-listed Securities, the undersigned the Optionee represents to the Company the following:
(a) The Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. The Optionee is acquiring these Securities for investment for the Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act").
(b) The Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Optionee's investment intent as expressed herein. In this connection, the Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if the Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. The Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. The Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws.
(c) The Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that, if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) The Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. The Optionee understands that no assurances can be given that any such other registration exemption will be available in such event.
(e) The Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Commissioner of Corporations of California.
Print Name of The Optionee:
Signature of The Optionee
EXHIBIT C-1
2000 STOCK OPTION PLAN
FORM OF RESTRICTED
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ____________________________________ (the "Purchaser") and Monolithic System Technology, Inc., a California corporation (the "Company"), as of __________________, 20__.
RECITALS
Pursuant to the exercise of the stock option granted to the Purchaser under the Company's 2000 Stock Option Plan and pursuant to the Stock Option Agreement (the "Option Agreement") dated ___________, 20___ by and between the Company and the Purchaser with respect to such grant, which Option Agreement is hereby incorporated by reference, the Purchaser has elected to purchase _________ shares of the Company's Common Stock of which ________ shares are not, as of the date hereof, vested under the vesting schedule set forth in the Notice of Option Grant attached to the Option Agreement, shares of the Company's Common Stock that are not vested under said vesting schedule as of the date of determination are referred to in this Agreement as "Unvested Shares." The Unvested Shares and the shares subject to the Option Agreement that have become vested are sometimes collectively referred to herein as the "Shares."
As required by the Option Agreement, as a condition to the Purchaser's election to exercise the option, the Purchaser must execute and deliver this Restricted Stock Purchase Agreement, which sets forth the rights and obligations of the parties with respect to Shares acquired upon exercise of the Option.
2. REPURCHASE OPTION.
(a) If the Purchaser's employment or consulting relationship with the Company is terminated for any reason, including without limitation, for cause or on the death or disability of the Purchaser (a "Termination"), the Company shall have the right and option to purchase from the Purchaser, or the Purchaser's personal representative, as the case may be, all or any part of the Purchaser's Unvested Shares as of the date of such termination at the price paid by the Purchaser for such Unvested Shares (the "Repurchase Option").
(b) Upon the occurrence of a Termination, the Company may exercise its Repurchase Option by delivering personally or by registered mail, to the Purchaser (or his transferee or legal representative, as the case may be), within ninety (90) days of the Termination, a notice in writing indicating the Company's intention to exercise the Repurchase Option and setting forth a date for closing not later than thirty (30) days from the mailing of such notice. The closing shall take place at
the Company's office. At the closing, the holder of the certificates for the Unvested Shares being transferred shall deliver the stock certificate or certificates evidencing the Unvested Shares, and the Company shall deliver the purchase price therefor.
(c) If the Company does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within ninety (90) days following the termination, the Repurchase Option shall terminate.
3. TRANSFERABILITY OF THE SHARES; ESCROW.
(a) The Purchaser hereby authorizes and directs the secretary of the Company, or such other person designated by the Company, to transfer the Unvested Shares from the Purchaser to the Company.
(b) To insure the availability for delivery of the Purchaser's Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option under Section 1, the Purchaser hereby appoints the secretary, or any other person designated by the Company as escrow agent (either party, the "Escrow Agent"), as its attorney-in-fact to sell, assign and transfer unto the Company such Unvested Shares, if any, repurchased by the Company pursuant to the Repurchase Option. The Purchaser shall, upon execution of this Agreement, deliver and deposit with the Escrow Agent the share certificates representing the Unvested Shares, together with the stock assignment duly endorsed in blank, attached hereto as EXHIBIT C-2. The Unvested Shares and stock assignment shall be held by the Escrow Agent in escrow, pursuant to the Joint Escrow Instructions of the Company and the Purchaser attached as EXHIBIT C-3 hereto, until the Company exercises its purchase right as provided in Section 1, until such Unvested Shares are vested, or until such time as this Agreement no longer is in effect. Upon the vesting of all of the Unvested Shares, the Escrow Agent shall promptly deliver to the Purchaser the certificate or certificates representing such Shares in the Escrow Agent's possession belonging to the Purchaser, and the Escrow Agent shall be discharged of all further obligations hereunder; provided, however, that the Escrow Agent shall nevertheless retain such certificate or certificates as Escrow Agent if so required pursuant to other restrictions imposed pursuant to this Agreement.
(c) Neither the Company nor the Escrow Agent shall be liable for any act it may do or omit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee shall hold such Shares subject to all the provisions hereof and the Exercise Notice executed by the Purchaser with respect to any Unvested Shares and shall acknowledge the same by signing a copy of this Agreement.
3. MARKET STAND-OFF AGREEMENT. The Purchaser hereby agrees that, if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, the Purchaser shall not sell or
otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; [provided, however, that such restriction shall only apply to the first registration statement of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act.] The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period.
4. OWNERSHIP, VOTING RIGHTS, DUTIES. This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of the Purchaser, except as specifically provided herein.
5. LEGENDS. The share certificate evidencing the Shares issued hereunder shall be endorsed with the following legends (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND REPURCHASE OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF REPURCHASE ARE BINDING ON TRANSFEREES OF THESE SHARES.
6. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company after the date of this Agreement.
7. NOTICES. Notices required hereunder shall be given in person or by registered mail to the address of the Purchaser shown on the records of the Company, and to the Company, at their respective principal executive offices.
8. SURVIVAL OF TERMS. This Agreement shall apply to and bind the Purchaser and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.
9. SECTION 83(b) ELECTIONS.
(a) ELECTION FOR UNVESTED SHARES PURCHASED PURSUANT TO
NONQUALIFIED STOCK OPTIONS. The Purchaser hereby acknowledges that he or she has
been informed that, with respect to the exercise of a nonqualified stock option
for Unvested Shares, that unless an election is filed by the Purchaser with the
Internal Revenue Service and, if necessary, the proper state taxing authorities,
WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b)
of the Code (and similar state tax provisions if applicable) to be taxed
currently on any difference between the purchase price of the Shares and their
Fair Market Value on the date of purchase, there will be a recognition of
taxable income to the Optionee, measured by the excess, if any, of the fair
market value of the Shares, at the time the Company's Repurchase Option lapses
over the purchase price for the Shares. The Optionee represents that the
Optionee has consulted any tax consultant(s) the Optionee deems advisable in
connection with the purchase of the Shares or the filing of the Election under
Section 83(b) and similar tax provisions. A form of Election under Section 83(b)
is attached hereto as EXHIBIT C-4 for reference.
(b) ELECTION FOR UNVESTED SHARES PURCHASED PURSUANT TO INCENTIVE STOCK OPTIONS. The Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of an incentive stock option for Unvested Shares, that unless an election is filed by the Purchaser with the Internal Revenue Service and, if necessary, the proper state taxing authorities, WITHIN 30 DAYS of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase, there will be a recognition of income to the Optionee, for alternative minimum tax purposes, measured by the excess, if any, of the fair market value of the Shares, at the time the Company's Repurchase Option lapses over the purchase price for the Shares. The Optionee represents that the Optionee has consulted any tax consultant(s) the Optionee deems advisable in connection with the purchase of the Shares or the filing of the Election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) for alternative minimum tax purposes is attached hereto as EXHIBIT C-5 for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S BEHALF.
10. REPRESENTATIONS. The Purchaser has reviewed with his own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Purchaser understands that he (and not the Company) shall be responsible for his own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
11. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with applicable state laws.
The Purchaser represents that he has read this Agreement and is familiar with its terms and provisions. The Purchaser hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Agreement.
* * *
IN WITNESS WHEREOF, this Restricted Stock Purchase Agreement is deemed made as of the date first set forth above.
"COMPANY"
MONOLITHIC SYSTEM TECHNOLOGY, INC.
"PURCHASER"
EXHIBIT C-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and transfer unto _________________ (__________) shares of the Common Stock of Monolithic System Technology, Inc. standing in my name of the books of said corporation represented by Certificate No. _____ herewith and do hereby irrevocably constitute and appoint _________________ to transfer the said stock on the books of the corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between ________________________ and the undersigned dated ______________, 20__.
Dated: _______________, 20 _
INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its "repurchase option," as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser.
EXHIBIT C-3
JOINT ESCROW INSTRUCTIONS
, 20
----- --
Monolithic System Technology, Inc.
1020 Stewart Drive
Sunnyvale, California 94086
Attention: Corporate Secretary
|
As Escrow Agent for both Monolithic System Technology, Inc. (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Company's repurchase option set forth in the Agreement, the Company shall give to the Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. The Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company's repurchase option.
3. The Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. The Purchaser does hereby irrevocably constitute and appoint you as the Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, the Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you.
4. Upon written request of the Purchaser, but no more than once per calendar year, unless the Company's repurchase option has been exercised, you will deliver to the Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company's repurchase option. Within 120 days after cessation of the Purchaser's continuous employment by or services to the Company, or any parent or subsidiary of the Company, you will deliver to the Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company's repurchase option and this escrow shall terminate.
5. If at the time of the termination of this escrow you should have in your possession any documents, securities, or other property belonging to the Purchaser, you shall deliver all of the same to the Purchaser and shall be discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated to perform only such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for the Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary to advise you properly in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days' advance written notice to each of the other parties hereto.
COMPANY: Monolithic System Technology, Inc.
1020 Stewart Drive
Sunnyvale, California 94086
Attn.: Corporate Secretary
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PURCHASER:
ESCROW AGENT: [Corporate Secretary
Monolithic System Technology, Inc.
1020 Stewart Drive
Sunnyvale, California 94086]
16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of California.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
EXHIBIT C-4
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the above-referenced Federal Tax Code, to include in taxpayer's gross income for the current taxable year, the amount of any compensation taxable to taxpayer in connection with his receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME: TAXPAYER: __________________ SPOUSE: ___________________
ADDRESS: _______________________________________________
IDENTIFICATION NO.: TAXPAYER: ________________ SPOUSE: ______________
TAXABLE YEAR: ________________________
2. The property with respect to which the election is made is described as follows: shares (the "Shares") of the Common Stock of Monolithic System Technology, Inc. (the "Company").
3. The date on which the property was transferred is: __________, 20__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, on certain events. This right lapses with regard to a portion of the Shares based on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: ___________________, 20__ _________________________________________
(signature of Taxpayer)
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 20__ _____________________________________________
EXHIBIT C-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the provisions of Sections 55-56 and 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer's alternative minimum taxable income for the current taxable year, as compensation for services, the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property.
1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME: TAXPAYER: ____________________ SPOUSE: _____________________
ADDRESS: __________________________________________________________________
IDENTIFICATION NO.: TAXPAYER: _________________ SPOUSE: ________________
TAXABLE YEAR: _______________________
2. The property with respect to which the election is made is described as follows: __________ shares (the "Shares") of the Common Stock of Monolithic System Technology, Inc. (the "Company").
3. The date on which the property was transferred is: _______________.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, at its original purchase price, on certain events. This right lapses with regard to a portion of the Shares over time.
5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is:
$_______________
6. The amount paid for such property is:
$_______________
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: _________________________, Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 20__ _____________________________________________
Exhibit 10.6
MONOLITHIC SYSTEM TECHNOLOGY, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.
2. DEFINITIONS.
"BOARD" shall mean the Board of Directors of the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" shall mean the Common Stock of the Company.
"COMPANY" shall mean Monolithic System Technology, Inc. and any Designated Subsidiary of the Company.
"COMPENSATION" shall mean all base, straight-time gross salary, commissions and payments for overtime.
"DESIGNATED SUBSIDIARY" shall mean a Subsidiary designated by the Board.
"EMPLOYEE" shall mean any individual who is an Employee of the Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the 91st day of such leave.
"ENROLLMENT DATE" shall mean the first day of each Offering Period.
"EXERCISE DATE" shall mean the last Trading Day of the six-month period following the Enrollment Date and the last Trading Day of each Offering Period.
"FAIR MARKET VALUE" shall mean, as of any date, the value of Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sale price for the Common Stock (or the
mean of the closing bid and asked prices, if no sales were reported), as quoted on such exchange (or the exchange with the greatest volume of trading in Common Stock) or system on the date of determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable, or;
(2) If the Common Stock is quoted on The Nasdaq Stock Market (but not on the National Market) or is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common Stock, its Fair Market Value shall be determined in good faith by the Board.
(4) For purposes of the Enrollment Date under the first Offering Period, the Fair Market Value shall be the initial price to the public as set forth in the final Prospectus included within the Registration Statement on Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock.
"INITIAL OFFERING PERIOD" shall mean the period beginning upon the date on which the agreement between the Company and the underwriter(s) managing the initial public offering of the Common Stock is executed and the Common Stock is priced for the initial public offering, and ending on the third Enrollment Date; provided that the Board shall designated a subsequent start date for the Initial Offering Period applicable to employees of an entity that becomes a parent or Designated Subsidiary of the Company during the Initial Offering Period.
"OFFERING PERIODS" shall mean overlapping twelve (12)-month periods during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after January 1 and July 1 of each year and terminating on the last Trading Day in the period ending twelve months later. The duration and timing of Offering Periods, including the Initial Offering Period, may be changed pursuant to Section 4 of this Plan.
"PLAN" shall mean this 2000 Employee Stock Purchase Plan.
"PURCHASE PERIOD" shall mean each of two six-month periods during an Offering Period, the first commencing on the Enrollment Date and ending with the first Exercise Date during the Offering Period and the second commencing on the first Exercise Date during the Offering Period and ending on the second Exercise Date during the Offering Period.
"PURCHASE PRICE" shall mean an amount equal to 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower.
"RESERVES" shall mean the number of shares of Common Stock covered by each option under the Plan that have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option.
"RULE 16b-3" shall mean Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or any successor provision.
"SUBSIDIARY" shall mean a "subsidiary corporation," as that term is defined in Section 424(f) of the Code.
"TRADING DAY" shall mean a day on which national stock exchanges or The Nasdaq Stock Market, as applicable, are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan if (i) immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) the option would cause his or her rights to purchase stock under all employee stock purchase plans of the Company and its Subsidiaries to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair Market Value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive, overlapping Offering Periods with a new Offering Period commencing on the first Trading Day on or after January 1 and July 1 each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 19. The Initial Offering Period shall begin as set forth in Section 2. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of EXHIBIT A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first payroll date following the Enrollment Date and shall end on the last payroll date in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding ten percent (10%) of the Compensation which he or she receives on each payroll date during the Offering Period.
(b) All payroll deductions made for a participant will be credited to his or her account under the Plan and will be withheld in whole percentages only. A participant may not make any payment into such account other than by means of payroll deductions.
(c) A participant may discontinue his or her participation in the Plan as provided in Section 10 by completing and filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective in the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement, unless the Company elects in its sole discretion to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods, unless terminated as provided in Section 10.
(d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b), a participant's payroll deductions may be decreased to 0% at such time during any Purchase Period which is scheduled to end during the current calendar year (the "Current Purchase Period") that the aggregate of all payroll deductions which were previously used to purchase stock under the Plan in a prior Purchase Period which ended during that calendar year plus all payroll deductions accumulated with respect to the Current Purchase Period equal $25,000. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10.
(e) Each participant who purchases shares of Common Stock under the Plan shall thereby be deemed to have agreed that the Company or the Subsidiary that employs the participant shall be entitled to withhold, from any other amounts that may be payable to the participant at or around the time of the purchase, such federal, state, local and foreign income, employment and other taxes which may be required to be withheld under applicable laws. In lieu of such withholding, the Company or such subsidiary may require the participant to remit such taxes to the Company or such Subsidiary as a condition of the purchase.
7. GRANT OF OPTION. On each Enrollment Date, each eligible Employee participating in the Offering Period shall be granted an option to purchase, on each applicable Exercise Date during such Offering Period, at the applicable Purchase Price, up to a number of shares of the Company's Common Stock determined by dividing (a) such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the participant's account as of the
Exercise Date by (b) the applicable Purchase Price; provided that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of shares will be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares will be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share of Common Stock shall be retained in the participant's account for the subsequent Offering Period, subject to earlier withdrawal by the participant as provided in Section 10. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all of the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of EXHIBIT B to this Plan. All of the participant's payroll deductions credited to his or her account will be paid to such participant, and such participant's option for the Offering Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions will not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee, for any reason, he or she will be deemed to have elected to withdraw from the Plan, and the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option will be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 14, and such participant's option will be automatically terminated.
11. INTEREST. No interest shall accrue on the payroll deductions of a participant in the Plan.
12. STOCK.
(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 18, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 200,000, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001 equal to the lesser of either
(I) 100,000 shares or (ii) one percent of the outstanding shares on such date, or a lesser amount determined by the Board. If, on a given Exercise Date, the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable.
(b) No participant will have any interest or voting right in shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse, at the participant's election.
13. ADMINISTRATION.
(a) ADMINISTRATIVE BODY. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret, and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision, and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties.
(b) RULE 16b-3 LIMITATION. Notwithstanding the provisions of subsection (a) of this Section 13, in the event that Rule 16b-3 provides specific requirements for the administrators of plans of this type, the Plan shall be only administered by such a body and in such a manner as shall comply with the applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion concerning decisions regarding the Plan shall be afforded to any committee or person that is not "disinterested," as that term is used in Rule 16b-3.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash
to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
15. TRANSFERABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 14) by the participant. Any such attempt at assignment, transfer, pledge, or other disposition shall be without effect, and the Company shall treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10.
16. USE OF FUNDS. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.
17. REPORTS. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. DISSOLUTION, LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the Reserves and the price per share of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; PROVIDED, HOWEVER, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Offering Periods will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in
lieu of such assumption or substitution, to shorten the Offering Periods then
in progress by setting a new Exercise Date (the "New Exercise Date"). If the
Board shortens the Offering Periods then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall
notify each participant in writing, at least ten (10) business days prior to
the New Exercise Date, that the Exercise Date for his or her option has been
changed to the New Exercise Date and that his or her option will be exercised
automatically on the New Exercise Date unless prior to such date he or she
has withdrawn from the Offering Period as provided in Section 10. For the
purposes of this paragraph, an option granted under the Plan shall be deemed
to be assumed if, following the sale of assets or merger, the option confers
the right to purchase, for each share of Common Stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets
or merger by holders of Common Stock for each share of Common Stock held on
the effective date of the transaction (and if such holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that
if such consideration received in the sale of assets or merger was not solely
common stock of the successor corporation or its parent (as defined in
Section 424(e) of the Code), the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its
parent equal in fair market value to the per share consideration received by
holders of Common Stock in the sale of assets or merger.
19. AMENDMENT OR TERMINATION.
(a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 18 or this Section 19, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board on any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Company and its stockholders. Except as provided in Section 18 or this Section 19, no amendment may make any change in any option previously granted which adversely affects the rights of any participant with regard to such previously issued option. To the extent necessary to comply with Rule 16b-3 or Section 423 of the Code (or any successor rule or provision or any other applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amounts withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan.
20. NOTICE. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
21. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
22. TERM OF PLAN. The Plan shall become effective upon the date on which the agreement between the Company and the underwriter(s) managing the initial public offering of the Common Stock is executed and the Common Stock is priced for the initial public offering, and shall continue in effect for a term of ten (10) years unless sooner terminated under Section 19.
23. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof.
EXHIBIT A
MONOLITHIC SYSTEM TECHNOLOGY, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
FORM OF SUBSCRIPTION AGREEMENT
MONOLITHIC SYSTEM TECHNOLOGY, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ________________ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) |
1. _____________________________ hereby elects to participate in the Monolithic System Technology, Inc. 2000 Employee Stock Purchase Plan (the "Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Plan.
2. I hereby authorize payroll deductions from each paycheck in
the amount of _______% of my Compensation on each payday
during the Offering Period in accordance with the Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Plan. I understand that, if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option.
4. I have received a copy of the Plan. I understand that my participation in the Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to obtaining stockholder approval of the Plan.
6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased over the price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES, AND I WILL MAKE ADEQUATE
PROVISION FOR FEDERAL, STATE, OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (a) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares or (b) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan.
8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Plan:
----------------------------- --------------------------------------
Relationship Signature
--------------------------------------
Print Name
Address:
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[Monolithic System Technology, Inc. ESPP Subscription Form]
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
[Monolithic System Technology, Inc. ESPP Subscription Form]
EXHIBIT B
MONOLITHIC SYSTEM TECHNOLOGY, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
MONOLITHIC SYSTEM TECHNOLOGY, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I am a participant in the Offering Period of the Monolithic System Technology, Inc. 2000 Employee Stock Purchase Plan which began on ______________________, 20_____ (the "Enrollment Date"). I hereby notify the Company that I hereby withdraw from the Offering Period. I hereby direct the Company to pay me all the payroll deductions credited to my account with respect to such Offering Period. I understand and agree that my option for such Offering Period will be automatically terminated. I understand further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and I will be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant
Signature
Exhibit 10.7
STANDARD INDUSTRIAL LEASE
BY AND BETWEEN
MCCANDLESS PROPERTIES
AS LANDLORD
AND
MONOLITHIC SYSTEM TECHNOLOGY, INC.
AS TENANT
LEASE
THIS LEASE is made this 24th day of September, 1996, by and between McCandless Properties, a California limited partnership, ("Landlord") and Monolithic System Technology, Inc., a California corporation ("Tenant").
WITNESSETH:
Landlord leases to Tenant and Tenant leases from Landlord those certain premises outlined in red on Exhibit A (the "Premises") commonly known as 1020 Stewart Drive, Sunnyvale, California, which Landlord and Tenant hereby agree consists of approximately eight thousand (8,000) square feet in 10121020 Stewart Drive, Sunnyvale, California (the "Project"). As used herein the term Project shall mean and include all of the land described in Exhibit B and all the buildings, improvements, fixtures and equipment now or hereafter situated on said land.
Tenant covenants, as a material part of the consideration of this lease, to perform and observe each and all of the terms, covenants and conditions set forth below, and this lease is made upon the condition of such performance and observance.
1. USE
Subject to the restrictions contained in paragraph 6 hereof, Tenant shall use the Premises for sales, marketing, research and development, testing, storage, light assembly and distribution of electronic products and general office and administrative uses and shall not use or permit the Premises to be used for any other purpose.
2. TERM
(a) The term shall be for five (5) years (unless sooner terminated as hereinafter provided) and, subject to paragraphs 2(b) and 3, shall commence on November 15, 1996 and end on November 14, 2001. In the event the existing tenant vacates the Premises and Landlord obtains legal possession of the Premises before the October 31, 1996 expiration of the existing tenant's term in the Premises and such existing tenant enters into a written early termination agreement with Landlord, Tenant may, at its option, occupy the Premises early, in which case the term shall commence upon the sooner of November 15, 1996 or the date of such occupancy by Tenant.
3. POSSESSION
(a) If Landlord for any reason cannot deliver possession of the Premises to Tenant by the date of commencement set forth in paragraph 2, this lease shall not be void or voidable, Landlord shall not be liable to Tenant for any loss or damage on account thereof and Tenant shall not be liable
for rent until Landlord delivers possession of the Premises. If the term commences on a date other than the date specified in paragraph 2 above, then the parties shall immediately execute an amendment to this lease stating the actual date of commencement and the revised expiration date. The expiration date of the term shall be extended by the same number of days that Tenant's possession of the Premises was delayed from that set forth in paragraph 2. Tenant acknowledges that the Premises are currently subject to a lease between Landlord and Helios, Inc./Phase Metrics, which does not expire until October 31, 1996, and that this lease shall not commence until Landlord has obtained legal possession of the Premises, which may include a written termination agreement between Landlord and Helios/Phase Metrics regarding same.
Notwithstanding the above, if Landlord is unable to deliver possession
of the Premises by December 31, 1996 (plus such number of days of delay caused
by Tenant or other causes beyond Landlord's reasonable control except the
holdover of the existing tenant in the Premises which shall be deemed within
Landlord's control), then Tenant may, at its option (exercisable only within
(10) ten days of following such date) and as its sole remedy terminate this
lease, provided if Tenant fails to timely exercise such right Tenant's right to
terminate shall lapse. If Tenant elects to terminate this lease as provided in
this paragraph, all amounts deposited with Landlord by Tenant shall be returned
to Tenant and Landlord shall not be liable to Tenant for any loss, damage or
expense resulting from Landlord's failure to deliver possession.
(b) Tenant's inability or failure to take possession of the Premises when delivery is tendered by Landlord shall not delay the commencement of the term of this lease or Tenant's obligation to pay rent. Tenant acknowledges that Landlord shall incur significant expenses upon the execution of this lease, even if Tenant never takes possession of the Premises, including without limitation brokerage commissions and fees and legal and other professional fees. Tenant acknowledges that all of said expenses shall be included in measuring Landlord's damages should Tenant breach the terms of this lease.
4. MONTHLY RENT
(a) BASIC RENT. Tenant shall pay to Landlord as basic rent for the Premises, in advance and subject to adjustment as provided in paragraph 5, the sum of Ten Thousand Four Hundred and 00/100 Dollars ($10,400.00) on or before the first day of the first full calendar month of the term and on or before the first day of each and every successive calendar month. Basic rent for any partial month shall be payable in advance and shall be prorated at the rate of 1/30th of the monthly basic rent per day.
Notwithstanding the above, Tenant shall not be required to pay to Landlord basic rent during the first (15) fifteen days of the term.
(b) COMMON AREA CHARGES. In addition to the above basic rent, and as additional rent, Tenant shall pay to Landlord, subject to adjustments and reconciliation as provided in paragraph 16 of this lease, the sum of One Thousand One Hundred Thirty-Three and 00/100 Dollars ($1,133.00) on or before the first day of the first full calendar month of the term and on the first day of each and every succeeding calendar month, said sum representing Tenant's estimated payment of its percentage share of common area charges as provided for in paragraph 16 of this lease. Payment of
common area charges for any partial month shall be payable in advance and shall be prorated at the rate of 1/30th of the monthly payment of common area charges per day.
(c) MANNER AND PLACE OF PAYMENT. All payments of basic rent and common area charges shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America, at the office of Landlord at 360 S. San Antonio Road, Suite 14, Los Altos, California 94022 or to such other person or place as Landlord may from time to time designate in writing.
(d) FIRST MONTH'S RENT. Concurrently with Tenant's execution of this lease, Tenant shall deposit with Landlord, the sum of Eleven Thousand Five Hundred and Thirty-Three and 00/100 Dollars ($11,533.00), to be applied against the basic rent and common area charges for the first lease month of the term.
(e) SECURITY DEPOSIT. Concurrently with Tenant's execution of this lease, Tenant shall deposit with Landlord the sum of Sixty Six Thousand and 00/100 Dollars ($66,000.00), which sum shall be held by Landlord as a security deposit for the faithful performance by Tenant of all of the terms, covenants and conditions of this lease to be kept and performed by Tenant. If Tenant defaults with respect to any provision of this lease, including but not limited to, the provisions relating to the payment of basic rent and common area charges, Landlord may (but shall not be required to) use, apply, or retain all or any part of this security deposit for the payment of any amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of default. If any portion of said deposit is so used, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the security deposit to its original amount; Tenant's failure to do so shall be a material breach of this lease. Landlord shall not be required to keep this security deposit separate from its general funds and Tenant shall not be entitled to interest on such deposit. If Tenant is not in default at the expiration or termination of this lease, the security deposit or any balance thereof shall be returned to Tenant after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this lease, Landlord shall transfer said deposit to Landlord's successor in interest, and Tenant agrees that Landlord shall thereupon be released from liability for the return of such deposit or any accounting therefor.
Notwithstanding the above and provided that Tenant is not in default
under any of the terms and conditions of this lease, Landlord shall credit such
security deposit against monthly basic rent due for the third (3rd), fifteenth
(15th), twenty-seventh (27th), thirty-ninth (39th) and fifty-first (51rst) lease
months of the term in the amounts of $10,400.00, $10,400.00, $10,800.00,
$11,200.00 and $11,600.00 respectively. Once Landlord has granted all such
security deposit credits as described above, the remaining security deposit held
by Landlord shall amount to Eleven Thousand Six Hundred and 00/100 Dollars
($11,600.00).
5. ADJUSTMENT OF BASIC RENT
The basic rent provided for in paragraph 4(a) shall be adjusted periodically and the monthly basic rent for each period shall be as set forth below:
Lease Months 1-12 $10,400.00 per month
Lease Months 13-24 $10,400.00 per month
Lease Months 25-36 $10,800.00 per month
Lease Months 37-48 $11,200.00 per month
Lease Months 49-60 $11,600.00 per month
6. RESTRICTION ON USE
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Tenant shall not do or permit to be done in or about the Premises or the Project, nor bring or keep or permit to be brought or kept in or about the Premises or Project, anything which is prohibited by or will in any way increase the existing rate of, or otherwise affect, fire or any other insurance covering the Project or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Project or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in or about the Premises or the Project which will constitute waste or which will in any way obstruct or interfere with the rights of other tenants, business invitees or occupants of the Project or injure or annoy them, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises or the Project. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not use the Premises for the preparation, or mixing of anything that might emit any objectionable odor, noise or light into the adjoining premises or Common Area. Tenant shall not do anything on the Premises that will cause damage to the Project and Tenant shall not overload the floor capacity of the Premises or the Project. No machinery, apparatus or other appliance shall be used or operated in or on the Premises that will in any manner injure, vibrate or shake the Premises. Landlord shall be the sole judge, of whether such odor, noise, light or vibration is such as to violate the provisions of this paragraph. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or the Project except in trash containers placed inside exterior enclosures designated for that purpose by Landlord, or where otherwise designated by Landlord; and no toxic or hazardous materials shall be disposed of through the plumbing or sewage system. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored or permitted to remain outside of the building proper. No retail sales shall be made on the Premises.
7. COMPLIANCE WITH LAWS
Tenant shall, in connection with its use and occupation of the Premises, at its sole cost and expense, promptly observe and comply with (i) all laws, statutes, ordinances and governmental rules, regulations and requirements now or hereafter in effect, (ii) with the requirements of any board of fire underwriters or other similar body now or hereafter constituted and (iii) with any direction or occupancy certificate issued pursuant to law by any public authority; provided, however, that no such failure shall be deemed a breach of these provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant (whether or not Landlord is a party thereto) that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This lease shall remain in full force and effect notwithstanding any loss of use or other effect on
Tenant's enjoyment of the Premises by reason of any governmental laws, statutes, ordinances, rules, regulations and requirements now or hereafter in effect.
Notwithstanding the above, Landlord shall, at Landlord's sole cost and expense, make any additions or changes to the Premises required to bring the Premises into compliance with laws, statutes, ordinances and governmental rules, regulations or requirements (except for the Americans with Disabilities Act referenced below), as in effect at the execution date of this lease.
Landlord and Tenant hereby acknowledge that the Americans with Disabilities Act may affect Tenant's use and occupancy of the Premises and require Tenant to modify or alter the design, layout or other physical elements of the interior of the Premises or provide auxiliary aids and services in connection with its business operations. Tenant shall comply in all respects with the requirements of the Americans with Disabilities Act as it affects Tenant's use and occupancy of the Premises throughout the term of the lease, as may be extended, and Tenant acknowledges and agrees that, notwithstanding any modifications to the Common Area which may be made by Landlord in order to conform such areas with the requirements of the Americans with Disabilities Act, Landlord makes no representations or warranties regarding the compliance of the Premises or the Project with the Americans with Disabilities Act, nor shall Landlord have any obligations or liabilities to Tenant to construct any modifications or alterations to the interior of the Premises in order to comply with the Americans with Disabilities Act.
8. ALTERATIONS
Tenant shall not make or suffer to be made any alteration, addition or
improvement to or of the Premises or any part thereof (collectively referred to
herein as "alterations") without (i) the prior written consent of Landlord
(which consent shall not be unreasonably withheld), (ii) a valid building permit
issued by the appropriate governmental authority and (iii) otherwise complying
with all applicable laws, regulations and requirements of governmental agencies
having jurisdiction and with the rules, regulations and requirements of any
board of fire underwriters or similar body. Any alteration made by Tenant
(excluding moveable furniture and trade fixtures not attached to the Premises)
shall at once become a part of the Premises and belong to Landlord. Without
limiting the foregoing, all heating, lighting, electrical (including all wiring,
conduit, outlets, drops, buss ducts, main and subpanels), air conditioning,
partitioning, drapery and carpet installations made by Tenant, regardless of how
attached to the Premises, together with all other alterations that have become
an integral part of the Project in which the Premises are a part, shall be and
become part of the Premises and belong to Landlord upon installation and shall
not be deemed trade fixtures, and shall remain upon and be surrendered with the
Premises at the termination of the lease.
If Landlord consents to the making of any alteration by Tenant, the same shall be made by Tenant at its sole risk, cost and expense and only after Landlord's written approval of any contractor or person selected by Tenant for that purpose, and the same shall be made at such time and in such manner as Landlord may from time to time designate. Tenant shall, if required by Landlord, secure at Tenant's cost a completion and lien indemnity bond for such work. Upon the expiration or sooner termination of the term, Landlord may, at its sole option, require Tenant, at Tenant's sole cost and expense, to promptly both remove any such alteration made by Tenant and designated by Landlord to be removed and repair any damage to the Premises caused by such removal. Any moveable furniture and equipment or trade fixtures remaining on the Premises at the expiration or other
termination of the term shall become the property of the Landlord unless promptly removed by Tenant.
If during the term any alteration, addition or change of the Premises is required by law, regulation, ordinance or order of any public authority, Tenant, at its sole cost and expense, shall promptly make the same. If during the term any alterations, additions or changes to the Common Area or to the Project in which the Premises is located is required by law, regulation, ordinance or order of any public or quasipublic authority, and it is impractical in Landlord's judgment for the affected tenants to individually make such alterations, additions or changes, Landlord shall make such alterations, additions or changes and the cost thereof shall be a common area charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16.
9. REPAIR AND MAINTENANCE
By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair (excepting only "punchlist items"). Except as expressly provided below, Tenant shall at its sole cost keep and maintain the entire Premises and every part thereof including, without limitation, the windows, window frames, plate glass, glazing, elevators within the Premises, truck doors, doors and all door hardware, the interior walls and partitions, lighting and the electrical, mechanical, and plumbing systems. Tenant shall also repair and maintain the heating and air conditioning systems (unless Landlord has elected to keep and maintain the heating and air conditioning systems as provided below) which shall include, without limitation, a periodic maintenance agreement with a reputable and licensed heating and air conditioning service company. If Tenant's use of the heating and air conditioning systems is limited to normal business hours (8:00 a.m. to 6:00 p.m.), such agreement shall provide for service at least as often as every 60 days; if Tenant's use of the heating or air conditioning systems extends beyond such normal business hours this service shall be as often as may be reasonably required by landlord and in any event such service shall meet all warranty enforcement requirements of such equipment and comply with all manufacturer recommended maintenance. In the event that Tenant does not maintain the heating and air conditioning systems as provided for herein, Landlord may elect, at its option, to keep and maintain the heating and air conditioning systems of the premises and in such event, Tenant shall pay to Landlord upon demand the full cost of such maintenance.
Subject to the provisions of paragraph 17, Landlord shall keep and maintain the roof, structural elements, and exterior walls of the buildings constituting the Project and Common Area in good order and repair. Tenant waives all rights under and benefits of California Civil Code Sections 1932(l), 1941, and 1942 and under any similar law, statute or ordinance now or hereafter in effect. The cost of the repairs and maintenance which are the obligation of Landlord hereunder, including without limitation, maintenance contracts and supplies, materials, equipment and tools used in such repairs and maintenance shall be a common area charge and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraph 16; provided, however, that if any repairs or maintenance is required because of an act or omission of Tenant, or its agents, employees or invitees, Tenant shall pay to Landlord upon demand the full cost of such repairs or maintenance.
Notwithstanding anything to the contrary herein, Landlord shall deliver the Premises with the roof, parking lot, ceiling tiles, air conditioning and heating systems, electrical, lighting and plumbing systems and interior lighting in good working order and repair as of the commencement of
the term. During the first ninety (90) days of the term, Landlord shall, at Landlord's expense, make all necessary repairs or replacements to the heating, ventilating and air-conditioning system necessary to maintain such system in good working order and repair.
10. LIENS
Tenant shall keep the Premises and the Project free from any liens
arising out of any work performed, materials furnished or obligations incurred
by Tenant, its agents, employees or contractors. Upon Tenant's receipt of a
preliminary twenty (20) day notice filed by claimant pursuant to California
Civil Code Section 3097, Tenant shall immediately provide Landlord with a copy
of such notice. Should any such lien be filed against the Project, Tenant shall
give immediate notice of such lien to Landlord. In the event that Tenant shall
not, within ten (10) days following the imposition of such lien, cause the same
to be released of record, Landlord shall leave, in addition to all other
remedies provided herein and by law, the right, but no obligation, to cause the
same to be released by such means as it shall deem proper, including payment of
the claim giving rise to such lien. All sums paid by Landlord for such purpose,
and all expenses (including attorneys' fees) incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
rate of ten percent (10%) per annum or the maximum rate permitted by law,
whichever is less. Landlord shall have the right at all times to post and, keep
posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper for the protection of Landlord, the Premises and the
Project and any other party having an interest therein, from mechanics' and
material men's liens and like liens. Tenant shall give Landlord at least fifteen
(15) days prior notice of the date of commencement of any construction on the
Premises in order to permit the posting of such notices. In the event Tenant is
required to post an improvement bond with a public agency in connection with any
work performed by Tenant on or to the Premises, Tenant shall include Landlord as
an additional obligee.
11. INSURANCE
Tenant, at its sole cost and expense, shall keep in force during the term (i) commercial general liability and property damage insurance with a combined single limit of at least $2,000,000 per occurrence insuring against personal or bodily injury to or death of persons occurring in, on or about the Premises or Project and any and all liability of the insured with respect to, the Premises or arising out of Tenant's maintenance, use or occupancy of the Premises and all areas appurtenant thereto, (ii) direct physical loss-special insurance covering the leasehold improvements in the Premises and all of Tenant's equipment, trade fixtures, appliances, furniture, furnishings, and personal property from time to time located in, on or about the Premises, with coverage in the amount of the full replacement cost thereof, and (iii) Worker's Compensation Insurance as required by law, together with employer's liability coverage with a limit of not less than $1,000,000 for bodily injury for each accident and for bodily injury by disease for each employee. Tenant's commercial general liability and property damage insurance and Tenant's Workers Compensation Insurance shall be endorsed to provide that said insurance shall not be canceled or reduced except upon at least thirty (30) days prior written notice to Landlord. Further, Tenant's commercial general liability and property damage insurance shall be primary and shall name Landlord and McCandless Simons Company, Inc., and their respective partners, officers, directors and employees and such other persons or entities as directed from time to time by Landlord as additional insured for all liability using ISO Bureau Form CG20111185 (or a successor form); shall contain a severability of
interest clause and a cross-liability endorsement; shall be endorsed to provide that the limits and aggregates apply per location using ISO Bureau Form CG25041185; and shall be issued by an insurance company admitted to transact business in the State of California and rated A+VIII or better in Best's Insurance Reports (or successor report). The deductibles for all insurance required to be maintained by Tenant hereunder shall be reasonably satisfactory to Landlord. The commercial general liability insurance carried by Tenant shall specifically insure the performance by Tenant of the indemnification provisions set forth in paragraph 18 of this lease provided, however, nothing contained in this paragraph 11 shall be construed to limit the liability of Tenant under the indemnification provisions set forth in said paragraph 18. If Landlord or any of the additional insured named on any of Tenant's insurance, have other insurance which is applicable to the covered loss on a contributing, excess or contingent basis, the amount of the Tenant's insurance company's liability under the policy of insurance maintained by Tenant shall not be reduced by the existence of such other insurance. Any insurance carried by Landlord or any of the additional insured named on Tenant's insurance policies shall be excess and non-contributing with the insurance so provided by Tenant.
Tenant shall, prior to the commencement of the term, provide Landlord with a completed Certificate of Insurance, using a form acceptable in Landlord's reasonable judgment, attaching thereto copies of all endorsements required to be provided by Tenant under this lease. Tenant agrees to increase the coverage or otherwise comply with changes in connection with said commercial general liability, property damage, direct physical loss and Worker's Compensation Insurance as Landlord or Landlord's lender may from time to time require.
Landlord shall obtain and keep in force a policy or policies of
insurance covering loss or damage to the Premises and Project, in the amount of
the full replacement value thereof, providing protection against those perils
included within the classification of "all risk" insurance, with increased cost
of reconstruction and contingent liability (including demolition), plus a policy
of rental income insurance in the amount of one hundred percent (100%) of twelve
(12) months' rent (including sums paid as additional rent) and such other
insurance as Landlord or Landlord's lender may from time to time require.
Landlord may, but shall not be obligated to, also obtain flood and/or earthquake
insurance. Landlord shall have no liability to Tenant if Landlord elects not to
obtain flood and/or earthquake insurance. The cost of all such insurance
purchased by Landlord, plus any charges for deferred payment of premiums and the
amount of any deductible incurred upon any covered loss within the Project,
shall be common area charges and Tenant shall pay to Landlord its percentage
share of such costs as provided in paragraph 16; provided, however, that the
cost of any earthquake deductible shall be treated as a capital expenditure as
described in paragraph 56. If the cost of insurance is increased due to Tenant's
use of the Premises, then Tenant shall pay to Landlord upon demand the full cost
of such increase.
Landlord and Tenant hereby mutually waive any and all rights of recovery against one another for real or personal property loss or damage occurring to the Premises or the Project, or any part thereof, or to any personal property therein, from perils insured against under fire and extended insurance and any other property insurance policies existing for the benefit of the respective parties so long as such insurance permits waiver of liability and contains a waiver of subrogation without additional premiums.
If Tenant does not take out and maintain insurance as required pursuant to this paragraph 11, Landlord may, but shall not be obligated to, take out the necessary insurance and pay the premium therefor, and Tenant shall repay to Landlord promptly on demand, as additional rent, the amount so paid. In addition, Landlord may recover from Tenant and Tenant agrees to pay, as additional rent, any and all reasonable expenses (including attorney fees) and damages which Landlord may sustain by reason of the failure of Tenant to obtain and maintain such insurance, it being expressly declared that the expenses and damages of Landlord shall not be limited to the amount of the premiums thereon.
12. UTILITIES AND SERVICE
Tenant shall pay for all water, gas, light, heat, power, electricity, telephone, trash pickup, sewer charges and all other services supplied to or consumed on the Premises. In the event that any service is not separately metered or billed to the Premises, the cost of such utility service or other service shall be a common area charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16. In addition, the cost of all utilities and services furnished by Landlord to the Common Area shall be a common area charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16.
If Tenant's use of any such utility or service is materially in excess of the average furnished to the other tenants of the Project, and such utility or service is not separately metered, then Tenant shall pay to Landlord upon demand, as additional rent, the full cost of such excess use, or Landlord may cause such utility or service to be separately metered, in which case Tenant shall pay the full cost of such utility or service and reimburse Landlord upon demand for the cost of installing the separate meter.
Landlord shall not be liable for, and Tenant shall not be entitled to any abatement or reduction of rent by reason of, the failure of any person or entity to furnish any of the foregoing services when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, governmental moratoriums, regulations or other governmental actions, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. In addition, Tenant shall not be relieved from the performance of any covenant or agreement in this lease because of any such failure, and no eviction of Tenant shall result from such failure.
13. TAXES AND OTHER CHARGES
All real estate taxes and assessments and other taxes, fees and charges of every kind or nature, foreseen or unforeseen, which are levied, assessed or imposed upon Landlord and/or against the Premises, building, Common Area or Project, or any part thereof by any federal, state, county, regional, municipal or other governmental or quasi-public authority, together with any increases therein for any reason, shall be a common area charge and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraph 16. By way of illustration and not limitation, "other taxes, fees and charges" as used herein include any and all taxes payable by Landlord (other than state and federal personal or corporate income taxes measured by the net income of Landlord from all sources, and premium taxes), whether or not now customary or within the contemplation of the parties hereto, (i) upon, allocable to, or measured by the rent payable hereunder, including, without
limitation, any gross income or excise tax levied by the local, state or federal government with respect to the receipt of such rent, (ii) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any part thereof, (iii) upon or measured by the value of Tenant's personal property or leasehold improvements located in the Premises, (iv) upon this transaction or any document to which Tenant is a party creating or transferring an interest or estate in the Premises, (v) upon or with respect to vehicles, parking or the number of persons employed in or about the Project, and (vi) any tax, license, franchise fee or other imposition upon Landlord which is otherwise measured by or based in whole or in part upon the Project or any portion thereof. If Landlord contests any such tax, fee or charge, the cost and expense incurred by Landlord thereby (including, but not limited to, costs of attorneys and experts) shall also be common area charges and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraph 16. In the event the Premises and any improvements installed therein by Tenant or Landlord are valued by the assessor disproportionately higher than those of other tenants on the building or Project or in the event alterations or improvements are made to the Premises, Tenant's percentage share of such taxes, assessments, fees and/or charges shall be readjusted upward accordingly and Tenant agrees to pay such readjusted share. Such determination shall be made by Landlord from the respective valuations assigned in the assessor's work sheet or such other information as may be reasonably available and Landlord's determination thereof shall be conclusive.
Tenant agrees to pay, before delinquency, any and all taxes levied or assessed during the term hereof upon Tenant's equipment, furniture, fixtures and other personal property located in the Premises, including carpeting and other property installed by Tenant notwithstanding that such carpeting or other property has become a part of the Premises. If any of Tenant's personal property shall be assessed with the Project, Tenant shall pay to Landlord, as additional rent, the amount attributable to Tenant's personal property within ten (10) days after receipt of a written statement from Landlord setting forth the amount of such taxes, assessments and public charges attributable to Tenant's personal property.
14. ENTRY BY LANDLORD
Landlord reserves, and shall at all reasonable times have, the right to
enter the Premises to inspect the Premises, (ii) to supply services to be
provided by Landlord hereunder, (iii) to show the Premises to prospective
purchasers, lenders or tenants and to put `for sale' or `for lease' signs
thereon, (iv) to post notices required or allowed by this lease or by law, (v)
to alter, improve or repair the Premises and any portion of the Project, and
(vi) to erect scaffolding and other necessary structures in or through the
Premises or the Project where reasonably required by the character of the work
to be performed. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance or other damage arising
from Landlord's entry and acts pursuant to this paragraph and Tenant shall not
be entitled to an abatement or reduction of rent if Landlord exercises any
rights presented in this paragraph. For each of the foregoing purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, on and about the Premises (excluding Tenant's vaults, safes and similar
areas designated in writing by Tenant in advance), and Landlord shall have the
right to use any and all means which Landlord may deem proper to open said doors
in an emergency in order to obtain entry to the Premises. Any entry by Landlord
to the Premises pursuant to this paragraph shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the premises or any portion thereof.
Notwithstanding the foregoing, and except in the case of emergency, Landlord shall give Tenant at least twenty-four (24) hours prior notice of its intent to enter the Premises, and such entry shall be subject to the reasonable security requirements of Tenant. In the course of such entry, Landlord shall not unreasonably interfere with Tenant's use of the Premises unless reasonably required in order for Landlord to fulfill its obligations under the lease.
15. COMMON AREA; PARKING
Subject to the terms and conditions of this lease and such rules and regulations as Landlord may from time to time prescribe and so long as such rules and regulations do not conflict with the terms and conditions of this lease, Tenant and Tenant's employees and invitees shall, in common with other occupants of the Project, and their respective employees and invitees and others entitled to the use thereof, have the non-exclusive right to use the access roads, parking areas and facilities within the Project provided and designated by Landlord for the general use and convenience of the occupants of the Project which areas and facilities shall include, but not be limited to, sidewalks, parking, refuse, landscape and plaza areas, roofs and building exteriors, which areas and facilities are referred to herein as "Common Area". This right shall terminate upon the termination of this lease.
Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Area. Landlord shall also have the right at any time to change the name, number or designation by which the Project is commonly known. Landlord further reserves the right to promulgate such rules and regulations relating to the use of the Common Area, and any part thereof, as Landlord may deem appropriate for the best interests of the occupants of the Project. The rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them and cooperate in their observance. Such rules and regulations may be amended by Landlord from time to time, with or without advance notice.
Tenant shall have the non-exclusive use of thirty-two (32) parking spaces in the Common Area as designated from time to time by Landlord. Landlord reserves the right at its sole option to assign and label parking spaces, but it is specifically agreed that Landlord is not responsible for policing any such parking spaces. Tenant shall not at any time park or permit the parking of Tenant's trucks or other vehicles, or the trucks or other vehicles of others, adjacent to loading areas so as to interfere in any way with the use of such areas; nor shall Tenant at any time park or permit the parking of Tenant's vehicles or trucks, or other vehicles or trucks of Tenant's suppliers or others, in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to be parked on any portion of the Common Area. Tenant shall not permit, allow or place any type of circulars or advertisements on vehicles parking in the Common Area. Tenant shall not use any Common Area, including the space directly adjacent to the Premises for sales or displays.
Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be operated, managed and maintained and the expenditures for such operation, management and maintenance shall be at the sole discretion of Landlord. The cost of such maintenance, operation and management of the Common Area, including but not limited to
landscaping, repair of paving, parking lots and sidewalks, repaving, resurfacing, repairs, replacements, painting, lighting, cleaning, trash removal, roof replacement and repair, fire protection and similar items; non-refundable contributions toward one or more reserves for replacements other than equipment; rental on equipment; security and exterminator services and salaries and employee benefits (including union benefits) of on-site and accounting personnel directly engaged in such maintenance and operations management, shall be a common area charge and Tenant shall pay to Landlord its percentage share of such costs as provided in paragraph 16.
16. COMMON AREA CHARGES
Tenant shall pay to Landlord, as additional rent, an amount equal to forty-one and three one hundredths percent (41.03%) of the total common area charges as defined below. Tenant's percentage share of common area charges shall be paid as follows:
Tenant's estimated monthly payment of common area charges payable by
Tenant during the calendar year in which the term commences is set forth in
paragraph 4(b) of this lease. Prior to the commencement of each succeeding
calendar year of the term (or as soon as practicable thereafter), Landlord shall
deliver to Tenant a written estimate of Tenant's monthly payment of common area
charges. Tenant shall pay, as additional rent, on the first day of each month
during the term in accordance with paragraph 4(b) of the lease, its monthly
share of common area charges as estimated by Landlord. Within one hundred twenty
(120) days of the end of each calendar year and of the termination of this lease
(or as soon as practicable thereafter), Landlord shall deliver to Tenant a
statement of actual common area charges incurred for the preceding year. If such
statement shows that Tenant has paid less than its actual percentage then Tenant
shall on demand pay to Landlord the amount of such deficiency. If Tenant fails
to pay such deficiency due within ten (10) days after demand, Tenant shall pay
an additional ten percent (10%) of the amount due as a penalty. If such
statement shows that Tenant has paid more than its actual percentage share then
Landlord shall, at its option, promptly refund such excess to Tenant or credit
the amount thereof to the rent next becoming due from Tenant. Landlord reserves
the right to revise any estimate of common area charges if actual or projected
common area charges show an increase or decrease in excess of 10% from any
earlier estimate for the same period. In such event, Landlord shall deliver the
revised estimate to Tenant, together with an explanation of the reasons
therefor, and Tenant shall revise its payments accordingly. Landlord's and
Tenant's obligation with respect to adjustments at the end of the term or
earlier expiration of this lease shall survive such termination or expiration.
"Common area charges," as used in this lease, shall include, but not be limited to, (i) all items identified in paragraphs 8, 9, 11, 12, 13 and 15 as being common area charges; (ii) amortization of such capital improvements having a useful life greater than one year as Landlord may have installed for the purpose of reducing operating costs and/or to comply with governmental rules and regulations promulgated after completion of the building (Tenant's share of any such capital improvement shall equal Tenant's proportionate share of the fraction of the cost of such capital improvement equal to the remaining term of the lease over the useful life of such capital improvement); (iii) salaries and employee benefits (including union benefits) of personnel engaged in the operation and maintenance of the Project (or the building in which the Premises are located) and payroll taxes applicable thereto; (iv) supplies, materials, equipment and tools used or required in connection with the operation and maintenance of the Project: (v) licenses, permits and inspection fees; (vi) a reasonable reserve for repairs and replacement of equipment used in the maintenance and
operation of the Project; (vii) all other operating costs incurred by Landlord in maintaining and operating the Project; and (viii) an amount equal to five percent (5%) of the actual expenditures for the aggregate of all other common area charges as compensation for Landlord's accounting and processing services.
Notwithstanding the foregoing, common area charges shall not include
any management fees other than the fee (equal to five percent (5%) of the cost
of all other common area charges) as compensation for Landlord's accounting and
processing services which is specifically referenced herein. In addition, common
area charges shall not include (i) the cost of maintenance and repair of
structural elements of the Premises excluding the roof and exterior walls or
(ii) the cost of bringing the Premises into compliance with laws, statutes,
ordinances and governmental rules, regulations or requirements (except for the
Americans with Disabilities Act ), as in effect at the execution date of this
lease as described in paragraph 7 of this lease. Capital improvements with an
estimated useful life in excess of one (1) year shall be amortized as provided
in paragraph 56 of this lease.
17. DAMAGE BY FIRE; CASUALTY
In the event the Premises are damaged by any casualty which is covered under an insurance policy required to be maintained by Landlord pursuant to paragraph 11, Landlord shall be entitled to the use of all insurance proceeds and shall repair such damage as soon as reasonably possible and this lease shall continue in full force and effect.
In the event the Premises are damaged by any casualty not covered under an insurance policy required to be maintained pursuant to paragraph 11, Landlord may, at Landlord's option, either (i) repair such damage, at Landlord's expense, as soon as reasonably possible, in which event this lease shall continue in full force and effect, or (ii) give written notice to Tenant within thirty (30) days after the date of the occurrence of such damages of Landlord's intention to cancel and terminate this lease as of the date of the occurrence of the damages; provided, however, that if such damage is caused by an act or omission of Tenant or its agent, servants or employees, then Tenant shall repair such damage promptly at its sole cost and expense. In the event Landlord elects to terminate this lease pursuant hereto, Tenant shall have the right within ten (10) days after receipt of the required notice to notify Landlord in writing of Tenant's intention to repair such damage at Tenant's expense, without reimbursement from Landlord, in which event this lease shall continue in full force and effect and Tenant shall proceed to make such repairs as soon as reasonably possible. If Tenant does not give such notice within the ten (10) day period, this lease shall be canceled and terminated as of the date of the occurrence of such damage. Under no circumstances shall Landlord be required to repair any injury or damage to (by fire or other cause), or to make any restoration or replacement of, any of Tenant's personal property, trade fixtures or property leased from third parties, whether or not the same is attached to the Premises.
If the Premises are totally destroyed (or the entire Premises is rendered untenantable due to a partial destruction) during the term from any cause (including any destruction required by any authorized public authority), whether or not covered by the insurance required under paragraph 11, this lease shall automatically terminate as of the date of such total destruction; provided, however, that if the Premises can reasonably and lawfully be repaired or restored within twelve (12) months of the date of destruction to substantially the condition existing prior to such destruction and if the proceeds of the insurance payable to the Landlord by reason of such destruction are sufficient to pay
the cost of such repair or restoration, then the insurance proceeds shall be so applied, Landlord shall promptly repair and restore the Premises and this lease shall continue, without interruption, in full force and effect. If the Premises are totally destroyed during the last twelve (12) months of the term, either Landlord or Tenant may at either parties' option cancel and terminate this lease as of the date of occurrence of such damage by giving written notice to the other of its' election to do so within thirty (30) days after the occurrence of such damage.
If the Premises are partially or totally destroyed or damaged and Landlord or Tenant repair them pursuant to this lease, the rent payable hereunder for the period during which such damage and repair continues shall be abated only in proportion to the square footage of the Premises rendered untenantable to Tenant by such damage or destruction. Tenant shall have no claim against Landlord for any damage, loss or expense suffered by reason of any such damage, destruction, repair or restoration. The parties waive the provisions of California Civil Code sections 1932(2) and 1933(4) (which provisions permit the termination of a lease upon destruction of the leased premises), and hereby agree that the provisions of this paragraph 17 shall govern in the event of such destruction.
18. INDEMNIFICATION
Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Project by or from any cause whatsoever except (i) the failure of Landlord to perform its obligations under this lease where such failure has persisted for an unreasonable period of time after notice of such failure or (ii) the willful misconduct or negligent acts or omissions of Landlord or its agents, employees or contractors. Without limiting the foregoing, Landlord shall not be liable to Tenant for any injury to or death of any person or damages to or destruction of property by reason of, or arising from, any latent defect in the Premises or Project or the act or negligence of any other tenant of the Project. Tenant shall immediately notify Landlord of any defect in the Premises or Project.
Except as to injury to persons or damage to property the principal cause of which is the failure by Landlord to observe any of the terms and conditions of this lease, Tenant shall hold Landlord harmless from and defend Landlord against any claim, liability, loss, damage or expense (including attorney fees) arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises from any cause whatsoever or on account of the use, condition, occupational safety or occupancy of the Premises. Tenant shall further hold Landlord harmless from and defend Landlord against any claim, liability, loss, damage or expense (including reasonable attorney fees) arising (i) from Tenant's use of the Premises or from the conduct of its business or from any activity or work done, permitted or suffered by Tenant or its agents or employees in or about the Premises or Project, (ii) out of the failure of Tenant to observe or comply with Tenant's obligation to observe and comply with laws or other requirements as set forth in paragraph 7, (iii) by reason of Tenant's use, handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by reason of any labor or service performed for, or materials used by or furnished to, Tenant or any contractor engaged by Tenant with respect to the Premises, or (v) from any other act, neglect, fault or omission of Tenant or its agents or employees. The provisions of this paragraph 18 shall survive the expiration or earlier termination of this lease.
19. ASSIGNMENT AND SUBLETTING
Tenant shall not voluntarily assign, encumber or otherwise transfer its interest in this lease or in the premises, or sublease all or any part of the Premises, or allow any other person, concessionaire or entity to occupy or use all or any part of the Premises, without first obtaining Landlord's written consent (which consent shall not be unreasonably withheld) and otherwise complying with the requirements of this paragraph 19. Any assignment, encumbrance or sublease without Landlord's consent, shall constitute a default.
If Tenant desires to sublet or assign all or any portion of the
Premises, Tenant shall give Landlord written notice thereof, specifying the
projected commencement date of the proposed sublet or assignment (which date
shall be not less than thirty (30) days or more than ninety (90) days after the
date of such notice), the portions of the Premises proposed to be sublet or
assigned, and the identity of the proposed assignee or subtenant. Tenant shall
further provide Landlord with such other information concerning the proposed
assignee or subtenant as requested by Landlord. Any proposed assignee or
sublessee must agree to assume and agree to perform all the covenants and
conditions of Tenant under this lease. Tenant shall be free to assign or sublet
all or a portion of the Premises subject to the following conditions: (i) any
sublease shall be on the same terms set forth in the notice given to Landlord;
(ii) no sublease shall be valid and no subtenant shall take possession of the
sublet premises until an executed counterpart of such sublease has been
delivered to Landlord; (iii) no subtenant shall have a further right to sublet;
(iv) fifty percent (50%) of any sums or other economic consideration received by
Tenant as a result of such assignment or sublet (except rental or other payments
received which are attributable to the amortization over the term of this lease
of the cost of leasehold improvements constructed for such assignees or
subtenant, and brokerage fees) whether denominated rentals or otherwise, which
exceed, in the aggregate, the total sums which Tenant is obligated to pay
Landlord under this lease (prorated to reflect obligations allocable to that
portion of the Premises subject to such sublease), shall be payable to Landlord
as additional rent under this lease without affecting or reducing any other
obligation of Tenant hereunder; and (v) no sublet or assignment shall release
Tenant of Tenant's obligation or alter the primary liability of Tenant to pay
the rent and to perform all other obligations to be performed by Tenant
hereunder. Tenant shall pay to Landlord promptly upon demand as additional rent,
Landlord's actual and reasonable attorneys' fees and other costs incurred for
reviewing, processing or documenting any requested assignment or sublease,
whether or not Landlord's consent is granted. Tenant shall not be entitled to
assign this lease or sublease all or any part of the Premises (and any attempt
to do so shall be voidable by Landlord) during any period in which Tenant is in
default under this lease.
If Tenant is a partnership, a withdrawal or change, voluntary or involuntary or by operation of law, of any general partner or the dissolution of the partnership shall be deemed an assignment of this lease subject to all the conditions of this paragraph 19. If Tenant is a corporation any dissolution, merger, consolidation or other reorganization of Tenant or the sale or other transfer of a controlling percentage of the capital stock of Tenant or the sale of more than fifty percent (50%) of the value of Tenant's assets shall be an assignment of this lease subject to all the conditions of this paragraph 19. The term "controlling percentage" means the ownership of, and the right to vote, stock possessing more than 50% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote. This paragraph shall not apply if Tenant is a corporation the stock of which is traded through an exchange.
The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or sublet shall not be deemed consent to any subsequent assignment or sublet. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor. Landlord may consent to subsequent assignments or sublets of this lease or amendments or modifications to this lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this lease.
No interest of Tenant in this lease shall be assignable by operation of law (including, without limitation, the transfer of this lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors or institutes a proceeding under the Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership or consists of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent, or makes an assignment for the benefit of creditors; (ii) if a writ of attachment or execution is levied on this lease; or (iii) if, in any proceeding or action to which Tenant is a party, a receiver is appointed with authority to take possession of the Premises. An involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to elect to terminate this lease, in which case this lease shall not be treated as an asset of Tenant.
Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this lease, all rent from any subletting of all or a part of the Premises as permitted by this lease, and Landlord, as assignee and as attorney-in fact for Tenant, or a receiver of Tenant appointed on Landlord's application, may collect such rent and apply it toward Tenant's obligations under this lease; except that, until the occurrence of an act or default by Tenant, Tenant shall have the right to collect such rent, subject to promptly forwarding to Landlord any portion thereof to which Landlord is entitled pursuant to this paragraph 19.
Notwithstanding the above requirement that Tenant obtain the consent of Landlord prior to any assignment or sublet, Tenant may, without obtaining the prior consent of Landlord, assign or sublease the whole or any part of the Premises to any corporation or other entity which is wholly owned by Tenant or of which Tenant is a wholly owned subsidiary, or which is wholly owned by either of the foregoing or which merges with Tenant provided that (i) Tenant shall give written notice thereof to Landlord in the manner required for other assignments or subleases by this paragraph 19; (ii) Tenant shall continue to be fully obligated under this lease; (iii) any such assignee or sublessee shall expressly assume and agree to perform all of the terms and conditions of this lease to be performed by Tenant; and (iv) any such assignment of sublet shall be subject to all other terms and conditions of this paragraph 19 pertaining to assignments and/or sublets (excepting only the requirement concerning prior written consent of Landlord).
20. DEFAULT
The occurrence of any of the following shall constitute a default by Tenant: (i) failure of Tenant to pay any rent or other sum payable hereunder within three (3) days of when due; (ii) abandonment of the Premises (Tenant's failure to occupy and conduct business in the Premises
for fourteen (14) consecutive days shall be deemed an abandonment) unless
Tenant gives prior written notice to Landlord of its intention not to so
occupy the Premises, reaffirms its obligations under this lease including its
obligation to pay all sums due hereunder, provides adequate security for the
Premises and otherwise continues to perform each and every obligation to be
performed by Tenant under this lease and Tenant's failure to occupy in no
event exceeds six (6) months; or (iii) failure of Tenant to perform any other
term, covenant or condition of this lease if the failure to perform is not
cured within thirty (30) days after notice thereof has been given to Tenant
(provided that if such default cannot reasonably be cured within thirty (30)
days, Tenant shall not be in default if Tenant commences to cure such failure
to perform within the thirty (30) day period and diligently and in good faith
continues to cure the failure to perform). The notice referred to in clause
(iii) above shall specify the failure to perform and the applicable lease
provision and shall demand that Tenant perform the provisions of this lease
within the applicable period of time. No notice shall be deemed a forfeiture
or termination of this lease unless Landlord so elects in the notice. No
notice shall be required in the event of abandonment or vacation of the
Premises.
In addition to the above, the occurrence of any of the following events shall also constitute a default by Tenant: (i) Tenant fails to pay its debts as they become due or admits in writing its inability to pay its debts, or makes a general assignment for the benefit of creditors; (ii) any financial statements given to Landlord by Tenant, any assignee of Tenant, subtenant of Tenant, any guarantor of Tenant, or successor in interest of Tenant (including, without limitation, any schedule of Tenant's aged accounts payable) are materially false. At any time during the term of this lease Landlord, at Landlord's option, shall have the right to receive from Tenant upon Landlord's request, a current annual balance sheet for Landlord's review.
In the event of a default by Tenant, then Landlord, in addition to any other rights and remedies of Landlord at law or in equity, shall have the right either to terminate Tenant's right to possession of the Premises (and thereby terminate this lease) or, from time to time and without termination of this lease, to relet the premises or any part thereof for the account and in the name of Tenant for such term and on such terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises.
Should Landlord elect to keep this lease in full force and effect, Landlord shall have the right to enforce all of Landlord's rights and remedies under this lease, including but not limited to the right to recover and to relet the Premises. If Landlord relets the Premises, then Tenant shall pay to Landlord, as soon as ascertained, the costs and expenses incurred by Landlord in such reletting and in making alterations and repairs. Rentals received by Landlord from such reletting shall be applied (i) to the payment of any indebtedness due hereunder, other than basic rent and common area charges, from Tenant to Landlord; (ii) to the payment of the cost of any repairs necessary to return the Premises to good condition normal wear and tear excepted, including the cost of alterations and the cost of storing any of Tenant's property left on the Premises at the time of reletting; and (iii) to the payment of basic rent or common area charges due and unpaid hereunder. The residue, if any, shall be held by Landlord and applied in payment of future rent or damages in the event of termination as the same may become due and payable hereunder and the balance, if any at the end of the term of this lease, shall be paid to Tenant. Should the basic rent and common area charges received from time to time from such reletting during any month be less than that agreed to be paid during that month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such reletting of the Premises by Landlord shall
be construed as an election on its part to terminate this lease unless a notice of such intention is given to Tenant or unless the termination hereof is decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this lease for such previous breach, provided it has not been cured.
Should Landlord at any time terminate this lease for any breach, in
addition to any other remedy it may have, it shall have the immediate right of
entry and may remove all persons and property from the Premises and shall have
all the rights and remedies of a landlord provided by California Civil Code
Section 1951.2 or any successor code section. Upon such termination, in addition
to all its other rights and remedies, Landlord shall be entitled to recover from
Tenant all damages it may incur by reason of such breach, including the cost of
recovering the Premises and including (i) the worth at the time of award of the
unpaid rent which had been earned at the time of termination; (ii) the worth at
the time of award of the amount by which the unpaid rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided; (iii) the
worth at the time of the award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of such rental
loss that Tenant proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this lease or which in the
ordinary course of events would be likely to result therefrom. The "worth at the
time of award of the amounts referred to in (i) and (ii) above is computed by
allowing interest at the rate of twelve percent (12%) per annum. The "worth at
the time of award of the amount referred to in (iii) above shall be computed by
discounting such amount at the discount rate of the federal reserve bank of San
Francisco at the time of award plus one percent (1%). Property removed from the
Premises may be stored in a public or private warehouse or elsewhere at the sole
cost and expense of Tenant. In the event that Tenant shall not immediately pay
the cost of storage of such property after the same has been stored for a period
of thirty (30) days or more, Landlord may sell any or all thereof at a public or
private sale in such manner and at such times and places that Landlord, in its
sole discretion, may deem proper, without notice to or demand upon Tenant.
21. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
Landlord, at any time after Tenant commits a default, may, but shall not be obligated to, cure the default at Tenant's cost. If Landlord at any time, by reason of Tenant's default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord and shall bear interest at the rate of twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less, from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts due Landlord hereunder shall be additional rent.
22. EMINENT DOMAIN
If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payments, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance. Tenant shall
have no claim against Landlord or otherwise for the value of any unexpired term of this lease. Notwithstanding the foregoing, Tenant shall be entitled to any compensation for depreciation to and cost of removal of Tenant's equipment and fixtures and any compensation for its relocation expenses necessitated by such taking, but in each case only to the extent the condemning authority makes a separate award therefor or specifically identifies a portion of the award as being therefor. Each party waives the provisions of Section 1265.130 of the California Code of Civil Procedure (which section allows either party to petition the Superior Court to terminate this lease in the event of a partial taking of the Premises).
If any action or proceeding is commenced for such taking of the Premises or any portion thereof or of any other space in the Project, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the Premises or any portion thereof or of any other space in the Project, and Landlord shall decide to discontinue the use and operation of the Project or decide to demolish, alter or rebuild the Project, then Landlord shall have the right to terminate this lease by giving Tenant written notice thereof within sixty (60) days of the earlier of the date of Landlord's receipt of such notice of intention to condemn or the commencement of said action or proceeding. Such termination shall be effective as of the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first. In the event of a partial taking, or conveyance in lieu thereof, of the Premises and fifty percent (50%) or more of the number of square feet in the Premises are taken then Tenant may terminate this lease. Any election by Tenant to so terminate shall be by written notice given to Landlord within sixty (60) days from the date of such taking or conveyance and shall be effective on the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first.
If a portion of the Premises is taken by power of eminent domain or conveyance in lieu thereof and neither Landlord nor Tenant terminates this lease is provided above, then this lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed and all payments of rent shall be apportioned as of the date of such taking or conveyance so that thereafter the amounts to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken bears to the total area of the Premises prior to such taking.
23. NOTICE AND COVENANT TO SURRENDER
On the last day of the term or on the effective date of any earlier termination, Tenant shall surrender to Landlord the Premises and all of Tenant's improvements and alterations in their condition existing as of the commencement of the term (normal wear and tear excepted), with all originally painted interior walls washed or repainted if marked or damaged, interior vinyl covered walls cleaned and repaired or replaced if marked or damaged, all carpets shampooed and cleaned, the air conditioning and heating system serviced and repaired by a reputable and licensed service firm (unless Landlord has elected to maintain such system pursuant to paragraph 8) and all floors cleaned and waxed; all to the reasonable satisfaction of Landlord, Tenant shall remove all of Tenant's personal property and trade fixtures, together with improvements or alterations that Tenant is obligated to remove pursuant to the provisions of paragraph 8, from the Premises, and all such property not removed shall be deemed abandoned.
If the Premises are not surrendered as required in this paragraph, Tenant shall indemnify Landlord against all loss, liability and expense (including but not limited to, attorney fees) resulting from the failure by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenants. It is agreed between Landlord and Tenant that the provisions of this paragraph shall survive termination of this lease.
24. TENANT'S QUITCLAIM
At the expiration or earlier termination of this lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required to remove the cloud or encumbrance created by this lease from the real property of which the Premises are a part. This obligation shall Survive said expiration or termination.
25. HOLDING OVER
Any holding over after the expiration or termination of this lease with the written consent of Landlord shall be construed to be a tenancy from month to month at the monthly rent as adjusted, in effect on the date of such expiration or termination. All provisions of this lease, except those pertaining to the term and any option to extend, shall apply to the month to month tenancy. The provisions of this paragraph are in addition to, and do not affect, Landlord's right of reentry or other rights hereunder or provided by law.
If Tenant shall retain possession of the Premises or any part thereof without Landlord's consent following the expiration or sooner termination of this lease for any reason, then Tenant shall pay to Landlord for each day of such retention double the amount of the daily rental in effect during the last month prior to the date of such expiration or termination. Tenant shall also indemnify and hold Landlord harmless from any loss, liability and expense (including, but not limited to, attorneys fees) resulting from delay by Tenant in surrendering the Premises, including without limitation any claims made by any succeeding tenant founded on such delay. Acceptance of rent by Landlord following expiration or termination shall not constitute a renewal of this lease, and nothing contained in this paragraph shall waive Landlord's right to re-entry or any other right. Tenant shall be only a Tenant at sufferance whether or not Landlord accepts any rent from Tenant, while Tenant is holding over without Landlord's written consent.
26. SUBORDINATION
In the event Landlord's title or leasehold interest is now or hereafter encumbered in order to secure a loan to Landlord, Tenant shall, at the request of Landlord or the lender, execute in writing an agreement subordinating its rights under this lease to the lien of such encumbrance, or, if so requested, agreeing that the lien of lender's encumbrance shall be or remain subject and subordinate to the rights of Tenant under this lease. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute, deliver and record any such instrument or instruments for and in the name and on behalf of Tenant. Notwithstanding any such subordination, Tenant's possession under this lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all amounts due hereunder and otherwise observe and perform all provisions of this lease. In addition, if in connection with any such loan the lender shall request reasonable modifications of this lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent
thereof, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder.
In the event that any lender requires that this lease be subordinated to any encumbrance recorded after the date of the lease affecting the Premises, this lease shall be subordinate to that encumbrance and Tenant agrees to execute in writing an agreement effecting such subordination, provided Landlord exercises its good faith efforts to first obtain from such lender a non-disturbance agreement that provides in substance that as long as Tenant performs its obligation under this lease, no foreclosure of, deed given in lieu of foreclosure of, or sale under the encumbrance, and no steps or procedures taken under the encumbrance, shall affect Tenant's rights under this lease.
27. CERTIFICATE OF ESTOPPEL
Each party shall, within five (5) calendar days after request therefore execute and deliver to the other party, in recordable form, a certificate stating that the lease is unmodified and in full force and effect, or in full force and effect as modified and stating the modifications. The certificate shall also state the amount of the monthly rent, the date to which monthly rent has been paid in advance, the amount of the security deposit and/or prepaid monthly rent, and, if the request is made by Landlord, shall include such other items as Landlord or Landlord's lender may reasonably request. Failure to deliver such certificate within such time shall constitute a conclusive acknowledgment by the party failing to deliver the certificate that the lease is in full force and effect and has not been modified except as may be represented by the party requesting the Certificate. Any such Certificate requested by Landlord may be conclusively relied upon by any prospective purchaser or encumbrance of the Premises or Project. Further, within five (5) calendar days following written request made from time to time by Landlord, Tenant shall furnish to Landlord current financial statements of Tenant.
28. SALE BY LANDLORD
In the event the original Landlord hereunder, or any successor owner of the Project or Premises, shall sell or convey the Project or Premises, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner and to look solely to such new owner for performance of any and all such liabilities and obligations.
29. ATTORNMENT TO LENDER OR THIRD PARTY
In the event the interest of Landlord in the land and buildings in which the Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by a lender or any other third party through judicial foreclosure or by exercise of a power of sale at private trustee's foreclosure sale, Tenant hereby agrees to release Landlord of any obligation arising on or after any such foreclosure sale and to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this lease.
30. DEFAULT BY LANDLORD
Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion.
If Landlord is in default of this lease, Tenant's sole remedy shall be to institute suit against Landlord in a court of competent jurisdiction, and Tenant shall have no right to offset any sums expended by Tenant as a result of Landlord's default against future rent and other sums due and payable pursuant to this lease. If Landlord is in default of this lease, and as a consequence Tenant recovers a money judgment against Landlord, the judgment shall be satisfied only out of the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Project of which the Premises are a part, and out of rent or other income from such real property receivable by Landlord or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title and interest in the Project of which the Premises are a part. Neither Landlord nor any of the partners comprising the partnership designated as Landlord shall be personally liable for any deficiency.
31. CONSTRUCTION CHANGES
It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises and/or the improvements constructed or being constructed therein and no such changes or any changes in plans for any other portions of the Project, shall affect this lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant.
32. MEASUREMENT OF PREMISES
Tenant understands and agrees that any reference to square footage of the Premises is approximate only and includes all interior partitions and columns, one-half of exterior walls, and one-half of the partitions separating the Premises from the rest of the Project, Tenant's proportionate share of the Common Area and, if applicable, covered areas immediately outside the entry doors or loading docks. Tenant waives any claim against Landlord regarding the accuracy of any such measurement and agrees that there shall not be any adjustment in basic rent or common area charges or other amounts payable hereunder by reason of Inaccuracies in such measurement.
33. ATTORNEY FEES
If either party commences an action against the other party arising out of or in connection with this lease, the prevailing party shall be entitled to have and recover from the losing party all expenses of litigation, including, without limitation, travel expenses, reasonable attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. If either party becomes a party to any litigation concerning this lease, or concerning the Premises or the Project, by
reason of any act or omission of the other party or its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to the other party for all expenses of litigation reasonably incurred, including, without limitation, travel expenses, attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses.
34. SURRENDER
The voluntary or other surrender of this lease or the Premises by Tenant, or a mutual cancellation of this lease, shall not work a merger, and at the option of Landlord shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies.
35. WAIVER
No delay or omission in the exercise of any right or remedy of either party on any default by the other party shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent rent or other payments shall not constitute a waiver of any other default and acceptance of partial payments shall not be construed as a waiver of the balance of such payment due. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of this lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this lease.
36. EASEMENTS; AIRSPACE RIGHTS
Landlord reserves the right to alter the boundaries of the Project and grant easements and dedicate for public use portions of the Project without Tenant's consent, provided that no such grant or dedication shall interfere with Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense. From time to time, and upon Landlord's demand, Tenant shall execute, acknowledge and deliver to Landlord, in accordance with Landlord's instructions, any and all documents, instruments, maps or plats necessary to effectuate Tenant's covenants hereunder.
This lease confers no rights either with regard to the subsurface of or airspace above the land on which the Project is located or with regard to airspace above the building of which the Premises are a part. Tenant agrees that no diminution or shutting off of light or view by a structure which is or may be erected (whether or not by Landlord) on property adjacent to the building of which the Premises are a part or to property adjacent thereto, shall in any way affect this lease, or entitle Tenant to any reduction of rent, or result in any liability of Landlord to Tenant.
37. RULES AND REGULATIONS
Landlord shall have the right from time to time to promulgate rules and regulations for the safety, care and cleanliness of the Premises, the Project and the Common Area or for the preservation of good order. On delivery of a copy of such rules and regulations to Tenant, Tenant
shall comply with the rules and regulations, and a violation of any of them shall constitute a default by Tenant under this lease. If there is a conflict between the rules and regulations and any of the provisions of this lease, the provisions of this lease shall prevail. Such rules and regulations may be amended by Landlord from time to time with or without advance notice.
38. NOTICES
All notices, demands, requests, consents and other communications which may be given or are required to be given by either party to the other shall be in writing and shall be sufficiently made and delivered if personally served or if sent by United States first class mail, postage prepaid. Prior to the commencement date, all such communications from Landlord to Tenant shall be served or addressed to Tenant at 420 Cowper Street, Palo Alto, California 94301; on or after the commencement date all such communications from Landlord to Tenant shall be addressed to Tenant at the aforementioned address or the Premises. All such communications by Tenant to Landlord shall be sent to Landlord at its offices at P.O. Box 872, Los Altos, California 94023-0872; after October 18, 1996 all such communications by Tenant to Landlord shall be sent to Landlord at 360 S. San Antonio Road, Suite 14, Los Altos, California 94022. Either party may change its address by notifying the other of such change. Each such communication shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be.
39. NAME
Tenant shall not use the name of the Project for any purpose, other than as the address of the business conducted by Tenant in the Premises, without the prior written consent of Landlord.
40. GOVERNING LAW; SEVERABILITY
This lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this lease shall be held or rendered invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect.
41. DEFINITIONS
As used in this lease, the following words shall have the following and phrases meanings:
AUTHORIZED REPRESENTATIVE: any of officer, agent, employee or independent contractor retained or employed by either party, acting within authority given him by that party.
ENCUMBRANCE: any deed of trust, mortgage or other written security device or agreement affecting the Premises or the Project that constitutes security for the payment of a debt or performance of an obligation, and the note or obligation secured by such deed of trust, mortgage or other written security device or agreement.
LEASE MONTH: the period of time determined by reference to the day of the month in which the term commences and continuing to one day short of the same numbered day in the next succeeding month; e.g., the tenth day of one month to and including the ninth day in the next succeeding month.
LENDER: the beneficiary, mortgagee or other holder of an encumbrance, as defined above.
LIEN: a charge imposed on the Premises by someone other than Landlord, by which the Premises are made security for the performance of an act. Most of the liens referred to in this lease are mechanic's liens.
MAINTENANCE: repairs, replacement, repainting and cleaning.
MONTHLY RENT: the sum of the monthly payments of basic rent and common area charges.
PERSON: one or more human beings, or legal entities or other artificial persons, including, without limitation, partnerships, corporations, trusts, estates, associations and any combination of human being and legal entities.
PROVISION: any term, agreement, covenant, condition, clause, qualification, restriction, reservation or other stipulation in the lease that defines or otherwise controls, establishes or limits the performance required or permitted by either party.
RENT: basic rent, common area charges, additional rent, and all other amounts payable by Tenant to Landlord required by this lease or arising by subsequent actions of the parties made pursuant to this lease.
Words used in any gender include other genders. If there be more than one Tenant, the obligations of Tenant hereunder are joint and several. All provisions whether covenants or conditions, on the part of Tenant shall be deemed to be both covenants and conditions. The paragraph headings are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof.
42. TIME
Time is of the essence of this lease and of each and all of its provisions.
43. EXAMINATION OF LEASE
Submission of this lease for examination or signature by Tenant does not constitute a reservation or option for a lease, and this lease is not effective until its execution and delivery by both Landlord and Tenant.
44. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
Any amount due from Tenant to Landlord hereunder which is not paid when due shall bear interest at the rate of ten percent (10%) per annum from when due until paid, unless otherwise specifically provided herein, but the payment of such interest shall not excuse or cure any default by Tenant under this lease. In addition, Tenant acknowledges that late payment by Tenant to Landlord of basic rent or common area charges or of any other amount due Landlord from Tenant, will cause Landlord to incur costs not contemplated by this lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord, e.g., by the terms of any
encumbrance and note secured by any encumbrance covering the Premises. Therefore, if any such payment due from Tenant is not received by Landlord when due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue payment as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord. No notice to Tenant of failure to pay shall be required prior to the imposition of such interest and/or late charge, and any notice period provided for in paragraph 20 shall not affect the imposition of such interest and/or late charge.
45. ENTIRE AGREEMENT
This lease, including any exhibits and attachments, constitutes the entire agreement between Landlord and Tenant relative to the Premises and this lease and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves or their agents or representatives relative to the leasing of the Premises are merged in or revoked by this lease.
46. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing this lease on behalf of the corporation represents and warrants that he is duly authorized to execute and deliver this lease on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this lease is binding upon said corporation in accordance with its terms. If Tenant is a corporation, Tenant shall deliver to Landlord, within ten (10) days of the execution of this lease, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this lease and naming the officers that are authorized to execute this lease on behalf of Tenant, which copy shall be certified by Tenant's president or secretary as correct and in full force and effect.
47. RECORDING
Neither Landlord nor Tenant shall record this lease nor any short form memorandum heretofore without the consent of the other.
48. REAL ESTATE BROKERS
Each party represents that it his not had dealings with any real estate broker finder or other person with respect to this lease in any manner, except Cornish & Carey Commercial-Oncor International and BT Commercial Real Estate. Each party shall hold harmless the other party from all damages resulting from any claims that may be asserted against the other party by any broker, finder or other person with whom the other party has or purportedly has dealt.
49. EXHIBITS AND ATTACHMENTS
All exhibits and attachments to this lease are a part hereof.
50. ENVIRONMENTAL MATTERS
A. TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS.
(1) HAZARDOUS MATERIALS HANDLING. Except for use incidental to customary office cleaning and office maintenance, Tenant, its agents, invitees, employees, contractors, sublessee, assigns and/or successors shall not use, store, dispose, release or otherwise cause to be present or permit the use, storage, disposal, release or presence of Hazardous Materials (as defined below) on or about the Premises or Project. As used herein "Hazardous Materials" shall mean any petroleum or petroleum byproducts, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste and any "hazardous substance", "hazardous waste", "hazardous materials", "toxic substance" or "toxic waste" as those terms are defined under the provisions of the California Health and Safety Code and/or the provisions of the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), or any other hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or any agency thereof, or the United States Government or any agency thereof.
(2) NOTICES. Tenant shall immediately notify Landlord in writing of: (i) any enforcement, cleanup, removal or other governmental or regulatory action instituted, completed or threatened pursuant to any law, regulation or ordinance relating to the industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any Hazardous Materials (collectively "Hazardous Materials Laws"); (ii) any claim made or threatened by any person against Tenant, the Premises, Project or buildings within the Project relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in, on or removed from the Premises, Project or buildings within the Project, including any complaints, notices, warnings, reports or asserted violations in connection therewith. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, Project or buildings within the Project or Tenant's use thereof. Tenant shall promptly deliver to Landlord copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises.
B. INDEMNIFICATION OF LANDLORD. Tenant shall indemnify, defend (by counsel acceptable to Landlord), protect, and hold Landlord, and each of Landlord's partners, employees, agents, attorneys, successors and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys' fees) for death of or injury to any person or damage to any property whatsoever (including water tables and atmosphere), arising from or caused in whole or in part, directly or indirectly, by (i) the presence in, on, under or about the Premises, Project or buildings within the Project or discharge in or from the Premises, Project or buildings within the Project of any Hazardous Materials or Tenant's use, analysis, storage, transportation, disposal, release, threatened release, discharge or generation of Hazardous Materials to, in, on, under, about or from the Premises, Project or buildings within the Project, or (ii) Tenant's failure to comply with any Hazardous Materials Laws whether knowingly, unknowingly,
intentionally or unintentionally. Tenant's obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repair, cleanup or detoxification or decontamination of the Premises, Project or buildings within the Project, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith, In addition, Tenant shall reimburse Landlord for (i) losses in or reductions to rental income resulting from Tenant's use, storage or disposal of Hazardous Materials, (ii) all costs of refitting or other alterations to the Premises, Project or buildings within the Project required as a result of Tenant's use, storage, or disposal of Hazardous Materials including, without limitation, alterations required to accommodate an alternate use of the Premises, Project or buildings within the Project, and (iii) any diminution in the fair market value of the Premises, Project or buildings within the Project caused by Tenant's use, storage, or disposal of Hazardous Materials. For purposes of this paragraph 50, any acts or omissions of Tenant, or by employees, agents, assignees, contractors or subcontractors of Tenant or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant.
C. SURVIVAL. The provisions of this paragraph 50 shall survive the expiration or earlier termination of the term of this lease.
Notwithstanding provisions in this lease to the contrary, Tenant shall have no obligation to clean up or to reimburse, release, indemnify, or defend Landlord with respect to removal or liability respecting hazardous materials or wastes unless the hazardous materials in question were stored, disposed, transported, used, analyzed, released, threaten to be released or otherwise caused to be present in or about the Premises or Project by Tenant or its agents, employees, invitees, assignees, contractors or subcontractors or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawfull).
51. SIGNAGE
Tenant shall not, without obtaining the prior written consent of Landlord, install or attach any sign or advertising material on any part of the outside of the Premises, or on any part of the inside of the Premises which is visible from the outside of the Premises, or in the halls, lobbies, windows or elevators of the building in which the Premises are located or on or about any other portion of the Common Area or Project. If Landlord consents to the installation of any sign or other advertising material, the location, size, design, color and other physical aspects thereof shall be subject to Landlord's prior written approval and shall be in accordance with any sign program applicable to the Project. In addition to any other requirements of this paragraph 51, the installation of any sign or other advertising material by or for Tenant must comply with all applicable laws, statutes, requirements, rules, ordinances and any C.C.&R.'s or other similar requirements. With respect to any permitted sign installed by or for Tenant, Tenant shall maintain such sign or other advertising material in good condition and repair and shall remove such sign or other advertising material on the expiration or earlier termination of the term of this lease. The cost of any permitted sign or advertising material and all costs associated with the installation, maintenance and removal thereof shall be paid for solely by Tenant. If Tenant fails to properly maintain or remove any permitted sign or other advertising material, Landlord may do so at Tenant's expense. Any cost incurred by Landlord in connection with such maintenance or removal shall be deemed additional rent and shall be paid by Tenant to Landlord within ten (10) days following notice from Landlord. Landlord may remove any unpermitted sign or advertising material without notice to Tenant and the
cost of such removal shall be additional rent and shall be paid by Tenant
within ten (10) days following notice from Landlord. Landlord shall not be
liable to Tenant for any damage, loss or expense resulting from Landlord's
removal of any sign or advertising material in accordance with this paragraph
51. The provisions of this paragraph 51 shall survive the expiration or
earlier termination of this lease.
Notwithstanding the above, Landlord hereby consents to the installation of a sign bearing Tenant's name and corporate logo so long as the location and size of the sign is the same as that of the presently existing sign. Installation of such sign is however subject to Landlord's approval of the signs specific location, size, design and color which approval shall not be unreasonably withheld.
52. SUBMISSION OF LEASE
The submission of this lease to Tenant is not an offer to lease the Premises, or an agreement by Landlord to reserve the Premises for Tenant. Landlord will not be bound to Tenant until Tenant has duly executed and delivered duplicate original leases to Landlord and Landlord has duly executed and delivered one of those duplicate original leases to Tenant.
53. ADDITIONAL RENT
All costs, charges, fees, penalties, interest and any other payments
(including Tenant's reimbursement to Landlord of costs incurred by Landlord)
which Tenant is required to make to Landlord pursuant to the terms and
conditions of this lease and any amendments to this lease shall be and
constitute additional rent payable by Tenant to Landlord when due as specified
in this lease and any amendments to this lease.
54. PREMISES TAKEN "AS IS"
Tenant is leasing the Premises from Landlord "as is" in its existing condition as of the date hereof. Landlord shall have no obligation to alter or improve the Premises except only to thoroughly clean the Premises and shampoo the carpet as reasonably necessary and except for Landlord's obligation to make all necessary repairs or replacements, at Landlord's expense, to the heating and air conditioning systems necessary to maintain such systems in good working order and repair during the first ninety (90) days of the lease pursuant to paragraph 9 of this lease.
55. OPTION TO EXTEND TERM
Landlord grants to Tenant the option to extend the term for one period of three (3) years (the "extended term") under all the provisions of this lease except for the amount of the basic rent. The basic rent for the extended term shall be adjusted to the market rate and the basic rent as so adjusted shall be adjusted annually as provided below, provided that in no event shall the basic rent for the extended term be less than the basic rent in effect at the expiration of the initial term. This option is further subject to the following terms and conditions:
(a) Tenant must deliver its irrevocable written notice of Tenant's exercise of this option to Landlord not less than six (6) lease months, nor more than twelve (12) lease months, prior to the expiration of the initial term.
(b) The parties shall have thirty (30) days from the date
Landlord receives Tenant's notice of exercise in which to agree on the amount
constituting the market rate. If Landlord and Tenant agree on the amount of the
market rate, they shall immediately execute an amendment to this lease setting
forth the expiration date of the extended term and the amount of the basic rent
to be paid by Tenant during the extended term, including the annual adjustment
period. If Landlord or Tenant are unable to agree on the amount of the market
rate within such time period, then, at the request of either party, the market
rate shall be determined by appraisal in the following manner: (1) within thirty
(30) days of the request for such appraisal, Landlord and Tenant shall each
select a licensed real estate broker with not less than five (5) years
experience in the business of commercial leasing of property of the same type
and use, and in the same geographic area, as the Premises; (ii) within fifteen
days of their appointment, such two real estate brokers shall select a third
real estate broker similarly qualified; (iii) within thirty (30) days from the
appointment of the third broker, the three brokers so selected shall, acting as
a board of arbitrators, then appraise the Premises and determine the amount of
the market rate, basing their determination on using standard procedures and
tests normally employed in making such appraisals and applying the factors
included within the definition of market rate set forth in subparagraph (c)
below. The decision of the majority of said brokers shall be final and binding
upon the parties hereto. If a majority of the brokers are unable to agree on the
market rate within the stipulated period of time, the three appraisals shall be
added together and their total divided by three; the resulting quotient shall be
the market rate. If, however, the low appraisal and/or the high appraisal are/is
more than 15% lower and/or higher than the middle appraisal, the low appraisal
and/or the high appraisal, as the case may be, shall be disregarded. If only one
appraisal is disregarded, the remaining two appraisals shall be added together
and their total divided by two and the resulting quotient shall be the market
rate. If both the low appraisal and the high appraisal are disregarded as stated
in this paragraph, the middle appraisal shall be the market rate. If a party
does not appoint a broker within the required time period, the broker appointed
by the other party shall be the sole broker and shall determine the market rate.
If the two brokers appointed by the parties are unable to agree on the third
broker, either of the parties to the lease, by giving ten (10) days' notice to
the other party, can apply to the then county real estate board of the county in
which the Premises are located, or to the presiding judge of the superior court
of that county, for the selection of a third broker who meets the qualifications
stated in this paragraph. Each party shall pay the expenses and charges of the
broker appointed by it and the parties shall pay the expenses and charges of the
third broker in equal shares. When the market rate has been so determined,
Landlord and Tenant shall immediately execute an amendment to this lease stating
the revised basic rent and adjustment provision for the extended term.
(c) As used herein, the "market rate" shall be the monthly rent (triple net) then obtained for leases of comparable terms for premises in the Project and/or projects within the City of Sunnyvale of similar type, identity, quality and location as the Project.
(d) Tenant shall not assign or otherwise transfer this option or any interest therein and any attempt to do so shall render this option null and void. Tenant shall have no right to extend this term beyond the extended term. If Tenant is in default under this lease at the date of delivery of Tenant's notice of exercise to Landlord, then Such notice shall be of no effect and this lease shall expire at the end of the initial term; if Tenant is in default under this lease at the last day of the initial term, then Landlord may in its sole discretion elect to have Tenant's exercise of this option be of no effect, in which case this lease shall expire at the end of the initial term.
56. CAPITAL EXPENDITURES
Notwithstanding anything to the contrary in paragraphs 7 and 8, (i) as to any required capital improvement to the Premises having a useful life of more than one year and which is not required by reason of Tenant's specific use of or activities on the Premises, Landlord shall make such capital improvement and Tenant shall pay to Landlord, as additional rent and in equal monthly installments over the remaining term of this lease, the fraction of the cost of such capital improvements equal to the remaining term of this lease over the useful life of such capital improvement; (ii) as to any required capital improvement to the common area having a useful life of more than one year and which is not required by Tenant's specific use of or activities on the Premises, the cost thereof shall be included within common area charges ratably over the useful life of such capital improvement. Any determination of useful life, as such term is used in this paragraph 56, shall be reasonably made by Landlord.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this lease on the date first above written.
LANDLORD: TENANT:
McCandless Properties, a Monolithic System Technology,
California Limited Partnership, A Inc., California corporation
By: /s/ Charles S. McCandless By: /s/ Fu-Chieh Hsu
------------------------------------------ --------------------------
Charles S. McCandless, as Trustee under the (signature)
Charles S. and Jean A. McCandless Inter Vivos
Trust Agreement dated January 25, 1977, a Fu-Chieh Hsu
General Partner --------------------------
(Printed Name)
President
--------------------------
(Title)
Date: 10-1-96 Date: 9-26-96
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Exhibit 10.8
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (hereinafter "Amendment") is made upon this 30th day of June 2000, by and between McCANDLESS PROPERTIES, a California limited partnership (Landlord") and MONOLITHIC SYSTEM TECHNOLOGY, INC., a California corporation ("Tenant").
A. Tenant currently leases from Landlord approximately eight thousand (8,000) square feet of space located at 1020 Stewart Drive, California (the "Initial Premises") pursuant to that certain lease dated September 24, 1996 ("Lease"). The Initial Premises are shown on Exhibits A and B attached hereto.
B. Tenant desires to expand the Premises by adding approximately eleven thousand five hundred (11,500) square feet of additional space located at 1012 Stewart Drive, California (the "Expansion Space"). The Expansion Space is shown on Exhibits A and C attached hereto .
C. Tenant desires to extend the term of the Lease.
D. Landlord is willing to so extend the term and to so expand the Premises on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and agreements contained herein and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. PREMISES. Commencing on July 1, 2000, the Expansion Space shall be added to the Initial Premises and, thereafter, the total area leased shall be increased from approximately eight thousand (8,000) square feet to approximately nineteen thousand five hundred (19,500) square feet.
2. TERM. The term of the Lease is for the entire Premises, as expanded, is hereby extended to, and shall include, June 30, 2005. The period commencing on July 1, 2000 and ending on June 30, 2005 is referred to herein as the Second Extended Term.
3. BASIC RENT. Paragraphs 4 (a)and 5 of the Lease are hereby amended to provide that as of July 1, 2000 the amount of basic rent due and payable under the Lease shall be as set forth below:
July 1, 2000 until October 31, 2000 $48,575.00/mo.
November 1, 2000 until June 30, 2001 $48,975.00/mo. July 1, 2001 until October 31, 2001 $50,844.00/mo. November 1, 2001 until June 30, 2002 $66,544.00/mo. July 1, 2002 until June 30, 2003 $69,820.00/mo. July 1, 2003 until June 30, 2004 $73,301.00/mo. July 1, 2004 until June 30, 2005 $76,986.00/mo. |
The above basic monthly rent calculations are predicated on basic rent of $3.25 per square foot per month triple net as of July 1, 2000 for the Expansion Space with five percent (5%) annual increases thereafter and basic rent of $3.41 per square foot per month triple net as of November 1, 2001 for the Initial Premises from November 1, 2001 until June 30, 2002 with five percent (5%) annual increases thereafter. A spreadsheet showing the calculations and totals of basic rent for each month is attached hereto as Exhibit D.
4. COMMON AREA CHARGES. Commencing on the July 1, 2000, Tenant's proportionate share of common area charges as set forth in paragraph 16 of the Lease shall be increased from 40.03% to 100%.
5. SECURITY DEPOSIT. Commencing on the July 1, 2000, Tenant shall deposit with Landlord the sum of Twenty Six Thousand Eight Hundred and 00/100 Dollars ($26,800.00), which sum shall be held by Landlord as additional security deposit under the terms described in paragraph 4 (e) of the Lease. Tenant's total security deposit held by Landlord therefore shall be increased as of July 1, 2000 from Twenty Three Thousand Two Hundred and 00/100 Dollars ($23,200) to Fifty Thousand and 00/100 Dollars ($50,000.00). Such security deposit shall not be reduced by means of a rent credit or any other means and Tenant hereby waives any further security deposit reductions as provided for in paragraph 4 (e)of the Lease.
6. PARKING. Commencing on the Effective Date, Tenant's right to the non-exclusive use of the parking spaces, as defined in paragraph 15 of the Lease, shall be increased to sixty-eight (68) spaces.
7. EXPANSION SPACE TAKEN "AS IS". Tenant is leasing the Premises from Landlord "as is" in its existing condition as of the date hereof. Landlord shall have no obligation to alter or improve the Premises except only to clean the Premises as reasonably necessary.
Tenant acknowledges that, except as expressly contained in this lease, neither Landlord nor anyone acting for or on behalf of Landlord has made any representation, warranty or promise to Tenant concerning the physical aspects or condition of any of the Project; the feasibility, desirability or convertibility of any of the Project into any particular use; the zoning, building or land use restrictions applicable to the zoning, building or land use restrictions applicable to the Project; the projected income or expenses for any of the Project or any business conducted thereon; the suitability of the Project for any particular use; or the presence or absence of any Hazardous Materials; and that in entering into this lease, Tenant has not relied upon any representation,
statement or warranty of Landlord or anyone acting for or on behalf of Landlord, other than as expressly contained in this lease, and that all matters concerning the Premises shall be independently verified by Tenant and that Tenant shall enter into this lease on Tenant's own examination thereof (or Tenant's election not to do so). Tenant does hereby waive, and Landlord does hereby disclaim, all warranties of any type or kind whatsoever with respect to the Project, express or implied, including by way of description, but not limitation, those of fitness for a particular purpose, tenantability, habitability and use. Tenant hereby expressly assumes the risk that adverse physical conditions and the full extent thereof (including, without limitation, soil, groundwater and surface water contamination and air pollution from Hazardous Materials) may not be revealed by Tenant's inspections, reviews and studies of the Project prior to the date of possession.
No person acting on behalf of Landlord is authorized to make, and by execution hereof Tenant acknowledges that no such person has made, any representation, warranty, guaranty or promise except as may be expressly set forth herein; and no agreement, statement, representation, guaranty or promise made by any such person which is not expressly contained herein shall be valid or binding on Landlord and Landlord's agents, heirs, successors or assigns. The only representations or warranties outstanding with respect to the Project, or Landlord, either express or implied by law, are expressly set forth herein.
Tenant acknowledges that any and all documentary information, soil reports, environmental audits, site assessments, analyses or reports, insurance policies or other information of whatever type which Tenant has received or may receive from Landlord or Landlord's agents is furnished on the express condition that Tenant shall make Tenant's own independent verification of the accuracy and completeness of such information. Tenant agrees that Tenant shall not attempt to assert any liability upon Landlord or Landlord's agents for furnishing such information and Tenant does hereby release Landlord and Landlord's agents, heirs, successors and assigns free and harmless from and against, any and all such claims or liability.
8. ENVIRONMENTAL MATTERS.
A. TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS.
(1) Without limiting Tenant's obligations under paragraph 7 of the Lease, Tenant shall comply with and shall cause the Project to comply with, all federal, state, and local laws, statutes, rules, regulations, codes, ordinances, and other governmental requirements (including, without limitation, permits, licenses, consent decrees and administrative orders)now or hereafter in effect relating or pertaining in any way to (i) human health, safety or protection, (ii) workplace safety, (iii) industrial hygiene, (iv) the use, generation, handling, maintenance, treatment, removal, transportation, storage, release, discharge, disposal, or disclosure of Hazardous Materials, or (v) the protection or regulation of the environment, all as amended and modified from time to time (collectively, "Environmental Requirements"). Tenant shall cause all governmental permits and other approvals relating to the use or operation of the Project required by applicable Environmental Requirements or any other applicable laws to all times remain in effect, and Tenant shall at all times comply with such permits and other approvals.
(2) Tenant shall not cause, or permit to occur, any release, discharge, use, generation, manufacture, storage, treatment, transportation, or disposal by Tenant or any of its
employees, agents, contractors, visitors, clients, customers, sublessees, assignees, successors, licensees or invitees, of any Hazardous Materials on, in, under, about, or from the Premises or any other part of the Project. However, notwithstanding the foregoing, Tenant may use on the Premises, without Landlord's prior written consent, but only upon written notice to Landlord and in compliance with all Environmental Requirements and other applicable laws, any ordinary and customary materials reasonably required for use by Tenant in the normal course of the permitted use described in paragraph 1 hereof and further, but only so long as such use is not a Reportable Use (defined below)and does not expose the Premises or any other part of the Project or neighboring properties to any meaningful risk of contamination or damage or expose Landlord to any liability whatsoever therefor. In addition, Landlord may (but without any obligation to do so) condition its consent to any Reportable Use of any Hazardous Materials by Tenant upon Tenant's giving Landlord such additional assurances as Landlord in its sole discretion, deems necessary to protect itself, the public, the Premises, the Project, and the environment against damage, contamination or injury and/or liability therefor, including but not limited to the installation (and, at Landlord's option, removal on or before the expiration or earlier termination of this lease) of reasonably necessary protective modifications to the Premises (such as concrete encasement) and/or the deposit of an additional security deposit. As used herein, "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the release, generation, possession, storage, use, transportation, discharge or disposal of any Hazardous Materials that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental agency or authority, and (iii) the presence in, on or about the Premises, the Project of any Hazardous Materials with respect to which any Environmental Requirements or other applicable laws require that a notice be given to persons entering or occupying the Premises, the Project or neighboring properties.
(3) If Tenant knows, or has reasonable cause to believe, that any Hazardous Materials have come to be located in, on, under or about the Premises or the Project (other than those Hazardous Materials that have come to be located beneath and/or in the vicinity of the Project prior to the date of this lease and other than those Hazardous Materials as previously consented to by Landlord in writing, if any), to by Landlord, Tenant shall immediately give Landlord written notice thereof, together with a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action, or proceeding, given to, or received from, any governmental authority or private party concerning the presence, spill, release, discharge of, or exposure to, such Hazardous Materials including but not limited to all such documents as may be involved in any Reportable Use involving the Premises or the Project. Landlord's receipt of any notice, documents or other information from Tenant as provided above in this paragraph shall not create any obligation on the part of Landlord to respond in any way to such notice, documents or information or the conditions described therein.
(4) Tenant shall immediately notify Landlord and provide copies upon receipt of all written complaints, claims, citations, demands, inquiries, reports, or notices relating to the condition of the Premises or compliance with Environmental Requirements (provided, however, that Landlord's receipt of any of the foregoing shall in no way create or impose any duty or obligation upon Landlord to respond thereto. Tenant shall promptly cure and have dismissed with prejudice any of those actions and proceedings to the satisfaction of Landlord.
(5) Landlord, its agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises or Project shall have the right, but not the obligation, to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Tenant with this lease (including compliance with Environmental Requirements)and Landlord shall be entitled to employ experts and/or consultants in connection therewith to advise Landlord with respect to Tenant's activities, including but not limited to Tenant's use, storage, handling, transportation, maintenance, or removal of any Hazardous Materials on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a default or breach of this lease by Tenant or a violation of any Environmental Requirement or a contamination caused or materially contributed to by the Tenant is found to exist or to be imminent , or unless the inspection is requested or ordered by a governmental agency or authority as the result of any such existing or imminent violation or contamination, in such case, Tenant shall upon request reimburse Landlord, for the costs and expenses of such inspections.
(6) If Tenant breaches any of its warranties, representations, or covenants under this paragraph 8, Landlord may, without obligation, cause the removal (or other cleanup or other response acceptable to Landlord) of any Hazardous Materials from the Project, and the costs of any Hazardous Materials removal, remediation, detoxification, or other response (including, without limitation, disposal, transportation and storage costs and all costs of refitting or otherwise altering the Premises or any other part of the Project shall be covered by the indemnity in paragraph 8B, below, whether or not a court or other governmental authority has ordered such removal, remediation, detoxification or other response and those costs shall become due and payable on demand by Landlord. Tenant shall give Landlord, its agents, contractors, and employees access to the Premises to remove, remediate, detoxify, clean up or otherwise respond to any Hazardous Materials, and this lease shall not be construed as creating any such obligation.
B. INDEMNIFICATION OF LANDLORD. Tenant agrees to indemnify, defend (with counsel acceptable to Landlord and at Tenant's sole cost), and hold Landlord and Landlord's partners, employees, agents, attorneys, successors and assigns free and harmless from and against any and all losses, liabilities, obligations, penalties, claims, litigation, orders, demands, defenses, costs, judgments, suits, penalties, proceedings, damages (including, without limitation, consequential damages, diminution of the value of the Premises or Project, disbursements, losses, or expenses of any kind (including, without limitation, attorneys' and experts' fees and expenses incurred in investigating, defending, or prosecuting any litigation, claim, or proceeding) that may at any time be imposed upon, suffered by, incurred by, or asserted or awarded against Landlord or any of its partners, employees, agents, attorneys, successors or assigns in connection with or arising directly or indirectly out of:
(1) Any release, threatened release, discharge, handling, use, storage, presence, transportation, or disposal of any Hazardous Materials (whether or not the use thereof is a Reportable Use or has been consented to by Landlord on, in, under, or affecting all or any part of the Premises or Project which is (or are) attributable, in whole or in part, directly or indirectly, to any act or omission of Tenant or any employee, agent, contractor, visitor, client, customer, sublessee, assignee, successor, licensee or invitee of Tenant;
(2) Any misrepresentation, inaccuracy, or breach of any warranty, covenant, or agreement contained or referred to in this paragraph 8;
(3) Any failure by Tenant or any employee, agent, contractor, visitor, customer, sublessee, assignee, successor, client, licensee or invitee of Tenant to comply with any Environmental Requirement or other applicable law, whether such failure was made knowingly or unknowingly or intentionally or unintentionally.
This indemnification is the personal obligation of Tenant and shall survive the expiration or sooner termination of this lease. Tenant, its successors, and assigns waive, release, and agree not to make any claim or bring any cost recovery action against Landlord under the Comprehensive Environmental Response, Compensation and Liability Act, as amended and reauthorized to date (42 U.S.C. Sections 9601 et seq.) ("CERCLA"), or any state equivalent or any similar law now existing or enacted after this date. To the extent that Landlord is strictly liable under any such law, regulation, ordinance, or requirement, Tenant's obligation to Landlord under this indemnity shall also be without regard to fault on the part of Tenant with respect to the violation or condition that results in liability to Landlord.
C. DEFINITION OF HAZARDOUS MATERIALS. "Hazardous Materials" means any product substance, chemical, material or waste whose presence, nature, quantity and/or intensity or existence, use, manufacture, disposal, transportation, spill, release, or effect, either by itself or in combination with any other materials, substances or chemicals is either (i) potentially injurious or harmful to the public health, safety or welfare, the Premises, or the environment (including, without limitation, any soil, air, groundwater, and subsurface media on, in, under, above or about the Project); (ii) regulated or monitored by any federal, state or local governmental authority; or (iii) a basis for potential liability of Landlord to any governmental agency, private party, or other third party under any Environmental Requirement or any other applicable statute, regulation, code, ordinance or common law theory. Without limiting the scope or generality of the foregoing, Hazardous Materials shall include, but not be limited to any petroleum or petroleum byproducts or petroleum hydrocarbons, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste and any "hazardous substance" or "toxic waste" as those terms are defined under the provision of the California Health and Safety Code and/or CERCLA.
D. DISCLOSURE. Tenant represents to Landlord that Tenant is aware that detectable amounts of hazardous substances and groundwater contaminants have come to be located beneath and/or in the vicinity of the Project. (See, for example, California Regional Water Quality Control Board order No. 96-135) Tenant has made such investigations and inquiries as it deems appropriate to ascertain the effects, if any, of such substances and contaminants on its operations and persons using the Project. Landlord makes no representation or warranty with regard to the environmental condition of the Project. Tenant and its affiliated entities and their respective partners, employees, successors and assigns, hereby covenant and agree not to sue and forever release and discharge Landlord, and its trustees, officers, directors, agents and employees for and from any and all claims, losses, damages, causes of action and liabilities, arising out of hazardous substances or groundwater contamination presently existing on, under or emanating from the Project.
E. SURVIVAL. The provisions of this paragraph 8 shall survive the expiration or earlier termination of the term of this lease.
Notwithstanding provisions in this lease to the contrary, Tenant shall have no obligation to clean up or to reimburse, release, indemnify, or defend Landlord with respect to removal or liability respecting hazardous materials or wastes unless the hazardous materials in question were stored, disposed, transported, used, analyzed, released, threaten to be released or otherwise caused to be present in or about the Premises or Project by Tenant or its agents, employees, invitees, assignees, contractors or subcontractors or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawful).
9. BROKERS. Each party represents that it has not had any dealings with any real estate broker, finder or other person with respect to this Amendment or expanding the Premises, and that there are no leasing commissions to be paid by Landlord or Tenant in connection with this transaction. Each party hereto shall hold harmless the other party from all damages, loss or liability resulting from any claims that may be asserted against the other party by any broker, finder or other person with whom such party has dealt, or purportedly has dealt, in connection with this transaction.
10. OPTION TO EXTEND TERM. Notwithstanding the provisions of this Amendment extending the term of the lease, Tenant shall not be deemed to have exercised its option to extend the term of the Lease as described in paragraph 55 of the Lease and such option shall remain effective as described in paragraph 55 of the Lease.
11. SUBJECT TO TERMINATION AGREEMENT. Notwithstanding the above, the validity and effectiveness of this Amendment is subject to and contingent upon Landlord's receipt of a valid and fully executed termination agreement from the existing tenant in the Expansion Space, Calient Networks, Inc. (formerly Chromisys, Inc.), terminating such tenant's lease of the Expansion Space as of June 30, 2000.
12. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified herein, all other terms, covenants and conditions of the Lease, including Tenant's obligation to pay common area charges, shall remain in full force and effect.
SPACE INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
LANDLORD: TENANT:
McCANDLESS PROPERTIES, Monolithic System Technology, Inc.
a California limited partnership a California corporation
By: By:
--------------------------------------- ------------------------------
Jean A. McCandless, as Trustee under the
Charles S. McCandless and Jean A. McCandless
Inter Vivos Trust Agreement dated January 25, ---------------------------------
1977, a General Partner (Printed Name)
---------------------------------
(Title)
7-9-00 July 5, 2000
------------------------------------------ ---------------------------------
(Date) (Date)
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EXHIBIT 10.9
AGREEMENT
THIS AGREEMENT ("AGREEMENT") is effective as of August 31, 1999 (the "EFFECTIVE DATE") by and between Monolithic System Technology, Inc., a corporation organized and existing under the laws of the State of California, and having a principal place of business at 1020 Stewart Drive, Sunnyvale, California, 94086, United States of America (which may be referred to in this Agreement as either "MOSYS, INC." or "MOSYS"), and Nintendo Co., Ltd, a corporation organized and existing under the laws of Japan, and having a principal place of business at 60 Fukuine Kamitakamatsu-cho, Higashiyama-ku, Kyoto 605-8660, Japan ("NINTENDO") (each a "PARTY;" together the "PARTIES").
BACKGROUND
WHEREAS, Nintendo is developing a proprietary product which is currently code-named "Dolphin", and MoSys is a fab-less semiconductor memory technology company that has developed and is developing certain proprietary technology involving semiconductor memories;
WHEREAS, Nintendo desires to obtain under license certain memory integrated circuit products that use 1T-SRAM memory technology of MoSys to incorporate into the Dolphin Product, and MoSys desires to enable Nintendo as a preferred customer and other third parties working on Dolphin to obtain such integrated circuit products from certain third party integrated circuit manufacturers;
WHEREAS, MoSys is in confidential discussions with such manufacturers regarding the possible development, manufacture and sale of such integrated circuit products, but no definitive agreements have been reached and the integrated circuit products have not been developed; and
WHEREAS, MoSys and Nintendo desire to enter into an agreement on the terms and conditions set forth below to develop Prototype 1T-SRAM Memories and establish fees to be paid directly by Nintendo to MoSys for integrated circuit products in the event they become available and are purchased by Nintendo.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the Parties agree as follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement the following terms shall have the meanings set forth below:
1.1 "AUTHORIZED MANUFACTURER" means a third party in the regular business of manufacturing integrated circuit devices who is listed in the attached EXHIBIT A and is expressly authorized by MoSys in a Manufacturer Agreement to manufacture and sell a High Density 1T-SRAM Memory.
1.2 "DOLPHIN PRODUCT" means the next generation video game platform currently being developed by Nintendo and referred to as the "Dolphin" product, as such product is modified, developed and ultimately released by Nintendo. This Agreement shall be amended to identify such product by its actual commercial name when available if requested by either Party.
1.3 "FEES" means all amounts payable to MoSys under this Agreement.
1.4 "HIGH DENSITY 1T-SRAM MEMORIES" means products expressly identified as "High Density 1T-SRAM Memories" in a Manufacturer's Agreement between MoSys and the third party integrated circuit manufacturer and which are listed in the attached EXHIBIT A as well as Prototype 1T-SRAM Memories as listed in the attached EXHIBIT B. The Parties currently plan that the High Density 1T-SRAM Memories will include stand alone memory integrated circuits, which are expected to use the MoSys 1T-SRAM technology.
1.5 "MANUFACTURER'S AGREEMENT" means a confidential written agreement that expressly refers to this Agreement by the names of the Parties and the Effective Date and title set forth above, that is executed by MoSys and the applicable third party integrated circuit manufacturer, and that expressly covers integrated circuit products that use MoSys's 1T-SRAM technology that may be sold to Nintendo for use in the Dolphin Product.
1.6 "MOSYS INTELLECTUAL PROPERTY" means any and all know-how,
technical information, trade secrets, patents and patent applications owned or
controlled by MoSys (a partial list of which is attached in EXHIBIT C), which
(i) MoSys has the right to license, relating to memory architecture, protocol
and circuit implementation, and which (ii) are incorporated in the High Density
1T-SRAM Memory by MoSys. The term "MoSys Intellectual Property" does not include
any and all know-how, technical information, trade secrets and circuit
implementation which is (a) in the public domain, (b) known generally by persons
skilled in the art, (d) already in the rightful possession of Nintendo, (d)
hereafter becomes available for use without license, (e) owned or controlled by
others, including but not limited to which relating to generic DRAM processes,
memory cells, capacitor fabrication and memory operations, (f) hereafter becomes
rightfully known to Nintendo without restriction or (g) subsequently developed
independently by employees of Nintendo without access to the High Density
1T-SRAM Memory.
1.7 "PER UNIT ROYALTY" means the per unit royalty payable by an Authorized Manufacturer to MoSys under a Manufacturer's Agreement for the sale of a High Density 1T-SRAM Memory to Nintendo and which is identified in such agreement as a royalty that will be waived by MoSys for sales to Nintendo of High Density 1T-SRAM Memories used in the Dolphin Product. Per Unit Royalty shall not include any up front or other lump sum license fees, any costs, expenses, duties, tariffs or taxes, or any non-recurring charges or any other amounts associated with the development of any products, which the Parties contemplate will be charged to and paid by any Authorized Manufacturer.
1.8 "PROTOTYPE DEVELOPMENT FEES" means the Fees payable by Nintendo to MoSys under this Agreement for the development of the Prototype 1T-SRAM Memory integrated circuits.
1.9 "PROTOTYPE 1T-SRAM MEMORIES" means the prototype high-density, 1T-SRAM memory integrated circuit developed by MoSys on behalf of Nintendo which is included in the attached EXHIBIT B. It is contemplated that [omitted pursuant to a request for confidential treatment and filed with the SEC] units of the Prototype 1T-SRAM Memories will be manufactured for Nintendo, provided, however, that Nintendo may request a reasonable number of additional units be manufactured as mutually agreed by the parties.
1.10 "PURCHASE PRICE" means the gross sales amount invoiced or otherwise charged to Nintendo by an Authorized Manufacturer for the purchase or other disposition of a High Density 1T-SRAM Memory in finished and packaged form in a fully arms length transaction, excluding import, export, value added, excise and sales taxes, customs duties, and tariffs actually paid. In the event that a High Density 1T-SRAM Memory is bundled with other products or otherwise sold or disposed of under circumstances which might indicate that the transaction was on other than a fully arms length basis, the Purchase Price shall, upon MoSys's request, mean the fair market value of the High Density 1T-SRAM Memory. Such fair market value shall be determined by looking at the arms length sales to third parties of similar MoSys products, or if such arms length sales do not appear to provide a reasonable basis for the fair market value, the arms length sales to third parties of similar MoSys and other products.
1.11 "QUARTER" means a period of three (3) consecutive calendar months which period commences upon either January 1, April 1, July 1, or October 1.
1.12 "TERM" means the initial term and any renewal term under Section 6 below.
SECTION 2. LICENSE; PRODUCT PURCHASES
2.1 AVAILABILITY OF PRODUCTS. MoSys is currently in discussions with potential Authorized Manufacturers concerning the possible development, manufacture, and sale of High Density 1T-SRAM Memories, but definitive agreements have not yet been reached and High Density 1T-SRAM Memories have not yet been developed. It is understood and agreed that Nintendo's ability to obtain High Density 1T-SRAM Memories is contingent upon availability from MoSys's Authorized Manufacturers and because availability is anticipated as being only through such third parties, the design, performance, and availability of High Density 1T-SRAM Memories may not be in MoSys's sole control. In light of the foregoing, but subject to the last sentence in this Section 2.1, this Agreement is not intended to obligate MoSys to sell, make available, or continue to make available to Nintendo, or obligate Nintendo to purchase, any High Density 1T-SRAM Memories. Rather, this Agreement is intended to establish the Fees to be paid to MoSys by Nintendo for High Density 1T-SRAM Memories used in the Dolphin Product only to the extent the High Density 1T-SRAM Memories become and remain available through such Authorized Manufacturers. EXHIBIT A hereto may be amended to add High Density 1T-SRAM Memories only by mutual written agreement of both Parties and shall list the Authorized Manufacturers that are authorized by MoSys to supply each High Density 1T-SRAM Memory. It is acknowledged that this Agreement does not prevent the High Density 1T-SRAM Memories from being modified, changed, or discontinued at any time, provided, however, that MoSys shall deliver to Nintendo prior written
notice of any such modification, change or intent to discontinue.
Notwithstanding the foregoing, in the event definitive agreements are executed
and High Density 1T-SRAM Memories are developed, all applicable terms and
conditions of this Agreement shall apply to and govern the relationship between
Nintendo and MoSys.
2.2 LICENSE; PURCHASE OF PRODUCTS. Subject to the terms and conditions of this Agreement and acceptance of the High Density 1T-SRAM Memory from MoSys, MoSys grants Nintendo as a preferred customer a royalty-bearing, world-wide license to have manufactured by an Authorized Manufacturer, use, sell, and distribute the High Density 1T-SRAM Memory acquired from and manufactured by any Authorized Manufacturer. Nintendo shall also have the right to inform any Authorized Manufacturer of the terms of this Agreement governing the waiver of payment of Per Unit Royalties by any Authorized Manufacturer and the payment of Fees by Nintendo in arranging such purchases. MoSys will confirm to the Authorized Manufacturers these terms and will waive the obligation of Authorized Manufacturers to pay Per Unit Royalties to MoSys under Manufacturers' Agreements solely as follows. MoSys will waive each Authorized Manufacturer's obligation to pay Per Unit Royalties to MoSys under a Manufacturer's Agreement for each authorized sale by the Authorized Manufacturer to Nintendo of a High Density 1T-SRAM Memory that is used by Nintendo in the Dolphin Product; provided that MoSys has received from Nintendo payment of the applicable Fees in accordance with Section 3 below. Nintendo shall not request the waiver for, and the waiver shall not apply to, any High Density 1T-SRAM Memories that are not incorporated into the Dolphin Product. The waiver will be made in accordance with the terms of the applicable Manufacturer's Agreement.
2.3 DEVELOPMENT OF PROTOTYPE 1T-SRAM MEMORIES. MoSys deems Nintendo a preferred customer and therefore agrees to develop on behalf of Nintendo the Prototype 1T-SRAM Memories according to the specifications in the attached EXHIBIT B. Upon timely completion of the Prototype 1T-SRAM Memories, MoSys shall use commercially reasonable efforts to promptly deliver the Prototype 1T-SRAM Memories to Nintendo along with associated design specifications and application documents and further grants Nintendo the right to have the Prototype 1T-SRAM Memories manufactured by an Authorized Manufacturer of Nintendo's choice in accordance with the terms of the applicable Manufacturer's Agreement.
2.4 NO OTHER RIGHTS. Except as expressly granted herein, nothing in this Agreement grants to Nintendo any right or license to manufacture or to have manufactured the High Density 1T-SRAM Memories or any right or license under any intellectual property or proprietary rights of MoSys, whether by reliance, implication, estoppel or otherwise. Nintendo shall not exercise its rights under this Agreement in any manner, or take any other action, which adversely affects MoSys's rights in and to the High Density 1T-SRAM Memories. ALL RIGHTS NOT EXPRESSLY GRANTED HEREIN ARE RESERVED TO MOSYS. It is understood and agreed that MoSys may in its sole discretion determine the terms and conditions to which it wishes to agree in each Manufacturer's Agreement and that MoSys shall have no obligations or responsibility to Nintendo to obtain any particular terms or conditions, except that any manufacture or production of High Density 1T-SRAM Memories shall meet the specifications set forth in the attached EXHIBIT B. It is also understood and agreed that the actual price between Nintendo and the Authorized Manufacturer for the purchase of High Density 1T-SRAM Memories is not under MoSys's control and that MoSys shall have no obligations, responsibility or liability concerning such price. Except as expressly granted herein, nothing in this Agreement grants to MoSys any right or license under any intellectual
property or proprietary rights of Nintendo, whether by reliance, implication, estoppel or otherwise. MoSys shall not exercise its rights under this Agreement in any manner, or take any other action, which adversely affects Nintendo's rights in and to the Dolphin Product. ALL RIGHTS NOT EXPRESSLY GRANTED HEREIN ARE RESERVED TO NINTENDO.
2.5 EXCLUSIVITY. [omitted pursuant to a request for confidential treatment and filed with the SEC].
SECTION 3 COMPENSATION TO MOSYS
3.1 PRODUCT FEES. In consideration of the preferred rights provided to Nintendo hereunder, Nintendo shall pay to MoSys the negotiated Fee in the amount set forth below for each High Density 1T-SRAM Memory for which Nintendo would like MoSys to waive the Authorized Manufacturer's Per Unit Royalty in accordance with Section 2.2 above:
(a) [omitted pursuant to a request for confidential treatment and filed with the SEC] of the Purchase Price for each of the first [omitted pursuant to a request for confidential treatment and filed with the SEC] units of High Density 1T-SRAM Memory obtained from an Authorized Manufacturer; and
(b) [omitted pursuant to a request for confidential treatment and filed with the SEC] of the Purchase Price for each High Density 1T-SRAM Memory obtained from an Authorized Manufacturer in excess of such first [omitted pursuant to a request for confidential treatment and filed with the SEC] units.
In the event any High Density 1T-SRAM Memories as delivered are not accepted by Nintendo or are otherwise rejected due to defects or other performance problems and such High Density 1T-SRAM Memories are returned to any Authorized Manufacturer, Nintendo shall be entitled and have the right to deduct from and set off against any amounts payable by Nintendo under this Agreement any amounts owed by Nintendo to MoSys for such High Density 1T-SRAM Memories as described in this Section 3.
3.2 PROTOTYPE DEVELOPMENT FEES. In consideration of the development and delivery to Nintendo of the Prototype 1T-SRAM Memories, Nintendo shall pay to MoSys the negotiated Fee of [omitted pursuant to a request for confidential treatment and filed with the SEC] as set forth in EXHIBIT B.
3.3 PAYMENT. Unless otherwise specified, all Fees (except Prototype Development Fees) shall be due and paid no later than [omitted pursuant to a request for confidential treatment and filed with the SEC] after the end of the Quarter during which any High Density 1T-SRAM Memories were obtained from an Authorized Manufacturer. All payments shall be calculated and made in United States Dollars by wire transfer to:
Chiao Tung Bank
Silicon Valley Branch
333 West San Carlos St., Suite 100
San Jose, CA 95110, U.S.A.
Tel: +1 (408) 283-1888
Account Name: MoSys, Inc. Account No.: 001-600642 Routing No.: 1211-41754
with notification to:
Chief Financial Officer
MoSys, Inc.
1020 Stewart Drive
Sunnyvale, CA 94086, U.S.A.
Tel: +1 (408) 731-1814
Fax: +1 (408) 731-1893
unless otherwise specified in writing by MoSys. All notifications to MoSys shall be accompanied by a written report from Nintendo showing the number of and actual Purchase Price for each High Density 1T-SRAM Memory to which the payment applies as well as the total number of each High Density 1T-SRAM Memory obtained from each Authorized Manufacturer as of the date of the report.
3.4 TAXES. Any and all Fees payable hereunder do not include any government taxes (including without limitation sales, use, excise, and value added taxes) or duties imposed by any governmental agency that are applicable to the export, import, or purchase of the Products (other than taxes on the net income of MoSys), and Nintendo shall bear all such taxes and duties. When MoSys has a current or subsequent legal obligation to collect and/or pay such taxes, the appropriate amount shall be added to Nintendo's invoice and paid by Nintendo, unless Nintendo provides MoSys with a valid tax exemption certificate authorized by the appropriate taxing authority. All payments by Nintendo specified hereunder are expressed as net amounts and shall be made free and clear of, and without reduction for, any withholding taxes. Any such taxes which are otherwise imposed on payments to MoSys shall be the sole responsibility of Nintendo. If any applicable law requires Nintendo to withhold amounts from any payments to MoSys hereunder, (i) Nintendo shall effect such withholding, remit such amounts to the appropriate taxing authorities and promptly furnish MoSys with tax receipts evidencing the payments of such amounts, and (ii) the sum payable by Nintendo upon which the deduction or withholding is based shall be increased to the extent necessary to ensure that, after such deduction or withholding, MoSys receives and retains, free from liability for such deduction or withholding, a net amount equal to the amount MoSys would have received and retained in the absence of such required deduction or withholding. In the event that MoSys receives a reduction in tax due or rebate from any tax authority directly due to the amount withholding tax paid by Nintendo, it will promptly reimburse Nintendo such amount that it has had reduced or received from the tax authority. Upon request, MoSys shall promptly provide Nintendo, with a copy of all its relevant tax documents and filings as authorized by the appropriate tax authority or authorities. For purposes of this Section 3.4, the parties acknowledge that Nintendo intends to take delivery of all High Density 1T-SRAM Memories and other related products in
Japan. When and if applicable, MoSys shall timely execute and deliver to NCL, a tax form in the form which is attached hereto as EXHIBIT D.
3.5 LATE PAYMENT. Any payments due under this Agreement which are not paid when due shall bear interest to the extent permitted by applicable law at the prime rate as reported by the Chase Manhattan Bank, New York, New York, on the date such payment is due, plus an additional three percent (3%), calculated on the number of days such payment is delinquent. This Section 3.5 shall in no way limit any other remedies available to any Party. In the event that Fees are not timely paid under this Agreement, MoSys shall have no obligation to waive the applicable Per Unit Royalties of the Authorized Manufacturer. In the event that MoSys elects not to waive the Per Unit Royalties it shall notify Nintendo of this fact.
3.6 AUDIT RIGHTS. MoSys grants to Nintendo and Nintendo shall have the right to review and audit any draft and/or final version of any Manufacturer's Agreement between MoSys and any Authorized Manufacturer. In addition, Nintendo and MoSys each agree to make and to maintain until the expiration of three (3) years after the year to which such records pertain, sufficient books, records and accounts regarding, with respect to Nintendo, its purchase and other activities in order to calculate and confirm its payment, and with respect to both Parties, each of their respective confidentiality and other obligations hereunder. Nintendo and MoSys will each have the right, at its own expense and not more than once in any calendar year, to have an independent certified public accountant, or other reasonably acceptable professional, inspect, upon reasonable notice and during regular business hours, Nintendo's or MoSys's relevant records and practices to verify, with respect to Nintendo, the accuracy of Fees paid and compliance with its payment obligations, and with respect to both Parties, each of their respective confidentiality and other obligations under the terms of this Agreement. If any such examination discloses a shortfall in the Fees paid to MoSys hereunder or other non-compliance by either Party with this Agreement, Nintendo shall reimburse MoSys for the full amount of any such shortfall and Nintendo or MoSys shall have the right to repeat the examination in the applicable calendar year. If the amount of underpayment for any period is more than five percent (5%) Nintendo shall pay MoSys's actual out-of-pocket costs (including without limitation attorneys' fees and fees paid to the auditor) of performing the audit with respect to such period.
SECTION 4 PROPRIETARY NOTICES AND MARKETING
4.1 PROPRIETARY NOTICES. Nintendo shall not remove any trademark, trade name, mask work notice, patent marking or other proprietary notice from the High Density 1T-SRAM Memories. As reasonably requested by MoSys, Nintendo further agrees to apply all applicable mask work, patent, copyright and other proprietary notices in order to fully preserve and protect MoSys's rights and remedies under applicable laws.
4.2 PUBLIC ANNOUNCEMENTS. After execution of this Agreement by both Parties, MoSys and Nintendo will issue a mutually agreed-upon joint public announcement stating that MoSys's proprietary embedded 1T-SRAM technology has been selected by Nintendo as the memory in the graphics chip in the Dolphin Product. At a mutually agreed later date, contemplated to be no later than the second Quarter of 2000, MoSys and Nintendo will issue a mutually agreed-upon joint public announcement stating that Nintendo has selected MoSys's ultra-high density 1T-SRAM discrete memory devices for use in the Dolphin Product in addition to the embedded 1T-SRAM memory.
Each Party shall use diligent good faith efforts to promptly mutually agree to such public announcements, and neither will unreasonably withhold its agreement to a public announcement concerning the foregoing that is proposed by the other.
SECTION 5 CONFIDENTIALITY
5.1 OBLIGATIONS. The parties have entered into a separate non-disclosure agreement dated March 23, 1999, and hereby acknowledge and agree that such confidentiality agreement shall govern and control all confidential information of the Parties, including maintaining confidential the existence of and the terms and conditions of this Agreement except as specifically set forth herein or until otherwise agreed to in writing by the Parties.
SECTION 6 TERM AND TERMINATION
6.1 TERM. This Agreement shall remain in effect until December 31, 2006, from the Effective Date unless earlier terminated as provided below. This Agreement may be renewed thereafter for additional one (1) year terms only by mutual written agreement of both Parties.
6.2 TERMINATION FOR BREACH. In the event of a material breach by either Party, the non-breaching Party shall be entitled to give the breaching Party written notice of such breach. If the breaching Party has not cured such breach within thirty (30) days after receipt of such notice, the non-breaching Party shall be entitled, in addition to any other rights it may have under this Agreement or otherwise under law, to terminate this Agreement by giving notice thereof to the other Party which shall take effect immediately.
6.3 TERMINATION BY MOSYS. This Agreement may be terminated at any time
by MoSys by providing written notice to Nintendo in the event of a good faith
disagreement regarding the determination of the Purchase Price as set forth in
Section 1.10, which disagreement is not resolved after: (a) thirty (30) days
from the date on which both Parties become aware of the disagreement and are
unable to resolve any disagreement by mutual consent; and (b) if the Parties are
unable to resolve such disagreement, the matter will be submitted to an
independent arbitrator acceptable to both Parties who will review materials from
both Parties and issue a written decision which will be binding on both Parties.
6.4 TERMINATION BY NINTENDO. This Agreement may be terminated at any time by Nintendo by providing written notice to MoSys in the event of a disagreement regarding the design quality of the High Density 1T-SRAM Memories, which disagreement is not resolved after: (a) thirty (30) days from the date on which both Parties become aware of the disagreement and are unable to resolve any disagreement by mutual consent; and (b) if the Parties are unable to resolve such disagreement, the matter will be submitted to an independent arbitrator acceptable to both Parties who will review materials from both Parties and issue a written decision which will be binding on both Parties.
6.5 EFFECT OF TERMINATION OR EXPIRATION. Upon termination or expiration of this Agreement for any reason, the rights granted under this Agreement shall immediately terminate except as expressly set forth in Section 6.6 below. Upon such termination, each Party shall immediately destroy or return to the other Party all tangible items in its possession or control which are proprietary to the delivering Party.
6.6 SURVIVAL. The provisions of Section 3, 4.1, 5, 6, 7, 8 and 9 shall survive the termination or expiration of this Agreement for any reason. It is expressly understood and agreed that, notwithstanding anything to the contrary herein, any compensation or payment obligations accruing under Section 3 above prior to termination, shall continue unaffected and survive termination of this Agreement for any reason.
SECTION 7 CUSTOMER SUPPORT, WARRANTIES AND INDEMNIFICATION
7.1 GENERAL. Except as provided in this Agreement and this Section 7, Nintendo shall be solely responsible for obtaining desired warranties and indemnification directly from the applicable Authorized Manufacturer rather than from MoSys. Except for warranties and indemnification so obtained, Nintendo shall be solely responsible for the representations and warranties that it provides with respect to the High Density 1T-SRAM Memories. MoSys shall have no obligation to honor any such representations or warranties, and Nintendo agrees to expressly disclaim on MoSys's behalf any and all warranties, whether express, implied, statutory or otherwise. Except for support and maintenance obtained by Nintendo directly from the Authorized Manufacturer, Nintendo shall be solely responsible for providing support and maintenance to its customers. MoSys's sole obligation, responsibility and liability shall be directly to the Authorized Manufacturer in accordance with the Manufacturer's Agreement
7.2 MOSYS REPRESENTATIONS AND WARRANTIES. MoSys represents and warrants to Nintendo that as of the Effective Date:
(a) to the best of MoSys's knowledge, it is the originator and/or rightful owner of the MoSys Intellectual Property and the design information and documentation of the High Density 1T-SRAM Memory provided to Nintendo pursuant to the terms of this Agreement (hereinafter collectively "INFORMATION");
(b) there are no claims pending or, to the best of MoSys's knowledge, threatened against MoSys, that relate to the Information or the contemplated use of the Information by Nintendo and/or any Authorized Manufacturer under this Agreement;
(c) it has received no written communication from a third party asserting infringement or alleging infringement of their intellectual property rights regarding 1T-SRAM memory technology which has not been resolved; and
(d) it has the full right and authority to enter into and perform any and all applicable provisions of this Agreement and that there are no encumbrances or other restrictions that may prevent MoSys or its employees from performing any and all applicable provisions of this Agreement.
7.3 INFRINGEMENT. Except as expressly provided herein, MoSys disclaims and shall have no obligation of defense, contribution, or indemnity with respect to any actual or alleged intellectual property infringement with respect to the Information provided or otherwise arising out of this Agreement. Except as expressly provided herein, MoSys shall have no liability arising out of any such actual or alleged intellectual property infringement. Each Party, however, will use commercially reasonable efforts to notify the other Party, in writing, of any such infringement claim of which it becomes aware, and Nintendo shall cooperate with MoSys if MoSys desires to intervene
in any such infringement action by any third party against Nintendo, provided, however, that MoSys shall have no control or right to control the defense of any such infringement action unless it assumes full responsibility and liability for such infringement action.
7.4 LIMITATION OF CLAIMS. In the event of any claim by a third party for alleged infringement by Nintendo of the third party's intellectual property rights where such claim (i) is caused substantially by the unmodified High Density 1T-SRAM Memories and, (ii) is not associated with standard DRAM operations, processes, design or manufacturing then MoSys shall use its commercially reasonable efforts at MoSys's sole expense to provide assistance, including appropriate documentation and commercially reasonable access to appropriate technical personnel, to Nintendo, in Nintendo's defense against such claim under this provision. If pursuant to such a claim Nintendo is or may become prohibited from using the High Density 1T-SRAM Memories, MoSys shall use commercially reasonable efforts to modify the design of the High Density 1T-SRAM Memories to avoid any infringement without impairing the ability to use the High Density 1T-SRAM Memories as intended. In addition, if pursuant to such a claim Nintendo is or may become prohibited from using the High Density 1T-SRAM Memories, MoSys shall use commercially reasonable efforts to provide assistance, including appropriate documentation and commercially reasonable access to appropriate technical personnel, to Nintendo at rates to be agreed between the Parties to assist Nintendo at Nintendo's sole expense in either replacing the High Density 1T-SRAM Memories with compatible, functionally equivalent non-infringing devices or securing the right to continue using the High Density 1T-SRAM Memories.
7.5 LIMIT OF LIABILITY. The foregoing states MoSys's sole obligations and entire liability with respect to any claimed infringement of the High Density 1T-SRAM Memories of any intellectual property or other rights of any third party.
7.6 DISCLAIMERS.
(a) EXCEPT AS PROVIDED IN THIS AGREEMENT, THE WARRANTIES AND INDEMNIFICATIONS OBTAINED BY NINTENDO DIRECTLY FROM THE AUTHORIZED MANUFACTURER CONTAIN THE ENTIRE LIABILITY AND OBLIGATIONS OF MOSYS, AND THE EXCLUSIVE REMEDY OF NINTENDO AND ITS CUSTOMERS, WITH RESPECT TO ANY ALLEGED OR ACTUAL INFRINGEMENT OF PATENTS, MASK WORKS, TRADE SECRETS, COPYRIGHTS, OR OTHER INTELLECTUAL PROPERTY RIGHTS BY THE HIGH DENSITY 1T-SRAM MEMORIES PRODUCED BY THE AUTHORIZED MANUFACTURERS.
(b) EXCEPT AS PROVIDED IN THIS AGREEMENT, MOSYS MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND AND NO REPRESENTATIONS OR WARRANTIES SHALL BE MADE ON BEHALF OF MOSYS, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND MOSYS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE.
SECTION 8 LIMITATION OF LIABILITY
8.1 EXCEPT TO THE EXTENT EXPRESSLY SET FORTH IN THIS AGREEMENT, MOSYS SHALL HAVE NO OBLIGATION, RESPONSIBILITY OR LIABILITY ARISING OUT OF OR RESULTING FROM THE HIGH DENSITY 1T-SRAM MEMORY OR THE PURCHASE
OR USE OF HIGH DENSITY 1T-SRAM MEMORIES PRODUCED BY THE AUTHORIZED MANUFACTURERS. THE TOTAL LIABILITY OF MOSYS ARISING OUT OF OR RELATED TO THIS AGREEMENT SHALL NOT EXCEED THE TOTAL AMOUNT PAID BY NINTENDO TO MOSYS HEREUNDER (AT THE TIME LIABILITY IS DETERMINED AND LIQUIDATED) AND THE LIABILITY RELATING TO SPECIFIC PRODUCT(S) PROVIDED HEREUNDER SHALL NOT EXCEED THE TOTAL AMOUNT PAID BY NINTENDO TO MOSYS FOR SUCH PRODUCT(S) (AT THE TIME LIABILITY IS DETERMINED AND LIQUIDATED). IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER FOR BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, ARISING OUT OF OR RELATED TO THIS AGREEMENT, OR FOR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR LOSS OF ANTICIPATED PROFITS, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
SECTION 9 GENERAL PROVISIONS
9.1 ASSIGNMENT. Neither Party may assign or transfer this Agreement or any rights or obligations hereunder, by operation of law or otherwise, without the prior written approval of the other Party and any such attempted assignment or transfer shall be void; provided, however, that either Party may assign or transfer this Agreement to an affiliate, subsidiary, or a successor to all or substantially all of its business or assets to which this Agreement relates, whether by way of merger, acquisition of stock or assets, or the like, if the assignee agrees in writing to comply with all terms and conditions of this Agreement. Notwithstanding the foregoing, if the assignee is a competitor of MoSys or Sony Computer Entertainment Company or Sega Corporation, then the assignment requires the prior written approval of the other Party. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties, their successors and permitted assigns.
9.2 NOTICES. All notices between the parties shall be in writing and shall be deemed to have been given if personally delivered or made by certified or registered mail (return receipt requested) or facsimile to the addresses set forth as follows, or such other contact and/or address as is provided by notice as set forth herein.
If to MoSys to: MoSys, Inc.
1020 Stewart Drive
Sunnyvale, CA 94086, U.S.A.
Attention: Chief Financial Officer
Facsimile: 408-731-1893
If to Nintendo to: Nintendo Co., Ltd.
60 Fukuine Kamitakamatsu-cho
Higashiyama-ku
Kyoto 605-8660, Japan
Attention: Genyo Takeda
Facsimile: +81 (75) 531-8623
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With a copy to: Nintendo of America Inc.
4820 150th Avenue N.E.
Redmond, Washington 98052, U.S.A.
Attention: Director, Corporate Legal Affairs
Facsimile: +1 (425) 882-3585
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Notices shall be deemed effective upon receipt or, if delivery is not effected by reason of some fault of the addressee, when tendered.
9.3 EXPORT REGULATIONS. Nintendo understands that MoSys is subject to regulation by the United States government, including, but not limited to, the U.S. Department of Commerce and its other agencies, which prohibit export or diversion of certain technical products and information to certain countries and individuals.
9.4 GOVERNING LAW. This Agreement, and all disputes arising out of or relating to this Agreement, shall be governed and construed under the laws of the State of Washington, U.S.A, without reference to conflict of laws principles. The United Nations Convention on the International Sale of Goods shall not apply.
9.5 DISPUTE RESOLUTION. In the event of any dispute, controversy or difference which may arise between the parties hereto out of or in connection with or in relation to this Agreement, or the breach thereof, the parties hereto shall in the first instance do their utmost to settle such dispute, controversy or difference amicably.
9.6 RELATIONSHIP OF THE PARTIES. The Parties are independent contractors. Nothing in this Agreement shall constitute, nor shall any party represent that there is any relationship of employee and employee, principal and agent, partnership or joint venturers between the parties as a result of this Agreement.
9.7 SEVERABILITY. If, for any reason, a court or other body of competent jurisdiction finds, or the Parties mutually believe, any provision of this Agreement, or portion thereof, to be invalid or unenforceable, such provision will be enforced to the maximum extent permissible and the remainder of this Agreement will continue in full force and effect if the resulting Agreement effects the original intent of the Parties. The Parties shall negotiate in good faith toward an enforceable substitute provision that most nearly achieves the intent and economic effect of the invalid or unenforceable provision.
9.8 FORCE MAJEURE. Other than the payment of money, nonperformance of either Party shall be excused to the extent that performance is rendered commercially unreasonable by acts of God, war, fire, flood, riot, power failure, embargo, material shortages, strikes, governmental acts, man-made or natural disasters, earthquakes, inability to obtain labor or materials through its regular sources, failure or limitation of supply, or any other reason where failure to perform is beyond the reasonable control and not caused by the negligence of the non-performing Party. The time for performance shall be extended for the time period lost due to the delay.
9.9 WAIVER. The waiver of, or failure to strictly enforce, any breach or default hereunder shall not constitute the waiver of any other or subsequent breach or default or the rights of the Party to subsequently require strict performance.
9.10 HEADINGS. The paragraph headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or extent of such paragraph, or in any way affect such agreements.
9.11 ENTIRE AGREEMENT. This Agreement, along with the Exhibits attached hereto, the Non-Disclosure Agreement dated March 23, 1999, and the letter regarding this Agreement signed contemporaneously herewith, which are all incorporated herein by reference, sets forth the entire agreement between the parties and supersedes, merges, and renders void any and all prior and contemporaneous proposals, agreements, and representations between them, whether written or oral, to the extent they relate in any way to the subject matter hereof. This Agreement may be changed only by mutual agreement of the parties in writing.
9.12 FOREIGN CORRUPT PRACTICES ACT. In conformity with the United States Foreign Corrupt Practices Act, neither Party nor any of their respective employees and agents, shall directly or indirectly make any offer, payment, or promise to pay; authorize payment; nor offer a gift, promise to give, or authorize the giving of anything of value for the purpose of influencing any act or decision of an official of any government within the Territory or the United States Government (including a decision not to act) or inducing such a person to use his or her influence to affect any such governmental act or decision in order to assist in obtaining, retaining or directing any business.
9.13 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which will be considered an original, but all
of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by duly authorized representatives on the dates set forth below to be effective as of the Effective Date set forth above.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
Date: _______________ ___________________________
(Signature)
___________________________
(Printed Name)
___________________________
(Title)
NINTENDO CO., LTD.
Date: _____________________
(Signature)
___________________________
(Printed Name)
___________________________
(Title)
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[Exhibits omitted]
Exhibit 10.10
LICENSE AGREEMENT
This License Agreement, (the "Agreement"), Number 0011, with an "Effective Date" of January 31, 1999, is made by and between MoSys, Inc., a California corporation, with its principal place of business at 1020 Stewart Drive, Sunnyvale, California 94086, U.S.A. (hereinafter referred to as "MoSys"), and NEC Corporation, a Japanese corporation with its principal place of business at 7-1, Shiba, 5-chome, Minato-ku, Tokyo 108-8001, Japan (hereinafter referred to as "Licensee").
WHEREAS, MoSys has developed and is developing certain semiconductor technology; and
WHEREAS, Licensee desires to license from MoSys portions of such technology for use in the manufacture of semiconductor devices of Licensee;
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING AND THE MUTUAL COVENANTS CONTAINED HEREIN, THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS
For purposes of this Agreement the following terms shall have the meanings set forth below:
1.1 "DESIGN" means any integrated circuit, integrated circuit mask, design
database or graphical representation of a design database containing
representations of the LICENSED PRODUCT or designed with data from the LICENSED
PRODUCT from MoSys in any of its various formats, including but not limited to:
circuit schematics, ASCII or binary data, logic diagrams, simulations models,
test vectors, physical layout, hardware description languages, timing
characteristics and netlists.
1.2 "MOSYS INTELLECTUAL PROPERTY" means any and all know-how, technical information, trade secrets, patents and patent applications owned or controlled by MoSys (a partial list of which is attached in Appendix F), which (i) MoSys has the right to License, relating to memory architecture, protocol and circuit implementation, and which (ii) are incorporated in the implementation of the LICENSED PRODUCT by MoSys. The term "MOSYS INTELLECTUAL PROPERTY" does not include any and all know-how, technical information, trade secrets and circuit implementation which is (a) in the public domain, (b) known generally by persons skilled in the art, (c) already in the rightful possession of Licensee or its SUBSIDIARIES, (d) hereafter become available for use without license, (e) owned or controlled by others, including but not limited to which relating to generic DRAM processes, memory cells, capacitor fabrication and memory operations, (f) hereafter becomes rightfully known to Licensee or its SUBSIDIARIES without restriction or (g) subsequently developed independently by employees of Licensee or its SUBSIDIARIES without access to the LICENSED PRODUCT.
1.3 "LICENSED INTEGRATED CIRCUIT" means (i) a single die in whole or in part manufactured utilizing all or any portion of the LICENSED PRODUCT and/or (ii) a single die in whole or in part made up of, incorporating or based upon any portion of a DESIGN.
1.4 "LICENSED PRODUCT" means the data and related documentation of MoSys embedded 1T-SRAM block as set forth in Appendix A and any UPDATES thereto in any form.
1.5 "LICENSED SITE(S)" means the site(s) where Licensee and/or its SUBSIDIARIES are authorized to utilize the LICENSED PRODUCT as set forth in Appendix C.
1.6 "UPDATE(S)" means any error correction or revision to the LICENSED PRODUCT made by or for MoSys, which MoSys provides to Licensee under the maintenance as described in Appendix D. UPDATES shall not include any new or additional features, enhancements, or options which increase the basic functionality of the LICENSED PRODUCT for which MoSys charges a separate or additional fee.
1.7 "NET SALES" means the gross sales amount invoiced or otherwise charged to Licensee's customers for the LICENSED INTEGRATED CIRCUITS in finished and package form, less amounts invoiced for returned goods for which a refund is given. Net sales will also include the deduction for charges including, but not limited to, insurance, handling, duty, freight and taxes.
1.8 "SUBSIDIARY(IES)" means a corporation or other legal entity in which at least a majority of whose voting stock or voting power entitled to vote for the election of directors (or other managing authority) is owned directly or indirectly by Licensee. Such corporation or other legal entity shall be considered as SUBSIDIARIES only so long as such ownership exists.
2. SCOPE OF WORK
2.1 The specifications of the LICENSED PRODUCTS for the Nintendo "Dolphin" project (the "Project") under this Agreement shall be as outlined in Appendix A.
2.2 The development work of the LICENSED PRODUCTS for the Project under this Agreement shall substantially follow the development plans set forth in Appendix B.
2.3 If there occurs a situation under which the terms of this Agreement shall be amended or supplemented, or it is necessary to agree upon additional terms for a project other than the Project, the parties hereto will enter into good faith negotiation for concluding a separate agreement for such amendment or supplement of this Agreement or additional terms.
3. LICENSE GRANT AND RESTRICTED USE
3.1 Subject to the terms and conditions stated herein and the acceptance of the LICENSED PRODUCT, MoSys grants to Licensee and its SUBSIDIARIES a non-transferable, non-
exclusive, royalty-bearing, world-wide, limited license under MOSYS INTELLECTUAL PROPERTY to use, have used, reproduce, have reproduced, modify and have modified (to the extent effected by Section 3.2) the LICENSED PRODUCT for the sole purpose of the design of LICENSED INTEGRATED CIRCUITS, and to manufacture, have manufactured, use, have used, sell and otherwise distribute said LICENSED INTEGRATED CIRCUITS. In addition, the Licensee agrees to promptly inform MoSys in writing at the start of each development in which the LICENSED PRODUCT will be embedded in a LICENSED INTEGRATED CIRCUIT for projects other than the Project.
3.2 The modification right granted by MoSys under Section 3.1 above shall be limited to changes of memory organization, size, density, porting to another process and minor functional and timing modifications for enhancing the manufacturability and performance of LICENSED INTEGRATED CIRCUITS and shall only be made by employees of Licensee and its SUBSIDIARIES at the LICENSED SITES. Licensee and its SUBSIDIARIES may use subcontractors in exercising the modification right granted by MoSys under Section 3.1 above with a prior approval of MoSys, which approval shall not be unreasonably withheld.
3.3 None of the LICENSED PRODUCT or portion thereof may be distributed except to third party entities as needed to support the manufacturing of the LICENSED INTEGRATED CIRCUIT. Except as specifically set forth herein, none of the LICENSED PRODUCT may be disclosed to third parties or transferred outside of LICENSED SITE(S).
3.4 Licensee acknowledges and agrees that unauthorized use of the LICENSED PRODUCT which is not expressly authorized by this Section 3 is a breach of a material obligation of this Agreement. In the event that unauthorized use of LICENSED PRODUCT by Licensee, its SUBSIDIARIES, or its/their personnel or third party entities occurs, and MoSys elects not to terminate this Agreement pursuant to Section 10, Licensee shall by virtue of such act(s) be deemed to order and accept a license for and shall pay MoSys the list price and applicable royalties for each such unauthorized use of the LICENSED PRODUCT. These fees shall be MoSys' published list prices and applicable royalties existing on the date such unauthorized use first occurred. Such fees and applicable royalties shall be due no later than thirty (30) days following mutual agreement of the parties with respect to such unauthorized use.
3.5 Licensee shall mark all catalogues, brochures and other marketing material used for the LICENSED INTEGRATED CIRCUITS with the MoSys trademark and copyright notations that appear on or in the LICENSED PRODUCT. As for the LICENSED INTEGRATED CIRCUITS for the Project, Licensee shall visibly mark each LICENSED INTEGRATED CIRCUIT with said MoSys copyright notation, providing it is reasonable and practical to do so but in any event at least to the same extent that Licensee so marks its own copyright notations. However, the parties acknowledge and agrees that, in the event that (i) Nintendo Co., Ltd. requests Licensee not to mark such LICENSED INTEGRATED CIRCUIT with said MoSys copyright notation or that (ii) the marking of said MoSys copyright notation is impossible or reasonably impracticable, Licensee will not be required to mark such LICENSED INTEGRATED CIRCUIT with said MoSys copyright notation under this Section 3.5.
3.6 MoSys strictly prohibits the use of the LICENSED PRODUCT in a LICENSED INTEGRATED CIRCUIT that is designed and used primarily as a stand-alone memory integrated circuit.
3.7 The licenses granted under this Section 3 are non-sublicenseable.
4. SUPPORT CONDITION, SILICON DEBUGGING AND PRODUCT ENGINEERING
4.1 In consideration for the technical support and maintenance fees described in Appendix D, MoSys will provide Licensee with the technical support and maintenance described in Appendix D for the LICENSED PRODUCT after the expiration of the warranty period as set forth in Section 13. Except as expressly specified in this Agreement, such technical support and maintenance is available on an annual basis only, and MoSys reserves the right to change the technical support and maintenance fees upon prior notice for any subsequent annual period.
4.2 The design and verification techniques for the LICENSED PRODUCT used by MoSys depend on the accuracy of models, flows and design tools; some of which are provided by MoSys' licensees and their target foundries. Due to practical limits on the accuracy of these models, flows and design tools, the fabricated silicon behavior may not always agree with that predicted. In these cases, MoSys will assist Licensee in silicon debugging and product engineering provided that Licensee agrees to pay mutually agreed fees to MoSys within thirty (30) days after the receipt of a relevant invoice to be issued by MoSys. Silicon debugging and associated product engineering does not fall under the technical support and maintenance set forth in Section 4.1 above. To the extent MoSys provides any silicon debugging or product engineering, or otherwise provides Licensee or its SUBSIDIARIES with any revisions and/or enhancements to the LICENSED PRODUCT, except as otherwise agreed upon, such revisions and/or enhancements shall be the LICENSED PRODUCT and subject to the terms and conditions of this Agreement.
5. TERM
This Agreement is effective as of the Effective Date and shall remain in full force and effect for a period of five (5) years, unless earlier terminated as provided in this Agreement. Unless earlier terminated as provided in this Agreement, this Agreement will automatically renew at the end of each term for consecutive one (1) year renewal periods, unless either party notifies the other at least sixty (60) days prior to the end of the then current term that it does not desire the Agreement to renew for another year.
6. CHANGES
6.1 Except as otherwise agreed by both parties in writing, all LICENSED PRODUCTS
provided to Licensee by MoSys during the term of this Agreement will be subject to the terms and conditions of this Agreement.
6.2 Changes to the scope of work either requested by and/or necessitated by Licensee's specifications will be evaluated for both schedule and cost impact. The Licensee will be asked to complete an Engineering Change Order Request Form, an "ECO" and submit it to MoSys for review. If after review by MoSys, it is determined that both the schedule and/or quoted sales prices must change to accommodate the ECO, MoSys will notify the Licensee in writing on our ECO Response Form of any such schedule and/or price changes. Licensee must provide written acceptance or refusal of the new schedule and/or costs within ten (10) working days of Licensee's receipt of such notice. Failure to do so will cause MoSys to proceed with the project as if the "Licensee" ECO Request Form had never been received. Sample ECO Request and ECO Response Forms are attached as Exhibits A and B.
7. COMPENSATION
7.1 Except as expressly provided herein, all payments made by Licensee to MoSys hereunder shall be non-refundable and non-creditable.
7.2 In consideration of the development work of the LICENSED PRODUCT and the rights and licenses granted to Licensee and its SUBSIDIARIES under this Agreement Licensee shall pay to MoSys the amounts as set forth in Appendix E in accordance with the payment schedule as set forth in Appendix E. The foregoing provisions of this Section 7.2 shall not limit the provisions of Section 3.4 above. Each installment of Prepaid Royalties shall be due within thirty (30) days after receipt by Licensee of a relevant invoice to be issued by MoSys after the completion of each milestone as set forth in Appendix E. Prepaid Royalties may be used to offset against future Royalties of any LICENSED PRODUCT for the Project due under this Agreement.
7.3 In consideration of the rights and licenses granted to Licensee and its SUBSIDIARIES under this Agreement, Licensee shall pay to MoSys the running royalty as set forth in Appendix E and expressed as a percentage of the NET SALES of all LICENSED INTEGRATED CIRCUITS sold directly or indirectly by Licensee and/or its SUBSIDIARIES. In the event that LICENSED INTEGRATED CIRCUITS are sold in circumstances in which the selling price is established other than on an arms-length basis or as a portion of a bundled products, the NET SALES for each such integrated circuit shall be calculated based on the volume of such integrated circuit multiplied by the average gross selling price earned by Licensee and/or its SUBSIDIARIES during such quarter on sales of that integrated circuit in finished and packaged form in arms-length sales transactions. If there are no such arms-length sales transactions, then the parties shall use such average gross selling price of integrated circuits in finished and packaged form with similar functionality. It is understood and agreed by the parties that, at most, only one royalty shall be payable with respect to each LICENSED INTEGRATED CIRCUIT. The parties agree that no royalty shall accrue for any LICENSED INTEGRATED CIRCUITS shipped as a replacement for defective LICENSED INTEGRATED CIRCUITS or furnished by
Licensee and/or its SUBSIDIARIES for small quantity sample shipments without charge to their customers.
7.4 Within thirty (30) days after the expiration of the warranty period
described in Section 13, Licensee further shall pay to MoSys the technical
support and maintenance fees set forth in Appendix E to cover the initial twelve
(12) month period after the expiration of the warranty period. The technical
support and maintenance fees for subsequent twelve (12) month periods under this
Agreement shall be due within thirty (30) days after the beginning of each such
twelve (12) month period.
8. PAYMENT TERMS AND TAXES
8.1 All invoices will be mailed to Licensee's address specified in Section 20, unless specified otherwise by Licensee.
8.2 Within [omitted pursuant to a request for confidential treatment and filed with the SEC] after the end of each calendar quarter, Licensee shall pay to MoSys the running royalties set forth in Section 7.3 and Appendix E with respect to the LICENSED INTEGRATED CIRCUITS manufactured and sold in such calendar quarter, and shall submit to MoSys with such royalty payment a report stating the number for each LICENSED INTEGRATED CIRCUIT manufactured and sold during such calendar quarter and the applicable running royalties payable hereunder for such calendar quarter; and all reasonably necessary data and supporting calculations used by Licensee and/or its SUBSIDIARIES to compute the running royalties payable by Licensee to MoSys with respect to such calendar quarter.
8.3 Any and all amounts payable hereunder do not include any government taxes (including without limitation sales, use, excise, and value added taxes) or duties imposed by any governmental agency that are applicable to the export, import, or purchase of the Products (other than taxes on the net income of MoSys), and Licensee shall bear all such taxes and duties. When MoSys has a current or subsequent legal obligation to collect and/or pay such taxes, the appropriate amount shall be added to Licensee's invoice and paid by Licensee, unless Licensee provides MoSys with a valid tax exemption certificate authorized by the appropriate taxing authority.
8.4 All payments by Licensee specified hereunder are expressed as net amounts and shall be made free and clear of, and without reduction for, any withholding taxes. Any such taxes which are otherwise imposed on payments to MoSys shall be the sole responsibility of Licensee. If any applicable law requires Licensee to withhold amounts from any payments to MoSys hereunder, (i) Licensee shall effect such withholding, remit such amounts to the appropriate taxing authorities and promptly furnish MoSys with tax receipts evidencing the payments of such amounts, and (ii) the sum payable by Licensee upon which the deduction or withholding is based shall be increased to the extent necessary to ensure that, after such deduction or withholding, MoSys receives and retains, free from liability for such deduction or withholding, a net amount equal to the amount MoSys would have received and retained in the absence of such required
deduction or withholding. In the event that MoSys receives a reduction in tax due or rebate from any tax authority directly due to the amount withholding tax paid by Licensee, it will reimburse Licensee such amount that it has had reduced or received from the tax authority.
8.5 With respect to LICENSED INTEGRATED CIRCUITS and non-recurring engineering fees, royalties and other amounts which are payable to MoSys under this Agreement, as a material condition to this Agreement, Licensee shall keep complete and accurate books and records, to the extent reasonably necessary for MoSys to ascertain the accuracy of the royalty reports to be furnished hereunder. These books and records shall be retained for a period of three (3) years from the date of the last day of each calendar quarter period, notwithstanding the expiration or termination of this Agreement. As a material condition to this Agreement, Licensee agrees to permit these books and records to be examined by an independent firm, experienced in conducting such an exercise, designated by MoSys and approved by Licensee (such approval shall not be unreasonably withheld), subject to the confidentiality provisions set forth in this Agreement and at a time and place convenient to both parties, but during normal business hours and not more frequently than annually, to verify the accuracy of royalties and other amounts paid to MoSys under this Agreement. Adjustment shall be made by Licensee corresponding to the net amount of any underpayment of any and all royalties and other amounts disclosed by such examination within thirty (30) days after Licensee's receipt of a relevant invoice issued by MoSys therefor. The net amount of any overpayment of any and all royalties and other amounts disclosed by such examination shall be credited by MoSys against subsequent royalties to be paid by Licensee to MoSys. If such an examination reveals an underpayment of more than five percent (5%), then Licensee shall promptly reimburse MoSys for the cost of such examination.
8.6 All payment amounts stated hereunder, and all payments to be made hereunder, shall be in U.S. Dollars and shall be transmitted by telegraphic transfer to MoSys' bank account designated by MoSys in writing in advance. If any currency conversion shall be required in connection with the calculation of amounts payable under this Agreement, such conversion shall be made using the TTS rate for conversion of the foreign currency into U.S. Dollars, published by the Bank of Tokyo-Mitsubishi, Ltd. for the last business day of the calendar quarter to which such payment pertains.
9. EXPORT RESTRICTIONS
This Agreement, the LICENSED PRODUCT(S) and the rights granted hereunder are subject to any and all laws, regulations, orders or other restrictions relative to export, re-export or redistribution of the LICENSED PRODUCT(S) that may now or in the future be imposed by the government of the United States or foreign governments. Licensee agrees to comply with all such applicable laws and regulations.
10. TERMINATION
10.1 (a) If either party defaults in the performance of any material obligation hereunder and if any such default is not corrected within forty-five (45) days after the defaulting party receives written notice thereof from the non-defaulting party, then the non-defaulting party, at its option, may, in addition to any other remedies it may have, terminate this Agreement. For the purposes of this section, each of Licensee's obligations pursuant to Sections 3, 7 and 8 above and each of MoSys' obligations pursuant to Sections 2,4,13 and 14 and both parties obligations pursuant to Section 16 shall be considered material.
(b) Either party may terminate this Agreement effective upon receipt of written notice by the other party in the event that the other party becomes the subject of a voluntary or involuntary petition in bankruptcy or any proceeding relating to insolvency, or the assignment for the benefit of creditors, if that petition or proceeding is not dismissed within ninety (90) days after filing.
10.2 Upon any termination or expiration of this Agreement, all licenses and rights granted by MoSys shall terminate, and Licensee shall promptly destroy or deliver to MoSys all materials comprising, incorporating, or using any MOSYS INTELLECTUAL PROPERTY or any LICENSED PRODUCTS, provided, however, that if this Agreement expires or is terminated by Licensee under the terms of Section 10.1, Licensee's license under Section 3.1 shall continue strictly limited to products which Licensee or its SUBSIDIARIES had started in the manufacturing process prior to the effective date of termination and strictly subject to continuing compliance with all the surviving Sections of this Agreement. Licensee shall have no right pursuant to the preceding clause to develop new products. In addition, all amounts due or payable to MoSys as a result of events prior to the date of termination or expiration shall remain due and payable.
10.3 The provisions of Sections 3 (except for Section 3.1), 7.1, 7.3, 8, 9, 10.2, 10.3, 12, 14, 15, 16 (except for Section 16.1), 17, 18, 19, and 21, 22, 23 and 24 shall survive any expiration or termination of this Agreement for any reason.
11 LICENSEE'S RIGHT TO TERMINATE
In the event of problems arising during acceptance procedures of the LICENSED PRODUCT, both parties shall, in good faith, work to resolve such problems. If such problems can not be resolved, after both parties have used reasonable efforts, the Licensee has the right to terminate this Agreement by written notice. In addition, for the Project only, in the event that Nintendo Co., Ltd. chooses not to use Licensee as the supplier of ASIC integrated circuits for the Project, Licensee has the right to terminate this Agreement before acceptance of the LICENSED PRODUCT by written notice. The termination shall be effective upon receipt by MoSys of such notice. Licensee shall pay MoSys as Licensee's entire liability for such termination, the total costs actually incurred by MoSys after any previous payment up to such termination, plus a reasonable profit. Such total costs and reasonable profit shall be provided by Mosys and approved by Licensee. In no event, however, shall the amount of such total costs and reasonable profit exceed the total amount of pre-paid royalties, less the amount of pre-paid royalties already paid by Licensee to MoSys up to such termination.
12. RIGHT TO DESIGN AND METHODS
12.1 Licensee and MoSys agree that, subject to MoSys's ownership of the LICENSED PRODUCT, Licensee shall retain all of its ownership rights to DESIGNS created through the utilizing of the LICENSED PRODUCT.
12.2 Licensee and MoSys agree that MoSys shall retain all rights to the LICENSED PRODUCT. Licensee agrees that MoSys will have the irrevocable royalty-free right to use in the LICENSED PRODUCT, and any other products offered or distributed by MoSys, any Licensee contribution or voluntarily disclosed information provided to MoSys in the course of Licensee (i) requesting changes or modifications to the LICENSED PRODUCT, (ii) making suggestions for improvements to the LICENSED PRODUCT, or (iii) suggesting how to correct any identified deficiencies in the LICENSED PRODUCT.
13 WARRANTY
13.1 MoSys warrants that the deliverables furnished hereunder shall substantially conform to the applicable specifications, drawings and other technical requirements.
13.2 The warranty under Section 13.1 above shall run for a period of ninety (90) days from the date of acceptance by Licensee of the deliverables and shall be in addition to any other rights or remedies available to Licensee.
13.3 Licensee shall have the right at any time during the period of this warranty, and irrespective of prior acceptances, to reject any deliverables not conforming to the above warranty
and require that MoSys, at its expense, correct or replace, at Licensee's option, such deliverables with conforming deliverables.
13.4 With respect to any defect of the deliverables not covered by the warranty provided for in this Section 13, MoSys agrees, upon Licensee's request, to correct or repair such defect at a mutually agreed fee to be paid by Licensee to MoSys.
13.5 MoSys warrants that MoSys is a corporation duly organized, validly existing and in good standing under the laws of the state of California. MoSys has full capacity, power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement. This Agreement has been duly authorized, executed and delivered by MoSys and is a legal, valid and binding agreement enforceable in accordance with its terms.
13.6 MoSys warrants that MoSys owns all rights, title and interest in and to all MOSYS INTELLECTUAL PROPERTY to be furnished or licensed to Licensee and its SUBSIDIARIES. With respect to those owned by licensors of MoSys, if any, MoSys has the right to sublicense to Licensee and its SUBSIDIARIES.
13.7 MoSys warrants that the execution, delivery and performance of this Agreement by MoSys shall not (i) result in the breach of, or constitute a default under, any contract or other instrument or obligation applicable to MoSys, (ii) result in the breach of any of the terms or conditions of, or constitute a default under, the charter, bylaws or other governing instruments of MoSys, or (iii) violate any order, writ, injunction, decree, or any statute, rule or regulation applicable to MoSys.
14. INTELLECTUAL PROPERTY OWNERSHIP AND INDEMNIFICATION
14.1 MoSys shall own all rights, title interest in the LICENSED PRODUCT licensed under this Agreement including any and all upgrades, enhancements and improvements thereto made by MoSys. MoSys will also retain all patent rights, trademarks, trade secrets, copyrights, mask work rights and all other proprietary rights therein or relating thereto. Except for the licenses granted in Section 3, no other grants of licenses or rights to Licensee and its SUBSIDIARIES shall be implied from the provisions stated herein.
14.2 MoSys represents and warrants as of the Effective Date:
(a) to the best of MoSys' knowledge, it is the originator and/or rightful
owner of the product(s), information and documentation provided to Licensee
pursuant to the terms of this Agreement (hereinafter collectively
"Information"); and
(b) to the best of MoSys' knowledge, there are no claims pending or
threatened against MoSys or any other party, that relate to the Information
or the contemplated use of the Information under this Agreement.
14.3 Except as expressly provided herein, MoSys disclaims and shall have no obligation of defense, contribution, or indemnity with respect to any actual or alleged intellectual property
infringement with respect to the Information provided or otherwise arising out of this Agreement. MoSys shall have no liability arising out of any such actual or alleged intellectual property infringement. Licensee, however, will use its reasonable efforts to notify MoSys, in writing, of each such infringement claim of which Licensee becomes aware, and Licensee shall cooperate with MoSys if MoSys desires to intervene in any such infringement action against Licensee.
14.4 In the event of any claim by a third party of infringement of its intellectual property rights by the Licensee and/or its SUBSIDIARIES where such claim (i) is caused substantially by the unmodified LICENSED PRODUCT and, (ii) is not associated with standard DRAM operations, processes, design or manufacturing then MoSys agrees to use reasonable efforts at MoSys' expense to provide assistance, including appropriate documentation, to Licensee, in its defense against such claim under this provision. If pursuant to such a claim Licensee and/or its SUBSIDIARIES is prohibited from using the LICENSED PRODUCTS, MoSys agrees to use reasonable efforts to modify the LICENSED PRODUCTS to avoid the infringement.
14.5 The foregoing states MoSys' sole obligations and entire liability with respect to any claimed infringement of the LICENSED PRODUCT(S) of any intellectual property or other rights of any third party.
15. LIMITATION OF LIABILITY
IN NO EVENT WILL MOSYS' LIABILITY ARISING OUT OF THIS AGREEMENT EXCEED THE FEES AND ROYALTIES RECEIVED BY MOSYS' HEREUNDER. EXCEPT FOR INFRINGEMENT OF THE OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT OR INCIDENTAL DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING OUT OF THIS AGREEMENT OR THE DESIGNS, TECHNOLOGY OR PRODUCT LICENSED OR OTHERWISE PROVIDED PURSUANT TO THIS AGREEMENT.
16. PUBLICITY; CONFIDENTIALITY
16.1 Both parties agree to cooperate in good faith announcements and disclosures after the execution of this Agreement that includes (a) Licensee is a customer of MoSys, and (b) MoSys has provided the LICENSED PRODUCT to Licensee and that the LICENSED PRODUCT was used in the development of the LICENSED INTEGRATED CIRCUIT, and (c) a product description of the LICENSED PRODUCT as contained in MoSys' standard product literature. Neither party shall announce or publicly disclose any other terms or conditions of this Agreement without a prior written approval from the other party. An initial public announcement plan and contents are attached in Appendix G.
16.2 The parties acknowledge that by reason of their relationship to each other hereunder, each party may have access to the other party's Confidential Information. For the purposes of this Section 16, the term "Confidential Information" shall mean any and all information and materials which are provided by one party to the other party (i) in written or other tangible form clearly marked with a legend identifying it as "Confidential" or "Proprietary" or (ii) in oral or visual form identified as "Confidential" or "Proprietary" at the time of such oral or visual disclosure and within thirty (30) days following such oral or visual disclosure the summary of which is provided to the other party in written or other tangible form marked with such legend. Each party agrees that except as may otherwise be stated herein, it shall not use, except to perform its obligations and/or to exercise its rights and licenses specified under this Agreement, nor disclose to any third party (except to Nintendo Co., Ltd., ArtX, Inc. and independent contractors and affiliates (including SUBSIDIARIES) who are under an obligation of confidentiality, and subject to the other terms and conditions of this Agreement), any such Confidential Information revealed to it by the other party. Each party shall take reasonable precautions to protect the confidentiality of such information, which in any event will be no less than what it takes with respect to its own similar confidential information.
16.3 Information shall not be deemed Confidential Information hereunder if such information: (i) is known to the recipient at the time of disclosure; (ii) hereafter becomes rightfully known (independently of disclosure by the disclosing party) to the recipient directly or indirectly from a third party without such third party imposing an obligation of confidentiality on the disclosing party; (iii) becomes publicly available or otherwise ceases to be secret or confidential, except through a breach of this Agreement by the recipient; (iv) was independently developed by the recipient without access to the disclosing party's Confidential Information; (v) is required to be disclosed pursuant to any statutory or regulatory authority, provided the disclosing party is given prompt notice of such requirement and the scope of such disclosure is limited to the extent possible; (vi) is required to be disclosed by a court order, provided the disclosing party is given prompt notice of such order and provided the opportunity to contest it, and/or is reasonably necessary to disclose in order to enforce this Agreement; or (vii) is residual information in the minds of employees having had access to Confidential Information (provided not deliberately memorized) after a period of five years.
Notwithstanding any of the foregoing, Licensee agrees not to disclose any Confidential Information of Licensee to MoSys unless MoSys requests disclosure of such information in writing.
16.4 As to each item of Confidential Information, the provisions of this Section will continue for three (3) years following first receipt of such information, except for the LICENSED PRODUCT, for which the provisions of this Section will continue for five (5) years following any termination or expiration of this Agreement.
17. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflict of laws provisions thereof.
18 DISPUTE SETTLEMENT
18.1 In the event of any dispute, controversy or difference which may arise between the parties hereto out of or in connection with or in relation to this Agreement, or the breach thereof, the parties hereto shall in the first instance do their utmost to settle such dispute, controversy or difference amicably.
18.2 Where the parties hereto fail to settle such dispute, controversy or difference amicably within ten (10) working days of the written notice of its existence given by either party to the other party, then the dispute, controversy or difference shall be finally settled by arbitration in Santa Clara, California, U.S.A. in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The award of arbitration shall be final and binding upon the parties hereto and shall not be subject to appeal to any court, and may be entered into the court of competent jurisdiction for its execution forthwith.
19. ASSIGNMENT
Neither this Agreement nor any rights or obligations hereunder, in whole or in part, shall be assignable or otherwise transferable by either party without the prior written approval of the other party. Any unauthorized attempt by either party to assign or transfer this Agreement or any rights or obligations hereunder shall be null and void. Subject to the foregoing, this Agreement will be binding upon and inure to the benefits of the parties hereto, their successors and assigns.
20. NOTICE
Any notices required to be given pursuant to this Agreement shall be in writing, sent via certified mail, return receipt requested, express overnight courier, or by facsimile (a confirmed copy of which to be sent promptly by mail to addressee) to the address of MoSys or Licensee as set forth below or to such other address as may be specified from time to time by notice in writing, and such notice shall be deemed to have been received on the earlier of (a) the date when actually received or (b) if by facsimile, when the sending party shall have received a facsimile, when the sending party shall have received a facsimile confirmation that the message has been received by the receiving party's facsimile machine.
If to MoSys: MoSys, Inc.
1020 Stewart Drive
Sunnyvale, CA 94086, U.S.A.
Attn: Chief Financial Officer
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Telephone: +1 (408) 731-1800 Facsimile: +1 (408) 731-1893
If to Licensee: NEC Corporation
1753, Shimonumabe,
Nakahara-ku, Tokyo 108-8422, Japan
Attn: Mr. Eikichi Wakamatsu
Telephone: +81 (44) 435-1490
Facsimile: +81 (44) 435-1887
21. SEVERABILITY AND WAIVER
21.1 The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions of this Agreement and shall be construed in all respects as if such invalid or unenforceable provisions were omitted.
21.2 The waiver by either party of any default or breach of this Agreement shall not constitute a waiver of any other subsequent default or breach.
21.3 Failure or delay by either party in exercising any right or power hereunder shall not operate as a waiver of such right or power.
22. INHERENTLY DANGEROUS APPLICATIONS
The LICENSED PRODUCT is not specifically developed or licensed for use in the planning, construction, maintenance, operation or other use of any nuclear facility, or for the flight, navigation or communication of aircraft or ground support equipment, or for military use, medical use or in any other inherently dangerous activity. Licensee agrees that MoSys shall not be liable for any claims, losses, costs or liabilities arising from such use if Licensee, its SUBSIDIARIES, or its/their distributors or customers use the LICENSED PRODUCT for such applications. Licensee agrees to indemnify and hold MoSys harmless from any claims, losses, costs, and liabilities arising out of or in connection with the use of the LICENSED PRODUCT or LICENSED INTEGRATED CIRCUITS in any such applications.
23. ATTORNEYS FEES
The prevailing party in any action to enforce the terms of this Agreement shall be entitled to reasonable attorney's fees and other costs and expenses incurred by it in connection with such action.
24. MISCELLANEOUS TERMS
24.1 The relationship of the parties hereto is that of independent contractors, and neither party is an employee, agent, partner or joint venturer of the other.
24.2 Neither party shall have liability for its failure to perform its obligations hereunder when due to circumstances beyond its reasonable control.
24.3 If Licensee and/or its SUBSIDIARIES distribute the LICENSED INTEGRATED CIRCUIT, as authorized herein, to an agency, department, or other entity of the United States Government ("Government"), the Government's use, reproduction, release, modification, disclosure or transfer of the LICENSED PRODUCT, or of any related documentation of any kind, including technical data, is restricted in accordance with Federal Acquisition Regulation ("FAR") 12.212 for civilian agencies and Defense Federal Acquisition Regulation Supplement ("DFARS";) 227.7202 for military agencies. The LICENSED PRODUCT is intended for commercial use. The use of the LICENSED PRODUCT by any Government agency, department, or other entity of the Government, is further restricted in accordance with the terms of this Agreement, or any modification hereto. Licensee will affix the following legend before delivery to the Government of each of the Models and User Documentation and/or Physical Views to be delivered to the Government:
Use, duplication, reproduction, release, modification, disclosure or transfer of this commercial product and accompanying documentation, is restricted in accordance with FAR 12.212 and DFARS 227.7202, and by a license agreement. Contractor/manufacturer is: MoSys, Inc., 1020 Stewart Drive, Sunnyvale, California 94086 U.S.A.
BOTH PARTIES ACKNOWLEDGE THAT THIS AGREEMENT INCLUDING THE EXHIBITS AND APPENDICES ATTACHED HERETO IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE MUTUAL UNDERSTANDING OF THE PARTIES AND SUPERSEDES AND CANCELS ALL CONFLICTING TERMS AND CONDITIONS AND ALL PREVIOUS AND CONTEMPORANEOUS WRITTEN AND ORAL AGREEMENTS AND COMMUNICATIONS RELATING TO THE SUBJECT MATTER HEREOF. THIS AGREEMENT MAY NOT BE MODIFIED, SUPPLEMENTED, QUALIFIED, OR INTERPRETED BY ANY TRADE USAGE OR PRIOR COURSE OF DEALING NOT MADE A PART OF THIS AGREEMENT BY ITS EXPRESS TERMS. THIS AGREEMENT MAY NOT BE MODIFIED OR AMENDED EXCEPT IN WRITING AND EXECUTED BY DULY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
BOTH PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AGREEMENT, UNDERSTAND IT AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS AS EVIDENCED BY THEIR SIGNATURES BELOW.
MOSYS, INC. NEC CORPORATION
By: By:
------------------------------------ ------------------------------------
Signature of an Officer of Signature of an Authorized
the Corporation Representative
By: Dr. Fu-Chieh Hsu By:
--------------------------------------- ------------------------------------
Printed Name of the Signing Officer Printed Name of the Signing
Authorized Representative
Title: Chief Executive Officer Title:
--------------------------------------- ------------------------------------
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[EXHIBITS AND APPENDICES OMITTED]
Exhibit 10.11
LICENSE AGREEMENT
This License Agreement (the "Agreement"), Number 0020, with an "Effective Date" of December 17, 1999, is made by and between Monolithic System Technology, Inc., a California corporation, with its principal place of business at 1020 Stewart Drive, Sunnyvale, California 94086, U.S.A. (hereinafter referred to as "MoSys"), and NEC Corporation, a Japanese corporation with its principal place of business at 7-1, Shiba, 5-chome, Minato-ku, Tokyo 108-8001, Japan (hereinafter referred to as "NEC").
WHEREAS, MoSys has developed and is developing certain semiconductor technology; and
WHEREAS, NEC desires MoSys to perform the development work for certain semiconductor products based on such technology to be used in the manufacture of semiconductor products of NEC;
WHEREAS, NEC desires to obtain from MoSys, and MoSys is willing to grant to NEC, certain license with respect to these products as developed by MoSys, all subject to the terms and conditions set forth below;
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING AND THE MUTUAL COVENANTS CONTAINED HEREIN, THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS
For purposes of this Agreement the following terms shall have the meanings set forth below:
1.1 "MOSYS INTELLECTUAL PROPERTY" means any and all know-how, technical information, trade secrets, patents and patent applications owned or controlled by MoSys (a partial list of which is attached in Appendix F), which (i) MoSys has the right to license, relating to memory architecture, protocol and circuit implementation, and which (ii) are incorporated in the implementation of the LICENSED PRODUCT by MoSys. The term "MOSYS INTELLECTUAL PROPERTY" does not include any and all know-how, technical information, trade secrets and circuit implementation which is (a) in the public domain, (b) known generally by persons skilled in the art, (c) already in the rightful possession of NEC or its SUBSIDIARIES, (d) hereafter become available for use without license, (e) owned or controlled by others, including but not limited to which relating to generic DRAM processes, memory cells, capacitor fabrication and memory operations, (f) hereafter becomes rightfully known to NEC or its SUBSIDIARIES without restriction or (g) subsequently developed independently by employees of or its SUBSIDIARIES without access to the LICENSED PRODUCT.
1.2 "HIGH DENSITY 1T-SRAM MEMORY" means a stand-alone memory integrated circuit to be manufactured by NEC based upon the LICENSED PRODUCT, and which strictly conforms to the SPECIFICATIONS.
1.3 "WORK" means the work of design and evaluation of the HIGH DENSITY 1T-SRAM MEMORY, which is specified in detail in Section 2.
1.4 "LICENSED PRODUCT" means the information, data and related documentation of the MoSys design for the HIGH DENSITY 1T-SRAM MEMORY developed by MoSys hereunder, including but not limited to, DELIVERABLES as set forth in item 2 of Appendix B and any UPDATES thereto in any form.
1.5 "LICENSED SITE(S)" means the site(s) where NEC and/or its SUBSIDIARIES are authorized to utilize the LICENSED PRODUCT as set forth in Appendix C.
1.6 "UPDATE(S)" means any error correction, revision or enhancements to the DELIVERABLES made by or for MoSys, which MoSys provides to NEC through the WORK and/or Technical Service identified in Section 4 of this Agreement.
1.7 "NET SALES" means the gross sales amount invoiced or otherwise charged to NEC's customers for the HIGH DENSITY 1T-SRAM MEMORIES in finished and package form, less amounts invoiced for returned goods for which a refund is given. NET SALES will also include the deduction for charges including, but not limited to, insurance, handling, duty, freight and taxes, if separately invoiced or charged.
1.8 "SUBSIDIARY(IES)" means a corporation or other legal entity in which at least a majority of whose voting stock or voting power entitled to vote for the election of directors (or other managing authority) is owned directly or indirectly by NEC. Such corporations or other legal entities shall be considered as SUBSIDIARIES only so long as such ownership exists.
1.9 "AUTHORIZED RECIPIENT(S)" shall mean those party(ies) licensed by MoSys to
have manufactured HIGH DENSITY 1T-SRAM MEMORY under terms of royalty payment and
cleared to receive HIGH DENSITY 1T-SRAM MEMORY manufactured by NEC. After
execution of agreement for such a license between MoSys and an AUTHORIZED
RECIPIENT (hereinafter referred to as "SET LICENSE AGREEMENT"), MoSys shall
immediately notify NEC of such execution, and such AUTHORIZED RECIPIENT shall be
deemed to become an AUTHORIZED RECIPIENT for purposes of this Agreement upon
receipt by NEC of notification by MoSys of the execution of such SET LICENSE
AGREEMENT, and shall continue to be an AUTHORIZED RECIPIENT for purposes of this
Agreement, in the context of NEC's free-royalty payment conditions set forth in
Section 7.3 below, until five (5) working days after receipt by NEC of notice
from MoSys of the termination of the SET LICENSE AGREEMENT.
1.10 "Nintendo" means Nintendo Co., Ltd., a Japanese corporation with its principal place of business at 60 Fukuine Kamitakamatsu-cho, Higashiyama-ku, Kyoto 605-8660, Japan.
1.11 "DELIVERABLES" shall have the meaning set forth in Section 2.2.
1.12 "SPECIFICATIONS" shall have the meaning set forth in Section 2.2.
2. SCOPE OF WORK AND DEVELOPMENT OF LICENSED PRODUCTS
2.1 The scope of the WORK is (i) design work of HIGH DENSITY 1T-SRAM MEMORY performed by MoSys which is described in Sections 2.2 and 2.3 below, and (ii) evaluation and correction work of design of HIGH DENSITY 1T-SRAM MEMORY performed by MoSys which is described in Sections 2.4.
2.2 MoSys shall develop and complete the deliverables specified in item 2 of Appendix B (hereinafter referred to as "DELIVERABLES") and deliver the DELIVERABLES to NEC at the delivery place specified in Appendix B, except as mutually agreed by the parties in writing, all in accordance with specifications of HIGH DENSITY 1T-SRAM MEMORY as specified in Appendix A, drawings and other technical requirements agreed between the parties (hereinafter collectively referred to as "SPECIFICATIONS") and the delivery schedule and responsibilities set forth in Appendix B. The SPECIFICATIONS and delivery schedule may be revised only by mutual agreement between the parties.
2.3 Upon delivery of DELIVERABLES to NEC, NEC shall notify MoSys of whether all items of DELIVERABLES are delivered or not within one (1) week after said delivery. MoSys shall, at its expense, deliver the missing items of DELIVERABLES to NEC immediately if so notified by NEC. Upon delivery of such missing items of DELIVERABLES to NEC, the DELIVERABLES shall be acknowledged by NEC to have been completely delivered (hereinafter referred to as "Acknowledged"). If no notification of missing is received by MoSys from NEC within two (2) weeks of delivery of DELIVERABLES, such DELIVERABLES shall be deemed to have been Acknowledged by NEC.
2.4 Upon receipt of certain kinds of samples (such as wafer samples or tooling
samples) of HIGH DENSITY 1T-SRAM MEMORY made by NEC under NEC's process based
upon and in accordance with all DELIVERABLES Acknowledged by NEC, MoSys shall
perform the evaluation of such samples through electrical or other tests within
the period specified by NEC under assistance and instruction of NEC. In the
event that the HIGH DENSITY 1T-SRAM MEMORY and/or any DELIVERABLES fail to meet
SPECIFICATIONS, MoSys shall correct or replace, at NEC's option, DELIVERABLES so
that HIGH DENSITY 1T-SRAM MEMORY and/or DELIVERABLES will meet SPECIFICATIONS.
NEC shall have the right at any time until the WORK is accepted subject to
Section 2.5, and irrespective of prior Acknowledge of any DELIVERABLES, to
reject any DELIVERABLES not conforming to SPECIFICATIONS and require that MoSys
correct or replace, at NEC's option, such DELIVERABLES to conform to
SPECIFICATIONS.
2.5 The WORK shall be deemed accepted by NEC upon MoSys's receipt of notification in writing from NEC that final tooling samples of HIGH DENSITY 1T-SRAM MEMORY made by
NEC based upon DELIVERABLES, or DELIVERABLES corrected or replaced by MoSys under Section 2.4, are acceptable in accordance with NEC's acceptance criteria and procedures. NEC shall notify MoSys of acceptance of the WORK before NEC's mass production of HIGH DENSITY 1T-SRAM MEMORY. Mass production shall be deemed to have commenced when [omitted pursuant to a request for confidential treatment and filed with the SEC] sets of HIGH DENSITY 1T-SRAM MEMORY in total are distributed with charge to Nintendo, which is a customer of NEC (hereinafter refereed to as "Mass Production"). If no notification of acceptance of the WORK from NEC is received by MoSys even after Mass Production, the WORK shall be deemed to be accepted at the time Mass Production begins.
2.6 MoSys agrees that it will faithfully comply with all reasonable instructions and requests of NEC in connection with the performance of the WORK hereunder.
2.7 NEC shall provide to MoSys, at the start of the development or from time to time during the WORK, detailed process design rules, process, device, parasitic and other relevant parameters and procedures and all guidelines, including, but not limited to, design, simulation and layout, that NEC would use in accordance with the acceptance criteria and procedures, to the extent that NEC considers reasonably necessary to assist MoSys in performing the WORK.
2.8 Title to all DELIVERABLES to be delivered by MoSys to NEC under the WORK shall pass to NEC at the time of delivery. Any risk of loss or damage to such DELIVERABLES prior to delivery to NEC shall be borne by MoSys.
2.9 If there occurs a situation under which the terms of this Agreement shall be amended or supplemented, or it is necessary to agree upon additional terms for a project other than the WORK, the parties hereto will enter into good faith negotiation for concluding a separate agreement for such amendment or supplement of this Agreement or such additional terms.
3. LICENSE GRANT AND RESTRICTED USE
3.1 Subject to the terms and conditions stated herein, MoSys grants to NEC and its SUBSIDIARIES a non-transferable, non-exclusive, royalty-bearing, world-wide, limited license under MOSYS INTELLECTUAL PROPERTY to use, have used, reproduce, have reproduced, modify and have modified (subject to the limitations of Section 3.2) the LICENSED PRODUCT for the sole purpose of the creation, distribution and maintenance of HIGH DENSITY 1T-SRAM MEMORY, and to manufacture, have manufactured, use, have used, sell and otherwise distribute HIGH DENSITY 1T-SRAM MEMORY. It is expressly understood and agreed that NEC and its SUBSIDIARIES shall have royalty-free, non-transferable, non-exclusive, world-wide rights under MOSYS INTELLECTUAL PROPERTY based on the license granted to AUTHORIZED RECIPIENTS by MoSys to use, have used, reproduce, have reproduced, modify and have modified (subject to the limitations of Section 3.2) the LICENSED PRODUCT for the sole purpose of the creation, distribution and maintenance of HIGH DENSITY 1T-SRAM MEMORY, and to manufacture, have manufactured, use, have used, sell and otherwise distribute HIGH DENSITY 1T-SRAM MEMORY to AUTHORIZED RECIPIENTS (at the time of sign of
this Agreement, Nintendo is included), as far as such AUTHORIZED RECIPIENTS continue to be AUTHORIZED RECIPIENTS subject to Section 1.9.
3.2 The modification right granted by MoSys under Section 3.1 above shall be limited to changes of feature size or scale (to the largest up to +10% in scale and to the smallest up to -10% in scale) or other minor changes that do not affect the functionality or compatibility of HIGH DENSITY 1T-SRAM MEMORY and shall be solely for enhancing the manufacturability and performance of HIGH DENSITY 1T-SRAM MEMORIES and shall only be made by employees of NEC and its SUBSIDIARIES at the LICENSED SITES.
3.3 None of the LICENSED PRODUCT or portion thereof may be distributed to third party entities except as needed to support the manufacturing or maintenance of the HIGH DENSITY 1T-SRAM MEMORY. Except as specifically set forth herein, none of the LICENSED PRODUCT may be disclosed to third parties or transferred outside of LICENSED SITE(S).
3.4 NEC acknowledges and agrees that use of the LICENSED PRODUCT in any way which is not expressly authorized by this Section 3 (hereinafter referred to as "Unauthorized use") is a breach of NEC's material obligations under this Agreement. In the event that Unauthorized use of the LICENSED PRODUCT by NEC, its SUBSIDIARIES, or its/their personnel or third party entities occurs, and MoSys elects not to terminate this Agreement pursuant to Section 10, NEC shall, as NEC's entire liabilities for such NEC's material breach, by virtue of such occurrence(s) be deemed to order and accept a license for and shall pay MoSys for such license, license fees and applicable royalties for each such high density 1T-SRAM memory manufactured under Unauthorized use of the LICENSED PRODUCT and distributed to customers. These license fees and applicable royalties shall be those MoSys is then initially offering to prospective licensees proposing to use such technology in similar circumstances at the time such Unauthorized use under this Agreement first occurs. Such license fees and applicable royalties shall be due no later than thirty (30) days following mutual agreement of the parties with respect to such Unauthorized use. It is expressly understood and agreed that in no event shall such license fees be more than [omitted pursuant to a request for confidential treatment and filed with the SEC].
3.5 NEC shall mark all catalogues, brochures and other marketing material used for the HIGH DENSITY 1T-SRAM MEMORY with the MoSys trademark and copyright notations that appear on or in the LICENSED PRODUCT. NEC shall also visibly mark each HIGH DENSITY 1T-SRAM MEMORY with said MoSys copyright notation, providing it is reasonable and practical to do so, but in any event at least to the same extent that NEC so marks its own copyright notations. However, the parties acknowledge and agrees that, in the event that the marking of said MoSys copyright notation is impossible or reasonably impracticable, NEC will not be required to mark such HIGH DENSITY 1T-SRAM MEMORY with said MoSys copyright notation. In the event that an end-customer for the HIGH DENSITY 1T-SRAM MEMORY requires that the markings be removed from the HIGH DENSITY 1T-SRAM MEMORY devices, NEC and MoSys shall discuss in good faith how they might accommodate this requirement, while still satisfying MoSys' marketing goals and needs to protect ownership of its intellectual property.
3.6 NEC acknowledges and agrees that all HIGH DENSITY 1T-SRAM MEMORY shall meet the compatibility requirements specified and administered by MoSys for the LICENSED PRODUCT.
3.7 The licenses granted under this Section 3 are non-sublicenseable.
3.8 It is expressly understood and agreed that the terms of this Agreement shall supersede the terms of any SET LICENSE AGREEMENT, including the AGREEMENT executed as of August 31, 1999 between MoSys and Nintendo (hereinafter referred to as "Nintendo Agreement"), to the extent that there is a contradiction between NEC's and/or its SUBSIDIARIES' rights and duties with respect to the LICENSED PRODUCTS as set forth in this Agreement and the equivalent rights and duties of a manufacturer as set forth in such SET LICENSE AGREEMENT, provided nothing in this Section 3.8 is intended to or shall be construed to diminish the rights or duties of MoSys or the other party to such SET LICENSE AGREEMENT under such SET LICENSE AGREEMENT with respect to the relationship between MoSys and the other party, their rights in the LICENSED PRODUCTS or otherwise.
4. TECHNICAL SERVICE
MoSys shall provide NEC with the technical service described in Appendix D for the LICENSED PRODUCT (hereinafter referred to as "Technical Service") in consideration for fees set forth in Appendix D.
5. TERM
This Agreement is effective as of the Effective Date and shall remain in full force and effect for a period of five (5) years, unless earlier terminated as provided in this Agreement. Unless earlier terminated as provided in this Agreement, this Agreement will automatically renew at the end of each term for consecutive one (1) year renewal periods, unless either party notifies the other at least sixty (60) days prior to the end of the then current term that it does not desire the Agreement to renew for another year.
6. CHANGES
Except as otherwise agreed by both parties in writing, all LICENSED PRODUCT provided to NEC by MoSys during the term of this Agreement will be subject to the terms and conditions of this Agreement.
7. COMPENSATION
7.1 Except as expressly provided herein, all payments made by NEC to MoSys hereunder shall be non-refundable and non-creditable.
7.2 In consideration of the completion of the WORK, NEC shall pay to MoSys the amounts of [omitted pursuant to a request for confidential treatment and filed with the SEC] (hereinafter referred to as "Non-Recurring Engineering (NRE) charges"). The foregoing provisions of this Section 7.2 shall not limit the provisions of Section 3.4 above. Each installment of Non-Recurring Engineering (NRE) charges shall be due within thirty (30) days after receipt by NEC of a relevant invoice to be issued by MoSys after the completion of each milestone as set forth in Appendix E.
7.3 In consideration of the rights and licenses granted to NEC and its SUBSIDIARIES under this Agreement, NEC shall pay to MoSys the running royalty as set forth in Appendix E and expressed as a percentage of the NET SALES of all HIGH DENSITY 1T-SRAM MEMORIES sold directly or indirectly by NEC and/or its SUBSIDIARIES to customers other than AUTHORIZED RECIPIENTS. NEC may request MoSys to notify NEC of execution of SET LICENSE AGREEMENT between the said AUTHORIZED RECIPIENT in writing, and upon the receipt by NEC of such notification of execution, NEC shall have no more obligation to pay applicable royalties to MoSys for HIGH DENSITY 1T-SRAM MEMORY distributed to such AUTHORIZED RECIPIENT on and after the date of receipt of such notification. MoSys shall notify NEC of the said execution of SET LICENSE AGREEMENT within fifteen (15) days after NEC's written request. If no notification is received by NEC within the said fifteen (15) day period and NEC knows that such SET LICENSE AGREEMENT is in effect, it shall be deemed that such notification of execution is received by NEC on the expiration date of the said fifteen (15) day period. In the event that HIGH DENSITY 1T-SRAM MEMORIES are sold in circumstances in which the selling price is established other than on an arms-length basis or as a portion of a bundled products, the NET SALES for each such integrated circuit shall be calculated based on the volume of such integrated circuit multiplied by the average gross selling price earned by NEC and/or its SUBSIDIARIES during such quarter on sales of that integrated circuit in finished and packaged form in arms-length sales transactions. If there are no such arms-length sales transactions, then the parties shall use such average gross selling price of integrated circuits in finished and packaged form with similar functionality. It is understood and agreed by the parties that, at most, only one royalty shall be payable with respect to each HIGH DENSITY 1T-SRAM MEMORY. The parties agree that no royalty shall accrue for any HIGH DENSITY 1T-SRAM MEMORIES shipped as a replacement for defective HIGH DENSITY 1T-SRAM MEMORIES or furnished by NEC and/or its SUBSIDIARIES for small quantity sample shipments without charge to their customers.
7.4 MoSys and NEC agree to enter into good faith discussions on the possible wafer supply to MoSys at privileged pricing following the completion of the WORK.
8. PAYMENT TERMS AND TAXES
8.1 All invoices for sums to be paid MoSys under this Agreement (except the running royalty which shall not be invoiced) will be mailed to NEC's address specified in Section 19, unless specified otherwise by NEC.
8.2 Within [omitted pursuant to a request for confidential treatment and filed with the SEC] after the end of each calendar quarter during the term of this Agreement, NEC shall pay to MoSys the running royalties set forth in Section 7.3 and Appendix E with respect to the HIGH DENSITY 1T-SRAM MEMORY manufactured and sold to customers other than AUTHORIZED RECIPIENTS in such calendar quarter, if any, and shall submit to MoSys with such royalty payment a report stating the number for each HIGH DENSITY 1T-SRAM MEMORY manufactured and sold to the said customers during such calendar quarter and the applicable running royalties payable hereunder for such calendar quarter; and all reasonably necessary data and supporting calculations used by NEC and/or its SUBSIDIARIES to compute the running royalties payable by NEC to MoSys with respect to such calendar quarter.
8.3 Any and all amounts payable hereunder do not include any government taxes (including without limitation sales, use, excise, and value added taxes) or duties imposed by any governmental agency that are applicable to the export, import, or purchase of the HIGH DENSITY 1T-SRAM MEMORY (other than taxes on the net income of MoSys), and NEC shall bear all such taxes and duties. When MoSys has a current or subsequent legal obligation to collect and/or pay such taxes, the appropriate amount shall be added to NEC's invoice and paid by NEC, unless NEC provides MoSys with a valid tax exemption certificate authorized by the appropriate taxing authority.
8.4 All payments by NEC specified hereunder are expressed as net amounts and shall be made free and clear of, and without reduction for, any withholding taxes. Any such taxes which are otherwise imposed on payments to MoSys shall be the sole responsibility of NEC. If any applicable law requires NEC to withhold amounts from any payments to MoSys hereunder, (i) NEC shall effect such withholding, remit such amounts to the appropriate taxing authorities and promptly furnish MoSys with tax receipts evidencing the payments of such amounts, and (ii) the sum payable by NEC upon which the deduction or withholding is based shall be increased to the extent necessary to ensure that, after such deduction or withholding, MoSys receives and retains, free from liability for such deduction or withholding, a net amount equal to the amount MoSys would have received and retained in the absence of such required deduction or withholding. In the event that MoSys receives a reduction in tax due or rebate from any tax authority directly due to the amount withholding tax paid by NEC, it will reimburse NEC such amount that it has had reduced or received from the tax authority.
8.5 As a material condition to this Agreement, NEC shall keep complete and accurate records and books of account relating to sales of HIGH DENSITY 1T-SRAM MEMORY to customers, to the extent reasonably necessary for MoSys to ascertain the accuracy of the royalty reports to be furnished hereunder. These books and records shall be retained for a period of three (3) years from the date of the last day of each calendar quarter period, notwithstanding the expiration or termination of this Agreement. As a material condition to this Agreement, upon receiving thirty (30) days prior written notice from MoSys, NEC agrees to permit these books and records to be
examined by an independent firm, experienced in conducting such an exercise, designated by MoSys and approved by NEC (such approval shall not be unreasonably withheld), subject to the confidentiality provisions set forth in this Agreement and at a time and place convenient to both parties, but during normal business hours and not more frequently than annually, to verify the accuracy of royalties paid to MoSys under this Agreement, if any. Adjustment shall be made by NEC corresponding to the net amount of any underpayment of any and all royalties disclosed by such examination within thirty (30) days after NEC's receipt of a relevant invoice issued by MoSys therefor. The net amount of any overpayment of any and all royalties disclosed by such examination shall be credited by MoSys against subsequent royalties to be paid by NEC to MoSys. If such an examination reveals an underpayment of more than five percent (5%), then NEC shall promptly reimburse MoSys for the cost of such examination.
8.6 All payment amounts stated hereunder, and all payments to be made hereunder, shall be in U.S. Dollars and shall be transmitted by telegraphic transfer to MoSys' bank account designated by MoSys in writing in advance. If any currency conversion shall be required in connection with the calculation of amounts payable under this Agreement, such conversion shall be made using the TTS rate for conversion of the foreign currency into U.S. Dollars, published by the Bank of Tokyo-Mitsubishi, Ltd. for the last business day of the calendar quarter to which such payment pertains.
9. EXPORT RESTRICTIONS
This Agreement, the LICENSED PRODUCT(S) and the rights granted hereunder are subject to any and all laws, regulations, orders or other restrictions relative to export, re-export or redistribution of the LICENSED PRODUCT(S) that may now or in the future be imposed by the government of the United States or foreign governments. NEC agrees to comply, at its cost and expense, with all such applicable laws and regulations. Upon the request of MoSys, NEC will provide MoSys with written confirmation of such compliance.
10. TERMINATION
10.1 (a) If either party defaults in the performance of any material obligation hereunder and if any such default is not corrected within forty-five (45) days after the defaulting party receives written notice thereof from the non-defaulting party, then the non-defaulting party, at its option, may, in addition to any other remedies it may have, terminate this Agreement. For the purposes of this section, each of NEC's obligations pursuant to Sections 3, 7 and 8 above and each of MoSys' obligations pursuant to Sections 2, 4, 13 and 14 and both parties obligations pursuant to Section 16 shall be considered material.
(b) Either party may terminate this Agreement effective upon receipt of written notice by the other party in the event that the other party becomes the subject of a voluntary or involuntary petition in bankruptcy or any proceeding relating to insolvency, or the assignment
for the benefit of creditors, if that petition or proceeding is not dismissed within ninety (90) days after filing.
10.2 Upon any termination or expiration of this Agreement, all licenses and rights granted by MoSys shall terminate, and NEC shall promptly destroy or deliver to MoSys all materials comprising, incorporating, or using any MOSYS INTELLECTUAL PROPERTY or any LICENSED PRODUCTS, provided, however, that if this Agreement expires or is terminated by NEC under the terms of Section 10.1, NEC's license under Section 3.1 shall continue strictly limited to HIGH DENSITY 1T-SRAM MEMORY which NEC or its SUBSIDIARIES had started in the manufacturing process prior to the effective date of termination and strictly subject to continuing compliance with all the surviving Sections of this Agreement. NEC shall have no right pursuant to the preceding clause to develop new products. In addition, all amounts due or payable to MoSys as a result of events prior to the date of termination or expiration shall remain due and payable.
10.3 Upon any termination or expiration (in this Section 10.3, hereinafter collectively referred to as "Termination") of SET LICENSE AGREEMENT (including Nintendo Agreement) with an AUTHORIZED RECIPIENT (including Nintendo), MoSys shall immediately notify NEC of Termination of such SET LICENSE AGREEMENT. Upon five (5) working days after receipt by NEC of such notification of Termination, NEC shall lose all rights to sell or otherwise distribute HIGH DENSITY 1T-SRAM MEMORY without any royalties to the party of such Terminated SET LICENSE AGREEMENT. However, it is confirmed and agreed by the parties that NEC may continue to sell or otherwise distribute HIGH DENSITY 1T-SRAM MEMORY to that party with applicable royalty payment to MoSys and subject to other related obligations under this Agreement. None of rights or licenses of NEC under this Agreement shall terminate upon Termination of SET LICENSE AGREEMENTS except free-royalty payment conditions set forth in Section 7.3.
10.4 The provisions of Sections 3 (for Section 3.1, subject to Section 10.2), 7.1, 7.3, 8, 9, 10.2, 10.3, 10.4, 11, 12, 13, 14, 15 (except for Sections 15.1 and 15.2), 16, 17, 18, 20, 21, 22 and 23 shall survive any expiration or termination of this Agreement for any reason.
11. RIGHT TO NEC'S CONTRIBUTION
NEC and MoSys agree that MoSys shall retain all rights (excluding any NEC's
patent rights) to the LICENSED PRODUCT and any other products offered or
distributed by MoSys, provided that NEC shall retain all rights to any NEC
contribution or voluntarily disclosed information provided to MoSys in the
course of NEC (i) requesting changes or modifications to the LICENSED PRODUCT,
(ii) making suggestions for improvements to the LICENSED PRODUCT, or (iii)
suggesting how to correct any identified deficiencies in the LICENSED PRODUCT.
12. WARRANTY
12.1 MoSys warrants that MoSys is a corporation duly organized, validly existing and in good standing under the laws of the state of California. MoSys has full capacity, power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement. This Agreement has been duly authorized, executed and delivered by MoSys and is a legal, valid and binding agreement enforceable in accordance with its terms.
12.2 MoSys warrants that MoSys owns all rights, title and interest in and to all MOSYS INTELLECTUAL PROPERTY to be furnished or licensed to NEC and its SUBSIDIARIES. With respect to those owned by licensors of MoSys, if any, MoSys has the right to sublicense to NEC and its SUBSIDIARIES.
12.3 MoSys warrants that the execution, delivery and performance of this Agreement by MoSys shall not (i) result in the breach of, or constitute a default under, any contract or other instrument or obligation applicable to MoSys, (ii) result in the breach of any of the terms or conditions of, or constitute a default under, the charter, bylaws or other governing instruments of MoSys, or (iii) violate any order, writ, injunction, decree, or any statute, rule or regulation applicable to MoSys.
13. INTELLECTUAL PROPERTY OWNERSHIP AND INDEMNIFICATION
13.1 MoSys shall own all rights, title interest (excluding any NEC's patent
rights) in the LICENSED PRODUCT licensed under this Agreement including
any and all upgrades, enhancements and improvements thereto made by
MoSys. MoSys will also retain all patent rights, trademarks, trade
secrets, copyrights, mask work rights and all other proprietary rights
(excluding any NEC's patent rights) therein or relating thereto. Except
for the licenses granted in Section 3, no other grants of licenses or
rights to NEC and its SUBSIDIARIES shall be implied from the provisions
stated herein.
13.2 MoSys represents and warrants as of the Effective Date:
(a) to the best of MoSys' knowledge, it is the originator and/or rightful
owner of the product(s), information and documentation provided to NEC
pursuant to the terms of this Agreement (including, not limited to,
LICENSED PRODUCT) (hereinafter collectively " Information"); and
(b) to the best of MoSys' knowledge, there are no claims pending or
threatened against MoSys or any other party, that relate to the Information
or the contemplated use of the Information under this Agreement.
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13.3 Except as expressly provided herein, MoSys disclaims and shall have no obligation of defense, contribution, or indemnity with respect to any actual or alleged intellectual property infringement with respect to the Information provided or otherwise arising out of this Agreement.
MoSys shall have no liability arising out of any such actual or alleged intellectual property infringement. NEC, however, will use its reasonable efforts to notify MoSys, in writing, of each such infringement claim of which NEC becomes aware, and NEC shall cooperate with MoSys if MoSys desires to intervene in any such infringement action against NEC.
13.4 In the event of any claim by a third party of infringement of its
intellectual property rights by the NEC and/or its SUBSIDIARIES where such claim
(i) is caused substantially by the unmodified LICENSED PRODUCT and, (ii) is not
associated with standard DRAM operations, processes, design or manufacturing
then MoSys agrees to use reasonable efforts at MoSys' expense to provide
assistance, including appropriate documentation, to NEC, in its defense against
such claim under this provision. If pursuant to such a claim NEC and/or its
SUBSIDIARIES are prohibited from using the LICENSED PRODUCTS, MoSys agrees to
use reasonable efforts to modify the LICENSED PRODUCTS to avoid the
infringement.
13.5 The foregoing states MoSys' sole obligations and entire liability with respect to any claimed infringement of the LICENSED PRODUCT(S) of any intellectual property or other rights of any third party.
14. LIMITATION OF LIABILITY
IN NO EVENT WILL MOSYS' LIABILITY ARISING OUT OF THIS AGREEMENT EXCEED THE FEES AND ROYALTIES, IF ANY, RECEIVED BY MOSYS' HEREUNDER. EXCEPT FOR INFRINGEMENT OF THE OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT OR INCIDENTAL DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING OUT OF THIS AGREEMENT OR THE DESIGNS, TECHNOLOGY OR PRODUCT LICENSED OR OTHERWISE PROVIDED PURSUANT TO THIS AGREEMENT.
15. PUBLICITY; CONFIDENTIALITY
15.1 Both parties agree to cooperate in good faith announcements and disclosures after the execution of this Agreement that includes (a) NEC is a customer of MoSys, and (b) MoSys has provided the LICENSED PRODUCT to NEC and that the LICENSED PRODUCT was used in the development of the HIGH DENSITY 1T-SRAM MEMORY, and (c) a product description of the LICENSED PRODUCT as contained in MoSys' standard product literature. Neither party shall announce or publicly disclose any other terms or conditions of this Agreement without a prior written approval from the other party. An initial public announcement plan and contents are attached in Appendix G.
15.2 The parties acknowledge that by reason of their relationship to each other hereunder, each party may have access to the other party's Confidential Information. For the purposes of this
Section 15, the term " Confidential Information" shall mean any and all information and materials which are provided by one party to the other party (i) in written or other tangible form clearly marked with a legend identifying it as "Confidential" or "Proprietary" or (ii) in oral or visual form identified as "Confidential" or "Proprietary" at the time of such oral or visual disclosure and within thirty (30) days following such oral or visual disclosure the summary of which is provided to the other party in written or other tangible form marked with such legend. Each party agrees that except as may otherwise be stated herein, it shall not use, except to perform its obligations and/or to exercise its rights and licenses specified under this Agreement, nor disclose to any third party (except to Nintendo, ArtX, Inc. and recipient's independent contractors and affiliates (including SUBSIDIARIES) who are under an obligation of confidentiality, and subject to the other terms and conditions of this Agreement), any such Confidential Information revealed to it by the other party. Each party shall take reasonable precautions to protect the confidentiality of such information, which in any event will be no less than what it takes with respect to its own similar confidential information.
15.3 Information shall not be deemed Confidential Information hereunder if such information: (i) is known to the recipient at the time of disclosure; (ii) hereafter becomes rightfully known to the recipient (as for NEC, including Nintendo) directly or indirectly from a third party without such third party imposing an obligation of confidentiality on the disclosing party; (iii) becomes publicly available or otherwise ceases to be secret or confidential, except through a breach of this Agreement by the recipient; (iv) was independently developed by the recipient (as for NEC, including Nintendo) without access to the disclosing party's Confidential Information; (v) is required to be disclosed pursuant to any statutory or regulatory authority, provided the disclosing party is given prompt notice of such requirement and the scope of such disclosure is limited to the extent possible; or (vi) is required to be disclosed by a court order, provided the disclosing party is given prompt notice of such order and provided the opportunity to contest it, and/or is reasonably necessary to disclose in order to enforce this Agreement.
Notwithstanding any of the foregoing, NEC agrees not to disclose any Confidential Information of NEC to MoSys unless MoSys requests disclosure of such information in writing (including e-mail).
15.4 Recipient may make copies, in whole or in part, of disclosing party's Confidential Information only to the extent necessary for the use thereof by recipient in accordance with Section 15.2 above, provided recipient shall reproduce and include disclosing party's proprietary and confidentiality notice on each such copy.
15.5 As to each item of Confidential Information, the provisions of this Section will continue for five (5) years following first receipt of such information, except for the LICENSED PRODUCT, for which the provisions of this Section will continue for eight (8) years following first receipt of each LICENSED PRODUCT.
15.6 This Agreement and the terms of confidentiality hereunder shall not be construed to limit any party's right to independently develop or acquire products or technology, including similar or competing products or technology, without the use of the other party's Confidential
Information.
Notwithstanding anything contained in this Section and the Agreement, any party shall be free to use for any purpose the residuals resulting from access to or work with the Confidential Information, provided that such party shall maintain the confidentiality of the Confidential Information as provided herein. For the purposes of this Agreement, the term "residuals" means information in non-tangible form, which may be retained in the minds of employees, provided not deliberately memorized, who have had access to such Confidential Information, including ideas, concepts, know-how or techniques contained therein. No party shall have any obligation to limit or restrict the assignment of such employees or to pay royalties for any work resulting from the use of residuals. However, the foregoing shall not be deemed to grant to any party a license under the other party's copyrights or patents.
16. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflict of law provisions thereof.
17. DISPUTE SETTLEMENT
17.1 In the event of any dispute, controversy or difference which may arise between the parties hereto out of or in connection with or in relation to this Agreement, or the breach thereof, the parties hereto shall in the first instance do their utmost to settle such dispute, controversy or difference amicably.
17.2 Where the parties hereto fail to settle such dispute, controversy or difference amicably within ten (10) working days of the written notice of its existence given by either party to the other party, then the dispute, controversy or difference shall be finally settled by arbitration in Santa Clara, California, U.S.A. in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The award of arbitration shall be final and binding upon the parties hereto and shall not be subject to appeal to any court, and may be entered into the court of competent jurisdiction for its execution forthwith.
18. ASSIGNMENT
Neither this Agreement nor any rights or obligations hereunder, in whole or in part, shall be assignable or otherwise transferable by either party without the prior written approval of the other party. Any unauthorized attempt by either party to assign or transfer this Agreement or any rights or obligations hereunder shall be null and void. Subject to the foregoing, this Agreement will be binding upon and inure to the benefits of the parties hereto, their successors and assigns.
19. NOTICE
Any notices required to be given pursuant to this Agreement shall be in writing, sent via certified mail, return receipt requested, express overnight courier, or by facsimile (a confirmed copy of which to be sent promptly by mail to addressee) to the address of MoSys or NEC as set forth below or to such other address as may be specified from time to time by notice in writing, and such notice shall be deemed to have been received on the earlier of (a) the date when actually received or (b) if by facsimile, when the sending party shall have received a facsimile confirmation that the message has been received by the receiving party's facsimile machine.
If to MoSys: MoSys, Inc.
1020 Stewart Drive
Sunnyvale, CA 94086, U.S.A.
Attn: Chief Financial Officer
Telephone: +1 (408) 731-1800 Facsimile: +1 (408) 731-1893
If to NEC: NEC Corporation
1120,Shimokuzawa,
Sagamihara,Kanagawa, Japan
Attn: Mr.Mitsuoki Fujita
Telephone: +81 (42) -771-0688
Facsimile: +81 (42) -771-0624
20. SEVERABILITY AND WAIVER
20.1 The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions of this Agreement and shall be construed in all respects as if such invalid or unenforceable provisions were omitted.
20.2 The waiver by either party of any default or breach of this Agreement shall not constitute a waiver of any other subsequent default or breach.
20.3 Failure or delay by either party in exercising any right or power hereunder shall not operate as a waiver of such right or power.
21. INHERENTLY DANGEROUS APPLICATIONS
The LICENSED PRODUCT is not specifically developed or licensed for use in the planning, construction, maintenance, operation or other use of any nuclear facility, or for the flight, navigation or communication of aircraft or ground support equipment, or for military use, medical use or in any other inherently dangerous activity. NEC agrees that MoSys shall not be
liable for any claims, losses, costs or liabilities arising from such use if NEC, its SUBSIDIARIES, or its/their distributors or customers use the LICENSED PRODUCT for such applications. NEC agrees to indemnify and hold MoSys harmless from any claims, losses, costs, and liabilities arising out of or in connection with the use of the LICENSED PRODUCT or HIGH DENSITY 1T-SRAM MEMORY in any such applications.
22. ATTORNEYS FEES
The prevailing party in any action to enforce the terms of this Agreement shall be entitled to reasonable attorney's fees and other costs and expenses incurred by it in connection with such action.
23. MISCELLANEOUS TERMS
23.1 The relationship of the parties hereto is that of independent contractors, and neither party is an employee, agent, partner or joint venturer of the other.
23.2 Neither party shall have liability for its failure to perform its obligations hereunder when due to circumstances beyond its reasonable control.
23.3 If NEC and/or its SUBSIDIARIES distribute the HIGH DENSITY 1T-SRAM MEMORY, as authorized herein, to an agency, department, or other entity of the United States Government ("Government"), the Government's use, reproduction, release, modification, disclosure or transfer of the LICENSED PRODUCT, or of any related documentation of any kind, including technical data, is restricted in accordance with Federal Acquisition Regulation ("FAR") 12.212 for civilian agencies and Defense Federal Acquisition Regulation Supplement ("DFARS";) 227.7202 for military agencies. The LICENSED PRODUCT is intended for commercial use. The use of the by any Government agency, department, or other entity of the Government, is further restricted in accordance with the terms of this Agreement, or any modification hereto. NEC will affix the following legend before delivery to the Government of each of the Models and User Documentation and/or Physical Views to be delivered to the Government:
Use, duplication, reproduction, release, modification, disclosure or transfer of this commercial product and accompanying documentation, is restricted in accordance with FAR 12.212 and DFARS 227.7202, and by a license agreement. Contractor/manufacturer is: MoSys, Inc., 1020 Stewart Drive, Sunnyvale, California 94086 U.S.A.
BOTH PARTIES ACKNOWLEDGE THAT THIS AGREEMENT INCLUDING THE EXHIBITS AND APPENDICES ATTACHED HERETO IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE MUTUAL UNDERSTANDING OF THE PARTIES AND SUPERSEDES AND CANCELS ALL CONFLICTING TERMS AND CONDITIONS AND ALL PREVIOUS AND CONTEMPORANEOUS WRITTEN AND ORAL AGREEMENTS AND COMMUNICATIONS RELATING TO THE SUBJECT MATTER HEREOF. THIS AGREEMENT MAY NOT BE MODIFIED, SUPPLEMENTED, QUALIFIED, OR INTERPRETED BY ANY TRADE USAGE OR PRIOR COURSE OF DEALING NOT MADE A PART OF THIS AGREEMENT BY ITS EXPRESS TERMS. THIS AGREEMENT MAY NOT BE MODIFIED OR AMENDED EXCEPT IN WRITING AND EXECUTED BY DULY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
BOTH PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AGREEMENT, UNDERSTAND IT AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS AS EVIDENCED BY THEIR SIGNATURES BELOW.
MONOLITHIC SYSTEM TECHNOLOGY, INC. NEC CORPORATION
By: By:
------------------------------------ ------------------------------------
Signature of an Officer of Signature of an Authorized
the Corporation Representative
By: Dr. Fu-Chieh Hsu By:
--------------------------------------- ------------------------------------
Printed Name of the Signing Officer Printed Name of the Signing
Authorized Representative
Title: Chief Executive Officer Title:
--------------------------------------- ------------------------------------
Date: December 17, 1999 Date:
--------------------------------------- ------------------------------------
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[APPENDICES OMITTED]
Exhibit 10.12
MoSys Inc.
1020 Stewart Drive
Sunnyvale, CA 94086
July 17, 2000
Mr. F. Judson Mitchell
159 El Pinar
Los Gatos, CA 95032
Tel: (408) 379-8472
Dear Judd,
I am pleased to offer you a position with Monolithic System Technology, Inc. ("MoSys" or the "Company") as its Chief Financial Officer, an exempt position, commencing on or before July 22, 2000. Your supervisor will be myself. Your base compensation will be one hundred seventy five thousand dollars ($175,000) annually.
Upon approval of the Company's Board of Directors, you will be granted an option to purchase 250,000 shares of the Company's common stock. The terms of such option shall be in accordance with the terms of the Company's stock option plan. Accordingly, the option will vest 25% at the end of one year of employment and 2% per month thereafter. The per share exercise price of the option shall be the fair market value of the Company's common stock on the date of grant as determined by the Company's Board of Directors, currently deemed to be $8.00 per share.
If (i) there is an event of change of control of more than 50% of the voting power of the Company resulting from a merger, reorganization, sale of all or substantially all assets or other similar acquisition transaction, and (ii) you are terminated without Cause or Constructively Terminated (as such terms are defined below) in connection with such change in control event or during the twelve month period thereafter, then all unvested stock options granted to you above shall be immediately accelerated and exercisable.
"Cause" shall mean (i) an intentional material act of fraud or dishonesty in connection with employee's duties, or in the course of employment with the company; (ii) the conviction of a felony; (iii) a willful act by Employee which is injurious to the Company: or (iv) a willful failure by Employee to substantially perform his duties, other than a failure resulting from the Employee's complete or partial incapacity due to physical or mental illness or impairment.
"Constructively Terminated" shall mean the termination of the Employee's employment because of (i) an assignment to Employee of any duties materially inconsistent with or which constitute a material detrimental change of Employee's position, duties, responsibilities or status or (ii) a material reduction in Employee's salary.
As a Company employee, you are also eligible to receive those employee benefits that are generally offered to all employees of the Company.
You should be aware that your employment with the Company is for no specified period and constitutes at will employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause.
Should your employment be terminated without Cause, the Employee will receive one quarter (1/4) of the annual salary in effect at the time of the termination as severance pay from the Company.
In the event of any dispute or claim relating to or arising out of our employment relationship, you and the Company agree that all such disputes shall be fully and finally resolved by binding arbitration conducted by the American Arbitration Association in Santa Clara County, California. However, we agree that this arbitration provision shall not apply to any disputes or claims relating to or arising out of the misuse or misappropriation of the Company's trade secrets or proprietary information.
To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me. This letter, along with the agreement relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you.
We look forward to working with you at MoSys Inc.
Sincerely,
/s/ ---------------------------------- Chief Executive Officer |
ACCEPTED AND AGREED TO this 19 day of July 2000.
/s/ F J Mitchell ------------------------------------ F. Judson Mitchell |
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our reports dated August 3, 2000 relating to the financial statements and financial statement schedule of Monolithic System Technology, Inc., which appear in such Registration Statement. We also consent to the references to us under the headings "Selected Financial Data" and "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP San Jose, California August 3, 2000 |
| ARTICLE 5 |
| PERIOD TYPE | 12 MOS | 3 MOS | 6 MOS |
| FISCAL YEAR END | DEC 31 1998 | DEC 31 1999 | JUN 30 2000 |
| PERIOD START | JAN 01 1998 | JAN 01 1999 | JAN 01 2000 |
| PERIOD END | DEC 31 1998 | DEC 31 1999 | JUN 30 2000 |
| CASH | 9,750 | 12,720 | 19,947 |
| SECURITIES | 0 | 0 | 0 |
| RECEIVABLES | 2,954 | 1,790 | 1,322 |
| ALLOWANCES | (300) | (199) | (200) |
| INVENTORY | 4,442 | 1,049 | 1,238 |
| CURRENT ASSETS | 16,929 | 15,664 | 22,645 |
| PP&E | 3,526 | 3,928 | 3,965 |
| DEPRECIATION | (2,573) | (3,150) | (3,418) |
| TOTAL ASSETS | 17,932 | 16,481 | 23,221 |
| CURRENT LIABILITIES | 5,542 | 3,756 | 5,391 |
| BONDS | 0 | 0 | 0 |
| PREFERRED MANDATORY | 30,391 | 30,391 | 35,591 |
| PREFERRED | 0 | 0 | 0 |
| COMMON | 97 | 98 | 99 |
| OTHER SE | (18,098) | (17,764) | (17,860) |
| TOTAL LIABILITY AND EQUITY | 17,932 | 16,481 | 23,221 |
| SALES | 36,281 | 15,356 | 4,028 |
| TOTAL REVENUES | 36,281 | 15,356 | 4,488 |
| CGS | 31,892 | 10,062 | 2,219 |
| TOTAL COSTS | 7,066 | 5,605 | 3,310 |
| OTHER EXPENSES | 0 | 0 | 0 |
| LOSS PROVISION | 0 | 0 | 0 |
| INTEREST EXPENSE | 294 | 0 | 0 |
| INCOME PRETAX | (2,322) | 209 | (582) |
| INCOME TAX | 0 | (67) | 0 |
| INCOME CONTINUING | (2,322) | 142 | (582) |
| DISCONTINUED | 0 | 0 | 0 |
| EXTRAORDINARY | 0 | 0 | 0 |
| CHANGES | 0 | 0 | 0 |
| NET INCOME | (2,322) | 142 | (582) |
| EPS BASIC | (0.24) | 0.01 | (0.06) |
| EPS DILUTED | (0.24) | 0.01 | (0.06) |