AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER , 2000
REGISTRATION NO. 333-43122
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
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 this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
Common stock........................... 5,750,000 $11.00 $63,250,000 $16,698(3)
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(1) Includes shares that the Underwriters have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration fee. The estimate is made pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
(3) $13,200 previously paid with initial filing.
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 SEPTEMBER , 2000
PROSPECTUS
5,000,000 SHARES
[LOGO]
MONOLITHIC SYSTEM TECHNOLOGY, INC.
COMMON STOCK
This is our initial public offering. We are offering 5,000,000 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 $9.00 and $11.00 per share. 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 750,000 shares of common stock, solely to cover over-allotments.
J.P. MORGAN & CO. WIT SOUNDVIEW
, 2000
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[EDGAR DESCRIPTION OF ARTWORK:]
[inside front cover]
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These are some of the companies that have formally committed to utilizing the advantages of our 1T-SRAM technology
[NEC logo]
"NEC evaluated and licensed MoSys' embedded 1T-SRAM
memory technology based on its unique combination of
performance, density and power capabilities not [Nintendo logo]
available from other SRAM technologies."
[Virage Logic logo]
"1T-SRAM represents a breakthrough in embedded
[LSI Logic logo] memory technology for the `system on a chip'
industry."
[Pixelworks logo]
"We selected MoSys' 1T-SRAM because it delivers the
exceptional SRAM performance we require and at
densities significantly ahead of any other embedded [TSMC logo]
memory."
[Allayer Communications logo]
"These 1T-SRAM characteristics are ideally
[UMC logo] suited to our communication applications and
are not available from other technologies."
[Galileo Technology logo]
"MoSys' memory technology is an integral part of our
product roadmap." [Via Technologies logo]
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[inside back 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."
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained 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......... 16
Use of Proceeds...................... 16
Dividend Policy...................... 16
Capitalization....................... 17
Dilution............................. 18
Selected Financial Data.............. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
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PAGE
Business............................. 30
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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MOSYS, MULTIBANK and 1T-SRAM are our trademarks. 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 a patented semiconductor memory technology, called 1T-SRAM, that offers a combination of high density, low power consumption, high speed and low cost that available memory technologies do not match. We license this technology to companies that incorporate, or embed, memory on complex integrated circuits. We also use the 1T-SRAM technology in memory chips that we sell. The sale of our 1T-SRAM memory chips supports the future development and marketing of our 1T-SRAM technology to licensees.
From our inception in 1991 until 1998, we focused on the sale of memory chips for the personal computer market. By the fourth quarter of 1998, we completed the development of our 1T-SRAM technology and changed our primary focus from selling memory chips to licensing our 1T-SRAM technology for the embedded memory market.
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. Traditionally, memory has been provided in separate, or discrete, memory chips. Rather than using discrete memory chips, semiconductor companies increasingly 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 small, embedded static random access memory, SRAM, which we refer to as traditional SRAM, typically is cost effective. As the amount of required memory increases, however, designers find it difficult to incorporate 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. Instead of the six transistors utilized in a traditional SRAM storage cell, each 1T-SRAM storage cell contains only one transistor and one capacitor reducing the silicon required and thus lowering cost. Embedded memory utilizing our 1T-SRAM technology is the only available memory technology that typically offers all of 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; and
- it provides speeds equal to or greater than those offered by traditional SRAM, especially for larger memory sizes.
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.
To date, we have earned almost all of our revenue from the sale of memory chips. In 1998, we reduced our memory chip product offerings and decided that the combination of strong competition for personal computer
memory chips, volatile pricing and low margins would limit our profitability. Consequently, we changed our memory chip strategy to market only 1T-SRAM memory chips. We expect to continue operating our 1T-SRAM memory chip business at current levels for the foreseeable future. We outsource the manufacture of our memory chips to foundries.
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. Each of our licensing agreements provides that 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, but we have not recognized royalty revenue to date.
We have achieved significant momentum in developing our licensing business. Since the fourth quarter of 1998, we have entered into strategic relationships to license or develop products based on 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, intellectual property companies 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 memory chip revenue, as these memory chips 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........................................ 5,000,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER THIS OFFERING.......... 30,637,381 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 completed prior to this offering;
- reflects the conversion of all outstanding shares of our redeemable convertible 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;
- assumes 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 90,000 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 $10.00;
- 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 $2.07 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,
---------------------------------------------------- -------------------
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)
======= =======
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 $ 82,160
Working capital............................................. 17,254 17,254 79,472
Total assets................................................ 23,221 23,221 85,439
Deferred revenue............................................ 3,878 3,878 3,878
Redeemable convertible preferred stock...................... 35,591 -
Stockholders' equity (deficit).............................. (17,761) 17,830 80,043
Stockholders' equity (deficit) and preferred stock.......... 17,830 17,830 80,043
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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 5,000,000 shares of common stock offered hereby at an assumed initial public offering price of $10.00 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 90,000 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 the number of 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 fabricated and verified to be operational 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.
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 to be operational in standard manufacturing processes by production and sale of proprietary integrated circuits that incorporate our 1T-SRAM technology or 1T-SRAM memory chips. Nevertheless, detailed aspects of the interface of our technology 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 parameters for designing integrated circuit layouts applicable to the targeted semiconductor fabrication process. 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 impede the acceptance of our technology in the industry.
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. In order to attain and maintain a significant position in the market, we will need to continue to enhance our technology in anticipation of these market trends.
In addition, 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 potential revenue.
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 our current relationships with these co-marketers, 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 our 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 memory chips. 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 have recorded operating losses in each quarter since our adoption of this new business plan. 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 memory chip sales, most of our memory chip sales efforts are now directed at the strategic and limited sale of our 1T-SRAM memory chip, 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 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 time consuming 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. 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 revenue from the licenses to Nintendo to represent a substantial portion of 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 10.3%, 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 WHICH COULD NEGATIVELY AFFECT OUR CASH FLOW AND FINANCIAL CONDITION.
We might 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 REDUCE THE VALUE OF OUR TECHNOLOGY.
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. 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, 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. 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.
THE DISCOVERY OF DEFECTS IN OUR TECHNOLOGY COULD EXPOSE US TO LIABILITY FOR DAMAGES.
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 license 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 FAILURE TO COMPETE EFFECTIVELY IN THE MARKET FOR EMBEDDED MEMORY TECHNOLOGY AND PRODUCTS COULD REDUCE OUR REVENUE.
Competition in the market for embedded memory technology and products is intense. Our licensees and prospective licensees can meet their need for embedded memory by using traditional memory solutions with different cost and performance parameters. If alternative technologies are developed that provide comparable system performance at lower cost than our 1T-SRAM technology or do not require the payment of comparable royalties, or if the industry generally demonstrates a preference for applications for which our 1T-SRAM technology does not offer significant advantages, our potential revenue and growth could be adversely affected.
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 HARM OUR ABILITY TO ATTRACT FUTURE LICENSEES.
The majority of our licenses require 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 REVENUE.
The timing and level of our royalties depend on our licensees' ability to market, produce and ship products incorporating our technology. 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. Many factors beyond our control 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 sales of their products and the corresponding royalties payable to us. A decline in sales of our licensees' royalty-generating products for any reason would reduce our revenue.
WE INTEND TO GROW RAPIDLY, AND OUR FAILURE TO MANAGE THIS GROWTH COULD REDUCE OUR POTENTIAL REVENUE AND THREATEN OUR FUTURE PROFITABILITY.
The efficient management of our planned expansion of the development, licensing and marketing of our technology will require us to continue to -
- implement and manage new marketing channels to penetrate different and broader markets for our 1T-SRAM technology;
- 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 and technical personnel; and
- expand, train and manage our workforce and, in particular, our development, sales, marketing and support organizations.
We cannot assure you that we will adequately manage our growth or meet the foregoing objectives. A failure to do so could jeopardize our future revenues and cause our stock price to fall.
IF WE FAIL TO RETAIN KEY 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 technology development efforts and on our ability to perform our existing agreements and obtain new customers.
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 memory chip 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 this product 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 memory chips will perform the desired functions, will operate reliably on a long-term basis or otherwise will be technically successful, or that we will be able to obtain adequate quantities of these products at commercially acceptable costs or on a timely basis.
A DECLINE IN THE AVERAGE SELLING PRICES OF OUR MEMORY CHIPS 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 memory chips 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. We experienced a significant decline in average selling prices for our primary memory chip from 1997 to 1998, with a corresponding decline in gross margin for that product. Declining average selling prices will adversely affect gross margins from the sale of our memory chips. 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 profit margins could fall.
WE OBTAIN 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.
We are a fabless semiconductor company, and currently rely on Taiwan Semiconductor Manufacturing Corporation, or TSMC, in Taiwan for the manufacture of all of our memory chips. We presently do not have a firm, written agreement with TSMC or any other semiconductor foundry which guarantees the fabrication of our memory chips. As a result, we cannot assure you that we will always be able to obtain these products in sufficient numbers and on a timely basis to meet our sales objectives. A failure to ensure the timely fabrication of our products could cause us to lose customers and could have a material adverse effect on our profits. If TSMC ceases to provide us with required production capacity with respect to our memory chips, 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 the 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.
All of our semiconductor memory products are assembled and tested by third-party vendors, primarily in Hong Kong and Taiwan. 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.
Our marketing efforts with respect to licensing our 1T-SRAM technology include the use of our 1T-SRAM memory chips 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 memory chips, or any other failure to produce our 1T-SRAM memory chips, could materially obstruct our marketing efforts and reduce our revenue.
THE VOLATILITY OF THE SEMICONDUCTOR INDUSTRY AND UNCERTAINTIES INHERENT IN OUR LICENSING ACTIVITIES AND PRODUCT SALES MAY MAKE IT DIFFICULT TO PLAN OUR BUSINESS AND COULD CAUSE OUR RESULTS OF OPERATIONS TO FLUCTUATE SUBSTANTIALLY.
The semiconductor industry has historically experienced significant economic downturns at various times, characterized by diminished demand, product price erosion and fluctuations in inventory levels. In addition, alternating periods of manufacturing over-capacity and capacity constraints have affected product supply significantly and caused fluctuations in the profitability of many market participants. A recurrence of these conditions could cause us to experience substantial period-to-period fluctuations in operating results, which could negatively affect our stock price.
Fluctuations in our operating results from period to period also could be caused by many events out of our control, such as--
- the timing of significant licenses and the cancellation or rescheduling of our licensees' product introductions;
- seasonal and other fluctuations in demand for and variability of the life cycles of our licensees' products;
- fluctuations in the demand for our memory chips and the related effects on inventory levels; 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.
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, such as withholding taxes;
- 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 costs of operation, the timing of our revenue and our profitability.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS OR DELAWARE LAW MIGHT DELAY OR PREVENT A CHANGE OF CONTROL TRANSACTION AND DEPRESS THE MARKET PRICE OF OUR STOCK.
Various 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. These 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, limit the right of stockholders to call special meetings 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 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 specific 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 STOCKHOLDER RIGHTS PLAN COULD PREVENT STOCKHOLDERS FROM RECEIVING A PREMIUM
OVER THE MARKET PRICE FOR THEIR SHARES FROM A POTENTIAL ACQUIROR.
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 50% 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. 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 research and development, working capital, marketing and sales and 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 transactions of this type, however. Pending the use of the net proceeds for the above purposes, we intend to invest the proceeds 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 the 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 disrupt our business operations, increase our operating costs and reduce the value to us of the acquired company, including -
- problems integrating the acquired employees, operations, technologies and 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 might not be indicative of the market price of our common stock after this offering.
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. It is likely that our stock price will experience similar volatility. 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, harm our reputation in the industry and the securities markets and reduce our profitability.
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 many of our larger security holders under which they 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 3,481,219 shares of common stock will be entitled to demand and piggyback rights with respect to registration of such shares under the Securities Act. See "Description of Capital Stock - Registration Rights." If these 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, sales of these shares 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 $7.73 per share in the net tangible book value of common stock from an assumed initial public offering price of $10.00 per share. Purchasers would incur additional dilution of approximately $0.30 per share if all outstanding stock options are exercised. Purchasers might suffer further dilution if we issue shares in connection with a future acquisition or for other reasons. For a more detailed description of this dilution, please see "Dilution."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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.
USE OF PROCEEDS
The net proceeds to us from the sale of the 5,000,000 shares of common stock being sold in this offering are estimated to be $45,000,000 at an assumed initial public offering price of $10.00 per share and after deducting the estimated underwriting discount and offering expenses. Net proceeds will be $51,975,000 if the underwriters' over-allotment option is exercised in full. We intend to use $15 million to $25 million of the net proceeds for research and development, $5 million to $15 million for working capital, $5 million to $15 million to expand our sales and marketing efforts, and $5 million to $10 million for general corporate purposes. 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 5,000,000 shares of common stock in this offering at an assumed initial public offering price of $10.00 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 2,971,219 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.
-----------------------------------
JUNE 30, 2000
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
IN THOUSANDS, EXCEPT PER SHARE DATA -------- ---------- -----------
Cash and cash equivalents................................... $ 19,947 $ 19,947 $ 82,160
======== ========== ===========
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)........................... 99 227 306
Additional paid-in capital................................ 2,630 38,093 100,227
Accumulated deficit....................................... (19,723) (19,723) (19,723)
Deferred stock compensation............................... (767) (767) (767)
-------- ---------- -----------
Total stockholders' equity (deficit).................... (17,761) 17,830 80,043
-------- ---------- -----------
Total capitalization.................................... $ 17,830 $ 17,830 $ 80,043
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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 $2.07 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 90,000 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 reflecting the conversion of redeemable convertible preferred stock into common stock. After giving effect to the sale of 5,000,000 shares of common stock in this offering, based upon an assumed initial public offering price of $10.00 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 be $62.8 million, or $2.27 per share. This represents an immediate increase in pro forma net tangible book value of $1.48 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $7.73 per share to new investors. The following table illustrates this per share dilution:
---------------
Initial public offering price per share..................... $10.00
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........................... 1.48
------
Pro forma net tangible book value per share after this
offering.................................................. 2.27
------
Pro forma dilution per share to new investors............... $ 7.73
======
|
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.
---------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- -------------
Existing stockholders.................. 25,637,381 84% $ 53,613,000 52% $2.09
New investors.......................... 5,000,000 16 50,000,000 48 10.00
---------- ---- ------------ ---- ----------
Total.................................. 30,637,381 100% $103,613,000 100% $3.38
========== ==== ============ ==== ==========
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The foregoing table gives 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 90,000 shares of common stock, net.
The foregoing table excludes 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 $2.07 per share.
Assuming the exercise of all options and warrants outstanding as of June 30, 2000, our pro forma as adjusted net tangible book value at June 30, 2000 would be $84.8 million, or $2.57 per share, which would represent an immediate increase in the pro forma as adjusted net tangible book value of $1.78 per share to existing stockholders and an immediate dilution of $7.43 per share to new 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.
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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) (2,677) (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
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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 - - -
Redeemable 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 have developed a patented semiconductor memory technology, called 1T-SRAM, that offers a combination of high density, low power consumption, high speed and low cost that available memory technologies do not match. We license this technology to companies that incorporate, or embed, memory on complex integrated circuits. We also use the 1T-SRAM technology in memory chips that we sell. The sale of our 1T-SRAM memory chips supports the future development and marketing of our 1T-SRAM technology to licensees.
We have sold memory chips since 1996 from four product lines:
- multibank dynamic random access memory, or MDRAM, a proprietary memory chip for use primarily with graphics applications in personal computers, that we first shipped in 1996;
- MCACHE, our brand name for another proprietary line of personal computer memory chips, that we first shipped in 1996 and ceased shipping in early 1999;
- synchronous graphics random access memory, or SGRAM, an industry standard memory chip design for use primarily with graphics applications in personal computers, that we first shipped in 1997; and
- 1T-SRAM memory chips for use primarily in communications equipment, that we first shipped in the fourth quarter of 1998.
Sales of our memory chips peaked at $36.3 million in 1998. We achieved profitability in the fourth quarter of 1997 and the first quarter of 1998. Unit prices and shipments into the personal computer market declined dramatically in the second quarter of 1998, however. At that time we decided that the combination of strong competition for personal computer memory chips, volatile pricing and low margins would limit the profitability of chip sales in the long run. Consequently, using elements of our existing memory technology as a foundation, we completed the development of our 1T-SRAM technology in the fourth quarter of 1998 and changed our primary focus to licensing this memory technology.
Also in 1998, we completed development of our first 1T-SRAM chips and changed our marketing strategy for memory chips to focus on selling 1T-SRAM memory chips to customers in the communications equipment business. Thus, we now sell MDRAMs and SGRAMs in low volumes only to support small orders from existing customers and we develop, market and promote only 1T-SRAM memory chips. Production of 1T-SRAM memory chips significantly support our 1T-SRAM technology development and marketing, and provide most of our current revenue. We expect to continue operating our 1T-SRAM chip business at the current level for the foreseeable future.
After changing our business model, we signed our first license agreement related to 1T-SRAM technology at the end of the fourth quarter of 1998 and recognized licensing contract revenue from our 1T-SRAM technology for the first time in the first quarter of 2000. As of July 31, 2000, we had signed agreements related to our 1T-SRAM technology with thirteen companies. Generally, we expect our total sales cycle, or the period from 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 expect to generate three types of revenue: contract revenue, royalty revenue and memory chip revenue. To date, we have generated almost all of our revenue from the sale of memory chips. During the next
12 months, our revenue may continue to consist primarily of memory chip 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.
Contract revenue consists of 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, which will be recognized over the next year as and when obligations to the licensee are met.
Each licensing contract provides 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. Under our licensing business model, our future revenue will be tied to royalties on the production and sale of our licensees' products. Many of these products are consumer products, such as electronic games, for which demand is seasonal. For a discussion of factors that could contribute to the fluctuation of our revenues, please see "Risk Factors - Our lengthy licensing cycle and our licensees' lengthy development cycles will make the operating results of our licensing business difficult to predict."
Product revenue derived from our three largest customers, Diamond Multimedia Systems, Inc. which was subsequently acquired by S3, Inc., Serial System PTE, Ltd., and STB, Inc. which was subsequently acquired by 3DFX, Inc., represented 29.1%, 10.8% and 10.3% of our total revenue in 1998, respectively. In 1999, our two largest customers, ETMA Corporation and Maxtek Technology Company, Ltd., represented 16.4% and 10.9% of our total revenue, respectively. In the first half of 2000, our two largest customers were Arrowpoint Communications, Inc. and Maxtek Technology Company Ltd., who represented 32.9% and 13.2% of our total revenue for that period, respectively. All of our sales are denominated in U.S. dollars. Our memory chips 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.
Currently, Taiwan Semiconductor Manufacturing Corporation, or TSMC, manufactures all of the memory chips that we sell. 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 memory chip 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.
COST OF REVENUE. Cost of product revenue consists primarily of costs associated with the manufacture, assembly and test of our memory chip 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 memory chips.
Since changing our business model in 1998, we have devoted our research and development efforts primarily to developing the 1T-SRAM technology and related licensing activities. 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 memory chips. 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) (7.4) (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. We generated all of our revenue in 1997, 1998 and 1999 from the sale of our memory chips. Revenue increased from $34.8 million in 1997 to $36.3 million in 1998 as we shipped a greater volume of memory chips. Declines in 1998 shipments of MCACHE and MDRAM chips were largely offset by increased sales of SGRAM chips, as we phased out the MCACHE product line and promoted industry standard SGRAM chips instead of our proprietary MDRAMs. Revenue decreased from 1998 to 1999 because selling prices fell and we reduced promotion and sales of memory chips to customers in the personal computer business. This decline was consistent with the change of marketing strategy to focus on marketing only 1T-SRAM memory chips to customers in the communications equipment business.
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 memory chips, 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. Although memory chip shipments in 1999 declined significantly from 1998, the gross profit increased in 1999 due to increased prices for the memory chips and a shift of the mix of sales to higher-margin 1T-SRAM chips, which began shipment in late 1998.
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 memory chips. 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. Selling, general and administrative expenses in 1998 included bad debt expense of $161,000. Of this amount, $143,000 was attributable to one customer that filed for bankruptcy. When we initially shipped the products to the customer, we thought that the receivable was collectible.
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 memory chips, consistent with our decision to focus our efforts on 1T-SRAM technology licensing activities. 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 33.1% 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 memory chip 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 memory chips, 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 memory chips. 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 memory chips.
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. The increase in cash was due primarily to the sale of $5.2 million of redeemable convertible preferred stock in May 2000. In addition, we received contract fees associated with licensing activities in the first half of 2000, which increased deferred revenue by $1.8 million. 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 $3.6 million of cash from operations in 1999. Net cash used in operations in 1997 consisted primarily of the increase in accounts receivable of $5.1 million, which was the result of increasing revenue levels throughout 1997. In 1998, factors which consumed cash in operations were the net loss of $2.3 million and the decreases in accounts payable and accrued expenses of $3.8 million and $3.4 million, respectively, resulting from the decline in revenue levels and inventory purchases throughout 1998. These factors were partially offset by decreases in accounts receivable and inventories of $4.0 million and $2.7 million, respectively, which were also due to the declines in revenue levels and inventory purchases. Net cash generated from operations in 1999 resulted principally from a continued decline in the levels of revenue, and consisted of reductions of accounts receivable and inventory in the amounts of $1.0 million and $3.4 million, respectively. In addition, we collected
$2.0 million in contract fees in 1999 and recorded them as deferred revenue. Cash generated from operations in 1999 was offset by the decline in accounts payable of $3.9 million, primarily because we reduced our purchases of inventory.
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 memory chip sales 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. We expect that generally a licensing business such as ours will require less cash to support operations after multiple licensees begin to ship products and pay royalties. If the level and consistency of royalties increases beyond the next twelve months, we expect that the amount of additional financing to support the growth of our business is likely to decline. 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 a patented semiconductor memory technology, called 1T-SRAM, that offers a combination of high density, low power consumption and high speed at performance and cost levels that other available embedded memory technologies do not match. We license our 1T-SRAM technology on a non-exclusive and worldwide basis to companies that incorporate, or embed, memory on complex integrated circuits.
From our inception in 1991 until 1998, we focused primarily on the development of innovative memory technologies and the sale of memory chips. Development of our memory chips during the early years of our existence enabled us to prove the effectiveness and manufacturability of critical elements of the 1T-SRAM technology. By the fourth quarter of 1998, we completed the development of our 1T-SRAM technology and changed our primary strategic focus from selling memory chips to licensing our 1T-SRAM technology, which we expect will represent a majority of our future revenue. We generate contract revenues which consist of fees paid for engineering development and engineering support services. We are entitled to receive royalties under each of our licensing agreements 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 require less silicon, thus reducing their size and cost. 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. Process technology generations are distinguished in terms of the dimension of the integrated circuit's smallest topographical features, as measured in microns (one millionth of a meter). The semiconductor industry has continuously developed advanced process technologies that enable the reduction of silicon area on integrated circuits and consequently lower costs. The industry is predominantly using 0.25-micron manufacturing process technology today. However, current designs are being implemented in 0.18-micron manufacturing process technology, and will migrate to 0.15-micron manufacturing process technology in the near future.
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 chips, semiconductor companies today are embedding memory on highly integrated circuits in order to optimize performance and size. At the same time, 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.
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 memory chips and offers integrated circuit designers the following characteristics compared to traditional SRAM -
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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
|
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 proven operational in the fabrication of chips at Taiwan Semiconductor Manufacturing Corporation, or TSMC, United Microelectronics Corporation, or UMC, and Chartered Semiconductor Manufacturing Ltd., 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 demonstrated in the fabrication of chips 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 incorporates into its innovative memory architecture 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, intellectual property companies 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. As our technology becomes available through an increasing number of channels, we believe it will be less likely that customers will have 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 MEMORY CHIP PRODUCTS TO DEMONSTRATE LEADING-EDGE TECHNOLOGY
Revenue from the sale of memory chips has constituted a majority of our historical revenue. We expect to continue to generate memory chip sales 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 the sale of our memory chips. 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, intellectual property companies and design companies through product development, technology licensing and co-marketing relationships.
We form product development and licensing relationships directly with semiconductor companies and electronic product manufacturers. Generally, we require the prospective licensee to identify a specific project for the use of our technology. The prospective licensee's implementation of the 1T-SRAM technology typically includes customized development. Usually, these relationships involve both engineering work to implement our technology in the specified product and licensing the technology for manufacture and sale of the product. Although the precise terms of each agreement vary, every agreement provides for the payment of contract fees to us at the beginning of the contract and the joint development of specifications and initial product design and engineering. The agreements usually provide for payment of additional contract fees to us upon the achievement of specified development milestones. The license terms provide for the payment of royalties to us based on future sales or the manufacture of its products utilizing 1T-SRAM technology. The agreements also typically provide for the payment of additional contract fees if we provide engineering support services related to the manufacture of the product. Generally, our licenses grant rights to use our technology only as modified for the project covered by the license agreement or amendment. Usually, the license is nontransferable, nonexclusive and can be sublicensed only to subsidiaries. Our license agreements generally have a fixed term and are subject to renewal. Some of our agreements cover both the development and licensing aspects of the technology relationship. In other cases, we enter into an agreement with the prospective licensee covering only our initial project development work, non- refundable contract fees and a summary of acceptable license terms, including royalties, and subsequently enter into a separate comprehensive license agreement.
Each new project requires a separate agreement or the modification of an existing agreement.
Not all of our technology relationships will result in the manufacture and sale of royalty-bearing products by our licensees, from which we expect to earn most of our revenues in the future. Therefore, to increase the number of royalty-generating license agreements for our 1T-SRAM technology, an important element of our strategy is to offer this technology broadly in order to establish it as an industry standard.
We also form co-marketing relationships with dedicated foundries such as TSMC, UMC and Chartered that generally do not provide third-party intellectual property directly to their customers. Our relationships with these foundries facilitate the promotion of our 1T-SRAM technology to their customers and joint cooperation to support the manufacture of test chips incorporating 1T-SRAM technology, which we use to demonstrate that products incorporating this technology can be fabricated at each foundry. We also have entered into co-marketing relationships with intellectual property and design companies like Virage Logic and Lexra who have agreed to promote 1T-SRAM technology along with their intellectual property.
The following table lists some of our most significant 1T-SRAM agreements, in reverse chronological order.
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COMPANY DATE APPLICATION
------------------------------ ------- -----------------------------------------------------
Galileo Technology............ Q3 2000 Communications
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 application specific standard
products (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 Application specific integrated circuits (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.
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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 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 memory chips 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 STORAGE CELL
The high density of our 1T-SRAM technology 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, drawn to scale, but not to actual size, are electrical schematics of the traditional SRAM storage cell and our 1T-SRAM storage cell. The comparison of the two diagrams illustrates the small size and reduced complexity of the 1T-SRAM storage cell. This results in significant cost savings because less silicon space is required by 1T-SRAM storage cells.
[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 characteristic 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 cost for the manufacturer. Other embedded memory technologies do not achieve the same density and performance using the standard logic process.
LICENSED TECHNOLOGY AND MEMORY CHIPS
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. Substantially all of our current memory chips incorporate 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.
We continue to implement our 1T-SRAM technology on advanced generations of manufacturing processes. As a result, our licensees are able to implement their integrated circuits, incorporating 1T-SRAM embedded memory on the highest performance manufacturing processes available. The chart below illustrates the advances we have made in implementing and verifying 1T-SRAM on the latest generations of manufacturing processes. The
processes with the smaller micron dimensions have higher random access speeds and typically enable larger capacity memories.
------------------------------------------------------------------------------------------------- PROCESS GENERATION 0.25-MICRON 0.18-MICRON 0.15-MICRON ------------------------------------------------- -------------- ------------- ------------- Date of 1T-SRAM Verification..................... September 1999 January 2000 May 2000 Typical Memory Capacity.......................... 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.
MEMORY CHIP PRODUCTS
We offer a range of 1T-SRAM chips that feature high performance and low power consumption but are cost competitive with other commercially available memory products. We have developed these 1T-SRAM chips in a number of configurations, bit densities and clock speeds to support specific targeted products. We sell these chips 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 the 1T-SRAM chips, we intend to continue developing new products based on the 1T-SRAM technology. We believe that designing and producing these 1T-SRAM chips significantly enhances our ability to promote and improve our 1T-SRAM technology. Sales of these chips to suppliers of communications equipment also increases the visibility of our technology in this important market for our 1T-SRAM technology. We lack manufacturing resources and other guaranteed sources of supply for 1T-SRAM chips, however, and intend to allocate most of our engineering resources to the development of 1T-SRAM technology and support of our licensing business. Therefore, we do not expect to significantly expand our memory chip business.
We also continue to sell a small number of MDRAM and SGRAM chips to fulfill occasional purchase orders from existing customers who have incorporated these integrated circuits into their existing product lines. We do not intend to develop new versions of these product families.
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. These 30 patents include claims relating to multibank partitioning and architecture, 1T-SRAM internal operation and circuit techniques, high-speed operation techniques, 1T-SRAM refresh management techniques and the interface of embedded 1T-SRAM storage cells in logic processes. 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
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. We offer our 1T-SRAM technology directly through license agreements with semiconductor manufactuers and fabless semiconductor companies. We also market our technology on a direct as well as an indirect basis to electronic product manufacturers, who may choose to utilize our technology through a semiconductor manufacturer or fabless semiconductor company who has licensed our technology. In order to focus our sales and marketing resources, we generally enter into a license agreement 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 or enter into additional agreements for future projects.
Another means by which we indirectly offer our technology is by entering into co-marketing agreements with foundries, intellectual property companies and design service companies. These companies introduce our technology to their customers, who in turn could incorporate our technology into their future product specifications. These indirect distribution channels help reduce our need to build a large, internal sales force.
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 memory chip 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.
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.
The technological advantages offered by our 1T-SRAM technology might not be utilized in some applications. Our licensees and prospective licensees can meet their current needs for embedded memory using other memory solutions with different cost and performance parameters. For example, alternative solutions may be more cost-effective for memory block sizes of less than 128 kilobits. In addition, 1T-SRAM technology is not suitable for replacing lower-cost traditional DRAM memory chips if higher access speed is unnecessary.
Moreover, our ability to compete effectively may be limited because some companies may prefer to use more established memory solutions, believing there is greater uncertainty and risk in relying on our newly established 1T-SRAM technology.
Customers for our 1T-SRAM memory chips can choose to purchase SRAM memory chips from a number of companies, including Samsung, Micron Technology, Cypress Semiconductor and Integrated Device Technology, Inc. These suppliers utilize traditional architecture and technology for their SRAM chips, which do not match the performance, low power and cost effectiveness of our 1T-SRAM memory chips for the applications needed by our current customers for these chips. However, these suppliers do have the advantage of supplying memory chips from their own wafer manufacturing plants and typically offer a broad range of memory products that includes devices other than SRAM memory chips. In addition, these companies have greater access to financial, technical and other resources.
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 exclusively 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. We presently have no firm, written commitment with any semiconductor foundry for the fabrication of our memory chips. All fabrication is conducted on a purchase-order basis at an agreed price that is renegotiated from time to time.
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
Wei Yen(1)(2)........................ 45 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., 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 a 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 Integrated Device Technology, Inc., 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 Integrated Device Technology, Inc., 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.
WEI YEN was appointed to our board of directors on August 15, 2000. In 2000, Dr. Yen co-founded RouteFree Inc., an audio/video network company, and iKuni, an artificial intelligence company, and has served each company as its Chairman of the Board since formation. From 1988 to 1995, Dr. Yen was a Senior Vice President at Silicon Graphics, Inc., where he oversaw all five product divisions and two subsidiaries. Dr. Yen was President of Mips Technologies from 1992 to 1993. In 1997, he co-founded ArtX Incorporated and served as its Chairman of the Board until 2000, when it was acquired by ATI Technologies. In 1995, he co-founded Navio Communications and served as its Chief Executive Officer until 1997 when it merged with Network Computers Incorporated, now Liberate Technologies. He currently serves as a director of the Acer Group and ATI Technologies. Dr. Yen received his Ph.D. in electrical engineering from Purdue University.
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 four consecutive fiscal years to our three non-employee directors. The option grants, to Mr. Berg and Mr. Ko were granted for the fiscal years 1997 through 2000; the option grants to Dr. Yen were granted for the fiscal years 2000 through 2003. 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, Denny Ko and Wei Yen. Fu-Chieh 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 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 assumed initial public offering price of $10.00 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 $ 1,274,230
Wing-Yu Leung..................................... 100,000 900,000
Mark-Eric Jones................................... 350,000 3,150,000
Mark Voll......................................... 165,000 1,485,000
Andre Hassan...................................... 201,000 1,809,000
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Of the options to purchase 165,000 shares granted to Mr. Voll, options to purchase 79,500 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 has been 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 of directors, 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 has been 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 agreements 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 or a material reduction in his duties or compensation 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 preferred stockholders and unrelated parties, pursuant to which we borrowed an aggregate of $13.1 million. Companies affiliated with two of our directors, Denny Ko and Carl Berg, loaned $3.0 million and $1.0 million, respectively, and Denny Ko loaned $260,000, of this amount. 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 May 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 with an exercise price of $5.50. In consideration of the cancellation of the $1,000,000, $3,000,400 and $260,000 principal and $78,205, $238,264 and $20,568 interest, respectively, which had accrued pursuant to the notes, 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 to unrelated parties.
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. In 1995, M-One modified its operations so that its only functions were to serve as our agent in Taiwan arranging our wafer purchases from TSMC and coordinating other activities such as engineering projects and the assembly and testing of our products. From 1995 through 1997, we reimbursed M-One for its costs. In 1996, we assumed direct responsibility for these functions.
In 1997, M-One ceased operations. We paid its remaining liabilities of approximately $776,000.
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 Taiwan Semiconductor Manufacturing Corporation, or 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. These notes did not bear interest until due, at which time a rate of 10% per annum was to be applied to any unpaid amounts. We did not repay any amount of principal or interest on these two notes.
On September 23, 1996, we amended the agreement. Under the terms of this amendment, the full amount of 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 to 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 August 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 August 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.
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
ISSUABLE ON
NUMBER OF SHARES EXERCISE OF
ISSUABLE ON OUTSTANDING OPTIONS PERCENT OWNERSHIP
NAME AND ADDRESS OF PRINCIPAL NUMBER OF SHARES EXERCISE OF WITHIN 60 DAYS OF --------------------------------
STOCKHOLDERS BENEFICIALLY OWNED OUTSTANDING WARRANTS AUGUST 31, 2000 BEFORE OFFERING AFTER OFFERING
----------------------------- ------------------ -------------------- ------------------- --------------- --------------
FIVE-PERCENT STOCKHOLDERS
West Coast Venture Capital
Limited, L.P............... 3,068,839 196,037 -- 13.3% 10.9%
c/o Carl E. Berg
10050 Bandley Drive
Cupertino, CA 95014
Integrated Device
Technology................. 2,602,500 -- -- 11.4 9.3
c/o Alan F. Krock
2975 Stender Way
Santa Clara, CA 95054
DynaTech Capital, LLC........ 2,647,696 588,848 -- 11.3 9.3
c/o Denny Ko
21311 Hawthorne Blvd.
Suite 300
Torrance, CA 90503
Taiwan Semiconductor
Manufacturing Co. Ltd...... 1,200,000 1,200,000 -- 5.0 4.1
c/o Julian Kuo
No. 121, Park Ave. 3
Science-Based Industrial
Park
Hsincho, Taiwan
OFFICERS AND DIRECTORS
Fu-Chieh Hsu(1).............. 4,105,000 -- 140,500 17.9 14.7
Wing-Yu Leung(2)............. 3,955,000 -- 100,000 17.2 14.2
F. Judson Mitchell........... 250,000 -- 250,000 1.1 0.9
Mark-Eric Jones.............. 350,000 -- 350,000 1.5 1.2
Andre Hassan................. 201,000 -- 201,000 0.9 0.7
Carl E. Berg(3).............. 3,138,839 196,037 60,000 13.6 11.2
Denny Ko(4).................. 2,758,708 639,860 60,000 11.7 9.7
Wei Yen...................... 290,000 -- 40,000 1.3 1.0
Mark Voll(5)................. 79,500 -- 79,500 0.3% 0.3
All directors and executive
officers as a group
(9 persons)................ 15,128,047 835,897 1,281,000 60.6% 50.5%
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(1) 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.
(2) Includes 600,000 shares of common stock held by Dr. Leung as trustee of trusts established for the benefit of Dr. Leung's children.
(3) 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 Integrated Device Technology, Inc., and disclaims beneficial ownership of all shares held by it. Includes 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.
(4) 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.
(5) Mr. Voll resigned as Chief Financial Officer of the Company in June 2000.
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 22,857,128 shares, consisting of 10,125,682 shares of common stock outstanding as of August 31, 2000 and 12,731,446 shares issuable upon conversion of all shares of preferred stock outstanding as of August 31, 2000. The percentage of beneficial ownership after the offering is based on 27,857,128 shares, including 5,000,000 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 has been approved by our board of directors and shareholders and will occur prior to this offering. These changes include 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 120,000 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 stockholder rights plan prior to the completion of this offering. 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 plan provides this protection by imposing economic disincentives that are triggered by specified acquisitions of or offers for our common stock, as detailed below.
Under the rights plan, we will issue 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 preferred shares will have the following rights -
- preferred shares 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;
- 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; and
- preferred shares are 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 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 25% 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 the tenth anniversary of the adoption of the plan, 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 prior to the date 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 10% 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.
REGISTRATION RIGHTS
After this offering, the holders of approximately 12,731,446 shares of common stock and rights to acquire up to 3,481,219 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 Wells Fargo Shareowner Services.
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. Immediately 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. Shares issued upon the exercise of outstanding warrants will be eligible for sale subject to the requirements of Rule 144.
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..........
----------
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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 2,971,219 shares of our common stock which we assume will be acquired upon the exercise of outstanding warrants 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:
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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 750,000 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 five 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. Purchasers of reserved shares will not be subject to lock-up agreements.
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.
The underwriters may purchase and sell shares of common stock in the open market in connection with this offering. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. Stabilizing transactions consist of bids or purchases made for the purpose of preventing or slowing a decline in the market price of the common stock while this offering is in progress. The underwriters may also impose a penalty bid, which means that an underwriter must repay to the other underwriters a portion of the underwriting discount received by it. An underwriter may be subject to a penalty bid if the representatives of the underwriters, while engaging in stabilizing or short covering transactions, repurchase shares sold by or for the account of that underwriter. These transactions may stabilize, maintain or other affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the Nasdaq National Market, in the over-the-counter market or otherwise.
The representatives have advised us that, on behalf of the underwriters, they may make short sales of our common stock in connection with this offering, resulting in the sale by the underwriters of a greater number of shares than they are required to purchase pursuant to the underwriting agreement. The short position resulting from these short sales will be deemed a "covered" short position to the extent that it does not exceed the 750,000 shares subject to the underwriters' over-allotment option and will be deemed a "naked" short position to the extent that it exceeds that number. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the trading price of the common stock in the open market that could adversely affect investors who purchase shares in this offering. The underwriters may reduce or close out their covered short position either by exercising the over-allotment option or by purchasing shares in the open market. In determining which of these alternatives to pursue, the underwriters will consider the price at which shares are available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment options. Any "naked" short position will be closed out by purchasing shares in the open market. Similar to the other stabilizing transactions described below, open market purchases made by the underwriters to cover all or a portion of their short position may have the effect of preventing or retarding a decline in the market price of our common stock following this offering. As a result, our common stock may trade at a price that is higher than the price that otherwise might prevail in the open market.
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 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 an Internet web site maintained by Wit SoundView Corporation's strategic partner, E*Trade Securities, Inc. and may be made available on web sites maintained by other underwriters or selected dealers.
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 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
|
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Monolithic System Technology, Inc.
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 of America. 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 of America 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.
PricewaterhouseCoopers LLP
San Jose, California
September 12, 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. On September 12, 2000, the shareholders approved the Company's reincorporation in Delaware.
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.
CAPITALIZED SOFTWARE
Effective January 1, 1999, the Company adopted Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." In accordance with SOP 98-1, the Company has capitalized certain internal use software totaling $1,150,000 and $1,369,000 during the years ended December 31, 1998 and 1999, respectively. The estimated useful life of costs capitalized is evaluated for each specific project and approximates 3 years. During the years ended December 31, 1998, and 1999, the amortization of capitalized costs totaled $670,000 and $1,078,000 respectively."
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment to customers. The Company's sales agreements do not provide any customer acceptance provisions. The Company has no obligation to provide any modification or customization, upgrades, enhancements, any post-contract customer support or add additional products or enhancement, except for the 90-day return policy. The terms of all product sales are FOB shipping point. Upon shipment, the Company records reserves for estimated returns. There are no rights of return unless the product does not perform according to specifications. 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. On the other hand, if the contracts involve performance specifications that the Company has significant experience in meeting and technological feasibility is reasonably assured, then the Company will recognize revenue over the period in which the contract services are performed. If the Company were to sell existing technology without any performance requirements or other obligations, then it might be appropriate to recognize revenue immediately. Most contracts will have performance requirements. 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
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 memory chips 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 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.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) 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 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
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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 1993, the Company formed M-One Technology Corporation ("M-One"), a subsidiary in Taiwan. The intended business activities of M-One were to manage the manufacturing of the Company's products and to sell the Company's products in markets outside of the U.S. pursuant to a license from the Company.
In 1994, the Company completed the spin-off of a majority of the equity interest in M-One through a stock distribution of M-One's shares and the sale of the remaining equity interest in M-One. No gains or losses were recognized in connection with the spin-off and sale. As a result of these transactions, the majority of the shareholders of M-One were also shareholders of the Company. In addition, both companies shared the same board of directors and continued to do so until M-One ceased operations in 1997.
In 1995, M-One modified its operations so that its only functions were to serve as an agent for the Company in Taiwan. M-One interfaced with TSMC for the purchase of wafers and coordinated other activities including
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - RELATED PARTY TRANSACTIONS: (CONTINUED)
non-recurring engineering projects and assembly and testing of the Company's products. The Company reimbursed M-One for its costs.
In 1996, the Company began to assume direct responsibility for the functions that had been performed by M-One in Taiwan. Therefore, during the year the scope of operations and the number of employees of M-One was reduced. The Company continued to reimburse M-One for all of its costs. In 1997 all operations of M-One ceased, and the Company paid its remaining liabilities. As of March 31, 2000, the Company had filed papers with the appropriate authorities in Taiwan to terminate M-One's existence.
From 1995 until it ceased operations, M-One did not have any revenues except for charges to the Company for reimbursement of costs incurred on the Company's behalf. The Company recognized these charges as they were incurred by M-One as though the accounts of M-One had been consolidated. These charges, including payroll, facility costs and payments to suppliers, amounted to $1.6 million, $1.8 million and $0 in 1995, 1996 and 1997, respectively.
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.
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.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - WAFER FOUNDRY AGREEMENT: (CONTINUED)
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.
In March 1999, the Company entered in a development and promotion agreement with TSMC. This agreement required the Company to develop a demonstration macro for TSMC's 0.25-micron standard logic process. The Company completed its obligations under this agreement in the first quarter of 2000, for which TSMC paid $60,000.
In October 1999, a memorandum of understanding, or MOU, was signed with TSMC and Virage Logic to set the parameters for a future agreement 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 agreed to pay $250,000.
In addition to the above agreements, the Company 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.
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 issued to Dell Computer
Corporation, permitting cashless
exercise 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%. The fair market values of common stocks underlying the above warrants ranged from $1.00 to $2.00 on dates of issuance.
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 September 12, 2000, the shareholders approved the reincorporation of the Company in the State of Delaware.
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") has been 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 stock on such date or a lesser amount determined by the board of directors. The 2000 plan provides for grants to
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - SUBSEQUENT EVENTS: (CONTINUED)
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 has been 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 option is exercised. Employees may end their participation in an offering period at any time during that period,
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - SUBSEQUENT EVENTS: (CONTINUED)
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.
[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*...................................................... $
=======
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* 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.
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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 15, 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
10.13+ Memorandum of Understanding for Custom Touch 1T-SRAM Memory
Compiler for TSMC 0.18-micron and 0.15-micron logic
processes between Taiwan Semiconductor Manufacturing Company
Ltd., Virage Logic Corporation and Registrant dated
October 19, 1999
10.14 Development and Promotion Agreement between Taiwan
Semiconductor Manufacturing Company Ltd. and Registrant
dated March 31, 1999
10.15 Termination Agreement between Taiwan Semiconductor
Manufacturing Company Ltd. and Registrant dated August 6,
1998
10.16 Form of Common Stock Purchase Warrant Agreement dated
May 30, 1997
10.17 Form of Note and Warrant Cancellation Agreement dated
May 30, 1997
10.18 Form of Common Stock Purchase Warrant Agreement dated June,
1996
10.19 Form of Subordinated Note and Warrant Purchase Agreement
dated June, 1996
23.1 Consent of PricewaterhouseCoopers, LLP Independent
Accountants
23.2** Consent of McCutchen, Doyle, Brown & Enersen, LLP (included
in Exhibit 5.1)
24.1 Power of Attorney
27.1* Financial Data Schedule
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* Previously filed
** 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
II-3
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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment to the 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 day of September, 2000.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
By /s/ FU-CHIEH HSU
-----------------------------------------
Fu-Chieh Hsu
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
|
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the 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 September , 2000
Fu-Chieh Hsu (Principal Executive Officer)
Vice President, Finance and
/s/ F. JUDSON MITCHELL Chief Financial Officer
-------------------------------------- (Principal Financial and September , 2000
F. Judson Mitchell Accounting Officer)
*
-------------------------------------- Director September , 2000
Carl E. Berg
*
-------------------------------------- Director September , 2000
Denny R. S. Ko
*
-------------------------------------- Director September , 2000
Wing-Yu Leung
/s/ WEI YEN
-------------------------------------- Director September , 2000
Wei Yen
*/s/ F. JUDSON MITCHELL
--------------------------------------
F. Judson Mitchell
Attorney-in-fact
|
II-5
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 September 12, 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 September 12, 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 1 -- 200
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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 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
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
10.13+ Memorandum of Understanding for Custom Touch 1T-SRAM Memory
Compiler for TSMC 0.18-micron and 0.15-micron logic
processes between Taiwan Semiconductor Manufacturing Company
Ltd., Virage Logic Corporation and Registrant dated
October 19, 1999
10.14 Development and Promotion Agreement between Taiwan
Semiconductor Manufacturing Company Ltd. and Registrant
dated March 31, 1999
10.15 Termination Agreement between Taiwan Semiconductor
Manufacturing Company Ltd. and Registrant dated August 6,
1998
10.16 Form of Common Stock Purchase Warrant Agreement dated
May 30, 1997
10.17 Form of Note and Warrant Cancellation Agreement dated
May 30, 1997
10.18 Form of Common Stock Purchase Warrant Agreement dated June,
1996
10.19 Form of Subordinated Note and Warrant Purchase Agreement
dated June, 1996
23.1 Consent of PricewaterhouseCoopers, LLP Independent
Accountants
23.2** Consent of McCutchen, Doyle, Brown & Enersen, LLP (included
in Exhibit 5.1)
24.1 Power of Attorney
27.1* Financial Data Schedule
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* Previously filed
** To be supplied by amendment
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
MERGER AGREEMENT
This Merger Agreement (the "MERGER AGREEMENT") is entered into as of August 31, 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"), of which 100 shares are outstanding as of the date of this Agreement, 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, 1,224,552 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 10,111,382 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; 1,224,552 shares are designated Series F Preferred Stock, of which 1,224,552 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. The officers and directors of Mosys Delaware shall be the officers and directors of the Surviving Corporation.
(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.
2.4 2000 EMPLOYEE STOCK OPTION PLAN. At the Effective Time, the 2000 Employee Stock Option Plan of MoSys Delaware in the form attached as EXHIBIT A will become effective.
2.5 2000 EMPLOYEE STOCK PURCHASE PLAN. At the Effective Time, the 2000 Employee Stock Purchase Plan of MoSys Delaware in the form attached as EXHIBIT B will become effective.
2.6 INDEMNITY AGREEMENT. At the Effective Time, Mosys Delaware will enter into the Indemnity Agreement in the form attached as EXHIBIT C with each officer and director and certain key employees of Mosys Delaware.
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, as attached as EXHIBIT D.
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, as attached as EXHIBIT E.
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, MONOLITHIC SYSTEM TECHNOLOGY, INC., A CALIFORNIA CORPORATION INC., A DELAWARE CORPORATION _____________________________ ______________________________ By: Fu-Chieh Hsu By: Fu-Chieh Hsu Title: President Title: President _____________________________ ______________________________ By: F. Judson Mitchell By: F. Judson Mitchell Title: Secretary Title: Secretary |
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MONOLITHIC SYSTEM TECHNOLOGY, INC.
ARTICLE I
The name of the corporation is Monolithic System Technology, Inc. (the "CORPORATION").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware is: 1209 Orange Street, City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporate Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
SECTION 1. AUTHORIZED SHARES. The total number of shares of all classes of stock which the Corporation has authority to issue is One Hundred Forty Million (140,000,000) shares, consisting of two classes: One Hundred Twenty Million (120,000,000) shares of Common Stock, $0.01 par value per share, and Twenty Million (20,000,000) shares of Preferred Stock, $0.01 par value per share. 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, $0.01 par value per share ("Series A Preferred"), 1,000,000 shares shall be designated Series B Preferred Stock, $0.01 par value per share ("Series B Preferred"), 1,010,000 shares shall be designated Series C Preferred Stock, $0.01 par value per share ("Series C Preferred"), 300,000 shares shall be designated Series D Preferred Stock, $0.01 par value per share ("Series D Preferred"), 264,487 shares shall be designated Series E Preferred Stock, $0.01 par value per share ("Series E Preferred"), 1,224,552 shares shall be designated Series F Preferred Stock, $0.01 par value per share ("Series F Preferred"), 290,000 shares shall be designated Series F-1 Preferred Stock, $0.01 par value per share ("Series F-1 Preferred"), 1,343,433 shares shall be designated Series G Preferred Stock, $0.01 par value per share ("Series G Preferred") and 650,000 shares shall be designated Series H Preferred, $0.01 par value per share ("Series H Preferred"). 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 be known collectively as the "Original Preferred Stock."
SECTION 2. ADDITIONAL DESIGNATIONS. The board of directors of the Corporation ("Board of Directors") is authorized, subject to any limitations prescribed by the law of the State of Delaware, to provide for the issuance of additional shares of Preferred Stock in one or more series by filing a certificate of designations pursuant to the applicable law of the State of Delaware, to establish from
time to time the number of shares to be included in each such series, to fix the designations, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding). The number of authorized shares of Preferred Stock may also be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, unless a vote of any other holders is required pursuant to a certificate or certificates establishing a series of Preferred Stock.
Except as otherwise expressly provided in any certificate of designations designating any series of Preferred Stock pursuant to the foregoing provisions of this Section 2 or by the General Corporation Law of Delaware, any new series of Preferred Stock may be designated, fixed and determined as provided herein by the Board of Directors without approval of the holders of Common Stock or the holders of Preferred Stock, or any series thereof, and any such new series may have powers, preferences and rights, including, without limitation, voting rights, dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari passu with the rights of the Common Stock, any series of Original Preferred Stock or any future class or series of Preferred Stock or Common Stock.
SECTION 3. POWERS, PREFERENCES AND RIGHTS OF ORIGINAL PREFERRED STOCK. The powers, preferences and rights of Original Preferred Stock shall be as follows:
SECTION 3.1. DIVIDEND RIGHTS OF ORIGINAL 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 Preferred, Series G Preferred, 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, noncumulative dividends at an annual rate equal to $0.10, $0.20, $0.50, $0.57, $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 Original Preferred Stock contemporaneously, and if less than full dividends are paid or declared and set apart for payment, the same percentage of the applicable dividend rate will be paid on or declared and set apart for payment on each series of Original 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 Original Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of Original Preferred Stock were the holders of the number of shares of Common Stock of the Corporation into which their respective shares of Original Preferred Stock are convertible at the Conversion Prices (as defined in paragraph 3.3(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 3.2. LIQUIDATION PREFERENCE OF ORIGINAL PREFERRED STOCK.
(a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntarily or involuntarily, the holders 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 Preferred, Series G Preferred, and Series H Preferred 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, $2.00, $5.00, $7.50, $16.00, $5.50, $5.50, $6.00 and $8.00, respectively, plus in each case any declared but unpaid dividends for each share of Original Preferred Stock then held by them. If, upon the occurrence of such event, the assets thus distributed among the holders of Original Preferred Stock then held by them shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the same percentage of the aggregate preferential amounts owed to the holders of each series of Original Preferred Stock, respectively, shall be paid to such holders until the assets and funds of the Corporation legally available for distribution among the holders of Original Preferred Stock shall be exhausted.
(b) Upon the completion of the distribution required by subparagraph (a) of this Section 3.2, any remaining assets of the Corporation shall be distributed ratably among the holders of Common Stock and Original Preferred Stock based on the number of shares of Common Stock held by each, assuming conversion of all outstanding shares of Original Preferred Stock into Common Stock at the then applicable Conversion Price (as defined in paragraph 3.3(a) below).
(c) For purposes of this Section 3.2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by and to include (i) the Corporation's sale of all or substantially all of its assets or (ii) 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. In any such event, 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 fair market value shall be determined by the Board of Directors.
SECTION 3.3. CONVERSION OF ORIGINAL PREFERRED STOCK.
The holders of Original Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share 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, and Series H Preferred 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 Original Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined, by dividing $1.00, $2.00, $5.00, $7.50, $16.00, $5.50, $5.50, $6.00 and $8.00, respectively, by the Conversion Price applicable to such series. The Conversion Price applicable to 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 initially be $0.333, $0.667, $1.667, $2.50, $5.333, $5.50, $5.50, $6.00 and $8.00, respectively. The term "Conversion Price" as used herein shall refer to the respective Conversion Price for each series of Original 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 Original Preferred Stock shall automatically be converted (without any action by the holder thereof) into fully paid and nonassessable 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 (a "Qualified IPO"), or (ii) the vote or written consent of the holders of at least a majority of the then outstanding shares of Original Preferred Stock (on an as converted basis). In the event of the automatic conversion of Original Preferred Stock under clause (i) above, the person(s) entitled to receive Common Stock upon such conversion of Original Preferred Stock shall not be deemed to have converted such Original Preferred Stock until immediately prior to the closing of such sale of securities. Upon automatic conversion of the Original Preferred Stock as provided in this subsection (b), any authorized and unissued shares of Original Preferred Stock shall be converted, without further action of the Corporation, into authorized and unissued shares of Preferred Stock and will become subject to designation by the Board of Directors pursuant to the provisions of Article IV, Section 2 of this Certificate.
(c) MECHANICS OF CONVERSION.
(i) FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued upon conversion of Original 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.
(ii) SURRENDER OF CERTIFICATES ON CONVERSION. Except as otherwise provided herein, before any holder of Original 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 Original Preferred Stock, and shall give written notice to the Corporation at such office that he elects to convert the same.
(iii) AUTOMATIC CONVERSION. Notwithstanding the foregoing clause (ii), in the event of an automatic conversion pursuant to Section 3.3(b), the outstanding shares of
Original 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, but 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 Original 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.
(iv) DELIVERY OF 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 Original 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 Original Preferred Stock to be converted, or in the case of automatic conversion on the date of closing of the Qualified IPO or the date of the vote or written consent by the holders of a majority of the shares of Original Preferred Stock, as the case may be, 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 3.3(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 Original 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
3.3(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 3.3(d)(iii), deemed to be issued:
(1) upon conversion of shares of Original Preferred Stock;
(2) 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;
(3) as a dividend or distribution on Original Preferred Stock;
(4) in connection
with any transaction for which adjustment is made pursuant to
Section 3.3(d)(vi) hereof; and
(5) as a Right distributed with respect to Common Stock outstanding or issuable upon conversion of shares of Original Preferred Stock, which has been declared by the Board of Directors, effective as of the Closing Date of a Qualified IPO, and shall be subject to the Rights Agreement by and among the Corporation and __________, dated as of _______ ___, 2000.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the Conversion Price of a particular share of Original 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 Original 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 Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, 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 3.3(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:
(1) 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
(2) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the 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 (1) the Conversion Price on the original adjustment date, or (2) 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 the Corporation shall issue Additional Shares of Common (including Additional Shares of Common deemed to be issued pursuant to Section 3.3(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 3.3(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 3.3(d)(iii), such Additional Shares of Common shall be deemed to be outstanding.
(v) DETERMINATION OF CONSIDERATION. For purposes of this Section 3.3(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:
(1) 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;
(2) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board; and
(3) 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 (1) and (2) above, as determined in good faith by the Board.
(B) 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 3.3(d)(iii), relating to Options and Convertible Securities, shall be determined by dividing
(1) 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
(2) 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 3.3(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 Original 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 3.3, then and in each such event provision shall be made so that the holders of Original 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 Original 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 3.3 with respect to the rights of the holders of Original Preferred Stock.
(viii) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock issuable upon conversion of Original 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 3.3(d) above), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that Original 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 Original Preferred Stock immediately before that change.
(e) NO IMPAIRMENT. The Corporation will not, by amendment of its certificate 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 3.3 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 Original 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 3.3, the Corporation shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Original 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 Original 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 Original 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 or series of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend or a distribution described in Section 3.3(d)(i)(5)) or other distribution, the Corporation shall mail to each holder of Original 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 Original 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 Original 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 Original 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 Original Preferred Stock.
(i) NO REISSUANCE OF ORIGINAL PREFERRED STOCK. No share or shares of Original Preferred Stock acquired by the Corporation by reason of purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, 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 Original 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 3.4. VOTING MATTERS. Except as otherwise required by law, each share of Common Stock issued and outstanding shall have one vote. Each share of Original Preferred Stock issued and outstanding shall have the number of votes equal to the number of shares of Common Stock into which such Original Preferred Stock is convertible as adjusted from time to time pursuant to Section 3.3 hereof. The holder of each share of Original Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of the Corporation and shall vote with the holders of the Common Stock and upon any matter submitted to a vote of stockholders, except those matters required by law to be submitted to a class vote (in which case, except as otherwise required by law, the Original Preferred Stock shall vote together as a class).
SECTION 4. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary herein shall be vested in the Common Stock.
SECTION 5. CONSENT FOR CERTAIN REPURCHASES OF COMMON STOCK DEEMED TO BE DISTRIBUTIONS. Each holder of capital stock of the Corporation shall be deemed to have consented, for purposes of the Delaware General Corporations Law, 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.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the bylaws of the Corporation.
ARTICLE VI
SECTION 1. NO DIRECTOR LIABILITY. To the fullest extent permitted by the General Corporation Law of Delaware as the same exists or as may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
SECTION 2. DIRECTOR INDEMNITY. The Corporation shall, to the fullest
extent permitted by Section 145 of the General Corporation Law of the State
of Delaware, indemnify and hold harmless all directors of the Corporation. To
the extent permitted by applicable law, the Corporation is also authorized to
provide indemnification of (and advancement of expenses to) agents (and any
other persons to which Delaware law permits the Corporation to provide
indemnification) through bylaw provisions, agreements with such agents or
other persons, vote of stockholders or disinterested directors or otherwise,
in excess of the indemnification and advancement otherwise permitted by
Section 145 of the Delaware General Corporation Law, subject only to limits
created by applicable Delaware law (statutory or non-statutory) with respect
to actions for breach of duty to the Corporation, its stockholders, and
others.
SECTION 3. SURVIVAL OF DIRECTOR PROTECTIONS. Neither any amendment nor repeal of any of the foregoing provisions of this Article VI, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VI, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision.
ARTICLE VII
The Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article.
ARTICLE VIII
The election of directors under the terms of the bylaws of the Corporation is not required to occur by written ballot.
* * *
The undersigned incorporator hereby acknowledges that the foregoing Certificate of Incorporation is his act and deed and that the facts stated herein are true.
Dated: September __, 2000
Exhibit 3.4
BYLAWS
OF
MONOLITHIC SYSTEM TECHNOLOGY, INC.
A DELAWARE CORPORATION
ADOPTED EFFECTIVE AS OF AUGUST 31, 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; provided however, the Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized in paragraph (a) of this section. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation.
a) If authorized by the Board of Directors, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:
1) participate in a meeting of stockholders; and
2) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the 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, or by electronic transmission or transmissions, 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 form of electronic transmission 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, if any, date, and hour of the meeting, and in the case of the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice of any meeting of stockholders shall be deemed given: (1) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder. 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 or other agent of the Corporation that the notice has been given by a form of electronic transmission 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, or by electronic transmission or transmissions, 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, when authorized, by means of remote communication 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, when authorized, by means of remote communication 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, if any, notice need not be given of the adjourned meeting if the time and place, if any, 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, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders 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.
A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this article, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine (A) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (B) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the board of directors of the corporation.
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, or electronic transmission, 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. Nothing contained in this Section shall require the corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the
corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at the place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
2.15 CONSENT TO ELECTRONIC TRANSMISSION OF NOTICE. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under any provision of this chapter, the certificate of incorporation, or the bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if (1) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent and (2) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. For purposes of this document, "electronic transmission" means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
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 number of directors that shall constitute the whole Board of Directors shall be determined by resolution of the Board of Directors, or by the stockholders at the annual meeting of stockholders. 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.
All elections of directors shall be by written ballot, unless otherwise provided in the certificate of incorporation; if authorized by the board of directors, such requirement of a written ballot shall be satisfied by a ballot submitted by electronic transmission, provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxy holder.
3.4 RESIGNATION AND VACANCIES. Any director may resign at any time upon written notice or electronic transmission 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, if any, 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, if any, of special meetings shall be delivered personally or by telephone or electronic transmission to each director or sent by first-class mail, 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 electronic transmission, it shall be delivered personally or by telephone by electronic transmission 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, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor 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, or by electronic transmission or transmissions and the writing or writings are filed with the minutes of proceedings of the board, or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
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 or electronic transmission 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. If the Chief Financial Officer is unavailable or if there is no Chief Financial Officer, the CEO shall serve as the acting Chief Financial Officer.
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, if any, 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 attorneys' 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.
The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Nothing contained in this Section shall require the corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
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 August 31, 2000 by the board of directors of the Corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of August 31, 2000.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
MST
COMMON STOCK
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
CUSIP 609842 10 9
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY THAT
is the owner of
fully paid and non-assessable shares, $.01 par value, of the COMMON STOCK of
MONOLITHIC SYSTEM TECHNOLOGY, INC.
(hereinafter called the "Corporation"), transferable on the books of the
Corporation in person, or by duly authorized attorney, upon surrender of this
certificate properly endorsed. This certificate is not valid until countersigned
by a Transfer Agent and registered by a Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
VICE PRESIDENT AND SECRETARY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
WELLS FARGO BANK MINNESOTA, N.A.
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
MONOLITHIC SYSTEM TECHNOLOGY, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF EACH CLASS OF STOCK OR SERIES THEREOF AUTHORIZED TO BE ISSUED AND
THE AUTHORITY OF THE BOARD OF DIRECTORS OF THE CORPORATION TO DESIGNATE AND FIX
THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF CLASSES OF PREFERRED STOCK
IN SERIES.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-
TEN ENT-
JT WROS-
as tenants in common
as tenants by the entireties
as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACTD Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act
(State)
|
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(Please print or typewrite name and address including postal zip code of
assignee) Shares of the Common Stock represented by the within Certificate, and
do hereby irrevocably constitute and appoint Attorney to transfer the said
Shares on the Books of the within-named Corporation with full power of
substitution in the premises.
Dated:
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular, without alteration
or enlargement, or any change whatever.
SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
Exhibit 4.3
MONOLITHIC SYSTEM TECHNOLOGY, INC.
and
Rights Agent
RIGHTS AGREEMENT
Dated as of ___________, 2000
TABLE OF CONTENTS
PAGE
Section 1. Certain Definitions...............................................................................1
Section 2. Appointment of Rights Agent.......................................................................4
Section 3. Issue of Right Certificates.......................................................................4
Section 4. Form of Right Certificates........................................................................6
Section 5. Countersignature and Registration.................................................................6
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates......................................................7
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.....................................7
Section 8. Cancellation and Destruction of Right Certificates................................................8
Section 9. Availability of Preferred Shares..................................................................8
Section 10. Preferred Shares Record Date......................................................................9
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights................................9
Section 12. Certificate of Adjustment........................................................................15
Section 13. Consolidated, Merger or Sale or Transfer of Assets or Earning Power..............................15
Section 14. Fractional Rights and Fractional Shares..........................................................18
Section 15. Rights of Action.................................................................................19
Section 16. Agreement of Right Holders.......................................................................19
Section 17. Right Certificate Holder Not Deemed a Stockholder................................................19
Section 18. Concerning the Rights Agent......................................................................20
Section 19. Merger or Consolidation or Change of Name of Rights Agent........................................20
Section 20. Duties of Rights Agent...........................................................................21
Section 21. Change of Rights Agent...........................................................................22
Section 22. Issuance of New Right Certificates...............................................................23
Section 23. Redemption.......................................................................................23
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TABLE OF CONTENTS
(Continued)
PAGE
Section 24. Exchange.........................................................................................24
Section 25. Notice of Certain Events.........................................................................25
Section 26. Notices..........................................................................................25
Section 27. Supplements and Amendments.......................................................................26
Section 28. Registration of Securities.......................................................................26
Section 29. Determinations and Actions by the Board of Directors.............................................26
Section 30. Successors.......................................................................................27
Section 31. Benefits of this Agreement.......................................................................27
Section 32. Severability.....................................................................................27
Section 33. Governing Law....................................................................................27
Section 34. Counterparts.....................................................................................27
Section 35. Descriptive Headings.............................................................................27
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RIGHTS AGREEMENT
Agreement, dated as of ____________, 2000 between Monolithic System Technology, Inc., a Delaware corporation (the "Company"), and __________________ (the "Rights Agent").
Pursuant to this Agreement, the Board of Directors of the Company has authorized and declared a dividend of one preferred share purchase right (a "Right") for each Common Share (as hereinafter defined) of the Company outstanding on ____________, 2000 (the "Record Date"), each Right representing the right to purchase one one-thousandth of a Preferred Share (as hereinafter defined), upon the terms and subject to the conditions herein set forth, and has further authorized and directed the issuance of one Right with respect to each Common Share that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates and Associates (as such terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or in the case of (i) a Grandfathered Stockholder other than a Second Tier Grandfathered Stockholder 25%, or (ii) a Second Tier Grandfathered Stockholder such percentage as is beneficially owned by each Grandfathered Stockholder whose common shares the Second Tiered Grandfathered Stockholder may be deemed to beneficially own plus 1%, or more of the Common Shares of the Company then outstanding, but shall not include the Company, any Subsidiary (as such term is hereinafter defined) of the Company, any employee benefit plan of the Company (including without limitation the Plans) or of any Subsidiary of the Company, or of any entity holding Common Shares for or pursuant to the terms of any such employee benefit plan. Notwithstanding the foregoing, (1) no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Common Shares of the Company then outstanding; PROVIDED, HOWEVER, that if a Person shall become the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Shares of the Company, then such Person shall be deemed to be an "Acquiring Person"; and (2) if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person," as defined pursuant to the foregoing provisions of this paragraph, has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing provisions of this paragraph, then such
Person shall not be deemed to have become an "Acquiring Person" for any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made pursuant to and in accordance with the applicable rules and regulations promulgated under the Exchange Act by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso in Section l(c)(ii)(B)) or disposing of any securities of the Company; PROVIDED, HOWEVER, that in no case shall an officer or director of the Company be deemed the Beneficial Owner of securities held of record by the trustee of any employee benefit plan of the Company (including without limitation the Plans) or any Subsidiary of the Company for the benefit of any employee of the Company or any Subsidiary of the Company, other than the officer or director, by reason of any influence that such officer or director may have over the voting of the securities held in the plan.
Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase "then outstanding," when used with reference to a Person's Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in the States of California and ________ are authorized or obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00 P.M., Sunnyvale, California time, on such date; PROVIDED, HOWEVER, that if such date is not a Business Day it shall mean 5:00 P.M., Sunnyvale, California time, on the next succeeding Business Day.
(f) "Common Shares" when used with reference to the Company shall mean the shares of common stock, $0.01 par value per share, of the Company. "Common Shares" when used with reference to any Person other than the Company shall mean the capital stock (or equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person.
(g) "Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii)(B)(3) hereof.
(h) "Current Value" shall have the meaning set forth in Section 11(a)(iv) hereof.
(i) "Distribution Date" shall have the meaning set forth in Section 3 hereof.
(j) "Equivalent Preferred Shares" shall have the meaning set forth in
Section 11(b) hereof.
(k) "Exchange Ratio" shall have the meaning set forth in Section 24(a) hereof.
(l) "Final Expiration Date" shall mean _______ __, 2010.
(m) "Grandfathered Stock" shall mean (i)(A) West Coast Venture Capital, Ltd. and its Affiliates and Associates ("WEST COAST"), (B) DynaTech Capital, LLC and its Affiliates and Associates ("DYNATECH") and (C) each of the Founders of the Company and their respective Affiliates and Associates, other than any Person who or which is not such an Affiliate or Associate on the date of this Agreement and who or which subsequently acquires direct or indirect control of West Coast, DynaTech or a Founder without the prior written approval of the board of directors of the Company (such Person a "Non-grandfathered Stockholder"); and (ii) any Person not covered by (i), above, except a "Non-grandfathered Stockholder," who or which is the Beneficial Owner of Common Shares beneficially owned by West Coast, DynaTech or a Founder (each such Person a "Second Tier Grandfathered Stockholder"). "Founder" shall mean each of Fu-Chieh Hsu and Wing-Yu Leung, their respective heirs, legatees, personal representatives, or trusts formed for the benefit of themselves, and/or their respective spouses and members of their immediate families.
(n) "Interested Stockholder" shall mean any Acquiring Person or any Affiliate or Associate of an Acquiring Person or any other person in which any such Acquiring Person, Affiliate or Associate has an interest, or any other Person acting directly or indirectly on behalf of or in concert with any such Acquiring Person, Affiliate or Associate.
(o) "Person" shall mean any individual, firm, corporation, partnership, limited partnership, limited liability partnership, business trust, limited liability company, unincorporated association or other entity, and shall include any successor (by merger or otherwise) of such entity.
(p) "Preferred Shares" shall mean shares of Series AA Junior Participating Preferred Stock, par value $0.01 per share, of the Company.
(q) "Principal Party" shall have the meaning set forth in Section 13(b) hereof.
(r) "Purchase Price" shall have the meaning set forth in Section 4 hereof.
(s) "Redemption Date" shall have the meaning set forth in Section 7 hereof.
(t) "Registered Common Shares" shall have the meaning set forth in
Section 13(d) hereof.
(u) "Rights Certificate" shall mean a certificate evidencing a Right in substantially the form of Exhibit B hereto.
(v) "Shares Acquisition Date" shall mean the earlier of (i) the public announcement by the Company or an Acquiring Person that an Acquiring Person has become such or (ii) the public disclosure of facts by the Company or an Acquiring Person indicating that an Acquiring Person has become such.
(w) "Spread" shall have the meaning set forth in Section 11(a)(iv) hereof.
(x) "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person.
(y) "Substitution Period" shall have the meaning set forth in Section 11(a)(iv) hereof.
(z) "Summary of Rights" shall mean the Summary of Rights to Purchase Preferred Shares in substantially the form of Exhibit C hereto.
(aa) "Trading Day" shall have the meaning set forth in Section 11(a)(iv) hereof.
(bb) A "Trigger Event" shall be deemed to have occurred upon any Person, together with all Affiliates and Associates of such Person, becoming an Acquiring Person.
SECTION 2. APPOINTMENT OF RIGHTS AGENT
The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable.
SECTION 3. ISSUE OF RIGHT CERTIFICATES
(a) Until the earlier of the close of business on (i) the tenth day after the Shares Acquisition Date, or (ii) the tenth Business Day (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to the terms of any such plan) of, or of the first public announcement
of the intention of any Person (other than any of the persons referred to in
the preceding sentence) or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer the consummation of which would result
in any Person becoming the Beneficial Owner of Common Shares aggregating 15%
or in the case of (i) a Grandfathered Stockholder other than a Second Tier
Grandfathered Stockholder 25%, or (ii) a Second Tier Grandfathered
Stockholder such percentage as is beneficially owned by each Grandfathered
Stockholder whose common shares the Second Tiered Grandfathered Stockholder
may be deemed to beneficially own plus 1%, or more of the then outstanding
Common Shares (irrespective of whether any Common Shares are actually
purchased pursuant to such offer) (including any such date which is after the
date of this Agreement and prior to the issuance of the Rights), (the
earliest of such dates being herein referred to as the "Distribution Date"),
(x) the Rights will be evidenced (subject to the provisions of Section 3(b)
hereof) by the certificates for Common Shares registered in the names of the
holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the right to
receive Right Certificates will be transferable only in connection with the
transfer of Common Shares. As soon as practicable after the Distribution
Date, the Company will prepare and execute, the Rights Agent will
countersign, and the Company will send or cause to be sent (and the Rights
Agent will, if requested, send) by first-class, insured, postage-prepaid
mail, to each record holder of Common Shares as of the close of business on
the Distribution Date, at the address of such holder shown on the records of
the Company, a Right Certificate, in substantially the form of Exhibit B
hereto (a "Right Certificate"), evidencing one Right for each Common Share so
held. As of the Distribution Date, the Rights will be evidenced solely by
such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights by first-class, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for Common Shares outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof regardless of whether a copy of the Summary of Rights is attached thereto. Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Shares outstanding on the Record Date, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding (including, without limitation, reacquired Common Shares referred to in the last sentence of this paragraph (c)) after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or Close of Business on the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between Monolithic System Technology, Inc. and ________________ dated as of ____________, 2000 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Monolithic System Technology, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Monolithic System Technology, Inc. will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights issued to any Person who becomes an Acquiring Person (as defined in the Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. In the event that the Company purchases or acquires any Common Shares after the Record Date but prior to the Distribution Date, the Company shall not be entitled to exercise any Rights associated with such Common Shares which are no longer outstanding.
SECTION 4. FORM OF RIGHT CERTIFICATES
The Right Certificates (and the forms of election to purchase Preferred Shares and of assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or other organization on which the Rights may from time to time be listed or quoted, or to conform to usage. Subject to the other provisions of this Agreement, the Right Certificates shall entitle the holders thereof to purchase such number of one one-thousandths of a Preferred Share as shall be set forth therein at the price per one one-thousandths of a Preferred Share set forth therein (the "Purchase Price"), but the number of such one one-hundredths of a Preferred Share and the Purchase Price shall be subject to adjustment as provided herein.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION
The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President, or any of its Executive Vice Presidents, or its Treasurer either manually or by facsimile signature and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned, either manually or by facsimile signature. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES
Subject to the provisions of Section 14 hereof, at any time after the Close of Business on the Distribution Date, and at or prior to the Close of Business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of one one-thousandths of a Preferred Share as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS
(a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (other than a holder whose Rights have become void
pursuant to Section 11(a)(ii) hereof or have been exchanged, pursuant to Section
24 hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Right Certificate, with the form of election to purchase on the
reverse side thereof duly executed, to the Rights Agent at the principal office
of the Rights Agent, together with payment of the Purchase Price for each one
one-thousandth of a Preferred Share as to which the Rights are exercised, at or
prior to the earliest of (i) the Close of Business on the Final Expiration Date,
(ii) the Redemption Date, or (iii) the time at which such Rights are exchanged
as provided in Section 24 hereof.
(b) The Purchase Price for each one one-thousandth of a Preferred Share pursuant to the exercise of a Right shall initially be $_____, shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the number of
one one-thousandths of a Preferred Share to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof by cash, certified check, cashier's check or money order payable to the order of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition from any transfer agent of the Preferred Shares certificates for the number of one one-thousandths of a Preferred Share to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) requisition from the depository agent depository receipts representing such number of one one-thousandths of a Preferred Share as are to be purchased (in which case certificates for the Preferred Shares represented by such receipts shall be deposited by the transfer agent with the depository agent) and the Company hereby directs the depository agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depository receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt, deliver such cash to or upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES
All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Right Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company.
SECTION 9. AVAILABILITY OF PREFERRED SHARES
(a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Preferred Shares or any Preferred Shares held in its treasury the number of Preferred Shares that will be sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7.
(b) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Preferred Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such Preferred Shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares.
(c) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance
or delivery of the Right Certificates or of any Preferred Shares upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates or depository receipts for the Preferred Shares in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or to deliver any certificates or depository receipts for Preferred Shares upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's reasonable satisfaction that no such tax is due.
SECTION 10. PREFERRED SHARES RECORD DATE
Each person in whose name any certificate for Preferred Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon which the Preferred Shares transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Shares transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF RIGHTS
The Purchase Price, the number of Preferred Shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of Preferred Shares or (D) issue any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Shares transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right.
(ii) Subject to the following paragraph of this subparagraph (ii) and Section 24 of this Agreement, in the event any Person shall become an Acquiring Person (other than through an acquisition described in subparagraph (iii) of this paragraph (a)) each holder (other than an Acquiring Person or any direct or indirect transferee of an Acquiring Person) of a Right shall thereafter have a right to receive, upon exercise thereof at a price equal to the then current Purchase Price multiplied by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement, such number of Common Shares (or, in the discretion of the Board of Directors, one one-thousandths of a Preferred Share) of the Company (such number of shares being referred to herein as the "Adjustment Shares") as shall equal the result obtained by (x) multiplying the then current Purchase Price by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable and dividing that product by (y) 50% of the then current per share market price of the Company's Common Shares (determined pursuant to Section 11(d) hereof) on the date such Person became an Acquiring Person.
Upon and after the occurrence of a Trigger Event, any Rights that are or were acquired or are or were beneficially owned by such Acquiring Person (or any Associate or Affiliate of such Acquiring Person) on or after the earlier of (x) the date of such event and (y) the Distribution Date shall be void and any holder of such Rights (including any subsequent transferee) shall thereafter have no right to exercise such Rights under any provision of this Agreement. No Right Certificate shall be issued pursuant to Section 3 that represents Rights beneficially owned by an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof; no Right Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and any Right Certificate delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be void pursuant to the preceding sentence shall be canceled.
(iii) The right to buy Common Shares of the Company pursuant to subparagraph (ii) of this paragraph (a) shall not arise as a result of any Person becoming an Acquiring Person through a purchase of Common Shares pursuant to a tender offer made in the manner prescribed by Section 14(d) of the Exchange Act and the rules and regulations promulgated thereunder; PROVIDED, HOWEVER, that such tender offer shall provide for the acquisition of all of the outstanding Common Shares held by any Person other than such Person and its Affiliates or Associates at a price and on terms determined by at least a majority of the members of the Board of Directors who are not officers of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person, after receiving advice from one or more investment or financial advisers, to be (A) fair to stockholders (taking into account all factors which such members of the Board deem relevant including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (B) otherwise in the best interests of the Company and its stockholders, employees, customers and communities in which the Company does business.
(iv) In the event that there shall not be sufficient Common Shares authorized by the Company's Certificate of Incorporation but unissued to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the Company shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value"), over (2) the Purchase Price (such excess being hereinafter referred to as the "Spread"),
and (B) with respect to each Right, make adequate provision to
substitute for such unavailable Adjustment Shares any one or more of the
following having an aggregate value determined by the Board of Directors
to be equal to Current Value: (1) cash, (2) a reduction in the Purchase
Price, (3) Common Shares other equity securities of the Company,
including without limitation, Preferred Shares, (4) debt securities of
the Company, (5) other assets; PROVIDED, HOWEVER, if, within 30 days
following the date of the Trigger Event, the Company shall have not made
adequate provision to deliver value pursuant to clause (B) above, the
Company shall be obligated to deliver, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, Common
Shares (to the extent such shares are available) and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the
Spread. If the Board of Directors of the Company shall determine in good
faith that it is likely that sufficient additional Common Shares could
be authorized for issuance upon exercise in full of the Rights, the
30-day period set forth above may be extended to the extent necessary,
but not more than 90 days following the date of the occurrence of the
earliest of the Trigger Events, in order that the Company may seek
stockholder approval for the authorization of such additional shares
(such period, as it may be extended, hereinafter referred to as the
"Substitution Period"). To the extent that the Company determines that
action need be taken pursuant to the first and/or second sentences of
this Section 11(a)(iv), the Company (x) shall provide, subject to
Section 11(a)(ii) hereof, that such action shall apply uniformly to all
outstanding Rights, and (y) may suspend the exercisability of the Rights
until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form
of distribution to be made pursuant to such first sentence and to
determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iv), the value of the Common
Shares shall be the current per share market price (as determined
pursuant to Section 11(d) hereof) per Common Share on the date of the
occurrence of the earliest of the Trigger Events.
(b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Preferred Shares (or shares having the same rights, privileges and preferences as the Preferred Shares ("equivalent preferred shares")) or securities convertible into Preferred Shares or equivalent preferred shares at a price per Preferred Share or equivalent preferred share (or having a conversion price per share, if a security convertible into Preferred Shares or equivalent preferred shares) less than the then current per share market price of the Preferred Shares (as defined in Section 11(d)) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Preferred Shares outstanding on such record date plus the number of Preferred Shares which the aggregate offering price of the total number of Preferred Shares and/or equivalent preferred shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares and/or equivalent preferred shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement filed with the Rights Agent. Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a distribution to all holders of the Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend payable in Preferred Shares) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of the Preferred Shares on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one Preferred Share and the denominator of which shall be such current per share market price of the Preferred Shares; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive
Trading Days (as such term is hereinafter defined) immediately prior to
such date; PROVIDED, HOWEVER, that in the event that the current per share
market price of the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or
securities convertible into such shares, or (B) any subdivision,
combination or reclassification of such Security and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend
or distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price
per share equivalent of such Security. The closing price for each day shall
be the last sale price or, in case no such sale takes place on such day,
the average of the closing bid and asked prices regular way, in either case
as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last reported trade, as
reported by the Nasdaq National Market ("Nasdaq") or such other system then
in use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by
the Board of Directors of the Company. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for the transaction of business or, if the Security is not listed or admitted to trading on any national securities exchange, a Business Day.
(ii)For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share
market price of the Common Shares as determined pursuant to Section
11(d)(i) (appropriately adjusted to reflect any stock split, stock dividend
or similar transaction occurring after the date hereof), multiplied by one
thousand. If neither the Common Shares nor the Preferred Shares are
publicly held or so listed or traded, "current per share market price"
shall mean the fair value per share as determined in good faith by the
Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one ten-millionth of a Preferred Share or one one-thousandth of any other share or security, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Shares, the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares contained in Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-thousandths of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-thousandths of
a Preferred Share (calculated to the nearest one ten-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-thousandths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of one one-thousandths of a Preferred Share purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-thousandths of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one one-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-thousandths of a Preferred Share issuable upon the exercise of the Rights, the Right Certificates previously and thereafter issued may continue to express the Purchase Price and the number of one one-thousandths of a Preferred Share that were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the Purchase Price below one one-thousandth of the then par value, if any, of the Preferred Shares issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED, HOWEVER that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Shares, (ii) issuance wholly for cash of any Preferred Shares at less than the current market price, (iii) issuance wholly for cash of Preferred Shares or securities which by their terms are convertible into or exchangeable for Preferred Shares, (iv) dividends on Preferred Shares payable in Preferred Shares or (v) issuance of rights, options or warrants referred to hereinabove in Section 11(b), hereafter made by the Company to holders of its Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare or pay any dividend on the Common Shares payable in Common Shares or (ii) effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares) into a greater or lesser number of Common Shares, then in any such case (A) the number of one one-thousandths of a Preferred Share purchasable after such event upon proper exercise of each Right shall be determined by multiplying the number of one one-thousandths of a Preferred Share so purchasable immediately prior to such event by a fraction, the numerator of which is the number of Common Shares outstanding immediately before such event and the denominator of which is the number of Common Shares outstanding immediately after such event, and (B) each Common Share outstanding immediately after such event shall have issued with respect to it that number of Rights which each Common Share outstanding immediately prior to such event had issued with respect to it. The adjustments provided for in this Section 11(p) shall be made successively whenever such a dividend is declared or paid or such a subdivision, combination or consolidation is effected.
SECTION 12. CERTIFICATE OF ADJUSTMENT
Whenever an adjustment is made as provided in Sections 11 and 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of such adjustment unless and until it shall have received such
certificate.
SECTION 13. CONSOLIDATED, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER
(a) If, following the Shares Acquisition Date, directly or indirectly,
(i) the Company shall consolidate with, or merge with and into, any Interested
Stockholder or, if in any merger or consolidation all holders of Common Shares
are not treated alike, any other Person (in each case regardless of whether the
Company is the surviving or disappearing corporation), (ii) an Interested
Stockholder shall acquire all or a majority of the Common Shares pursuant to a
statutory plan of exchange, or (iii) the Company shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or otherwise transfer),
in one or more transactions, assets or earning power aggregating 50% or more of
the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to one or more Interested Stockholders or, if all holders of Common
Shares are not treated alike in such transaction, any other Person other than to
the Company or one or more of its wholly-owned Subsidiaries, then, and in each
such case, proper provision shall be made so that (A) each holder of a Right
(except those held by an Acquiring Person or as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price
multiplied by the number of one one-thousandths of a Preferred Share for
which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Principal Party (as hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall equal
the result obtained by (x) multiplying the then current Purchase Price by the
number of one one-thousandths of a Preferred Share for which a Right is then
exercisable and dividing that product by (y) 50% of the then current per
share market price of the Common Shares (determined pursuant to Section 11(d)
hereof) of such Principal Party on the date of consummation of such
consolidation, merger, sale or transfer; (B) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company
pursuant to this Agreement; (C) the term "Company" shall thereafter be deemed
to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 shall apply only to such Principal Party after the
first occurrence of an event described in this Section 13(a); (D) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of its Common Shares in accordance with
Section 9 hereof) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to the Common Shares thereafter deliverable
upon the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (i), (ii) or (iii) of Section 13(a), (A) the Person that is the issuer of any securities into which Common Shares of the Company are converted in such merger, consolidation or for which they are exchanged in such statutory plan of exchange, or, if there is more than one such issuer, the issuer of Common Shares that has the highest aggregate current market price (determined in accordance with Section 11(d)) and (B) if no securities are so issued, the Person that is the other party to such merger, consolidation or statutory plan of exchange, or, if there is more than one such Person, the Person the Common Shares of which has the highest aggregate current market price (determined in accordance with Section 11(d)); and
(ii)in the case of any transaction described in clause (iv) of
Section 13(a), the Person that is the party receiving the largest portion
of the assets or earning power transferred pursuant to such transaction or
transactions, or, if each Person that is a party to such transaction or
transactions receives the same portion of the assets or earning power
transferred pursuant to such transaction or transactions or if the Person
receiving the largest portion of the assets or earning power cannot be
determined, whichever Person the Common Shares of which has the highest
aggregate current market price (determined in accordance with Section
11(d));
provided, however, that in any such case, (A) if the Common Shares of such Person are not at such time and have not been continuously over the preceding twelve-month period registered under Section 12 of the Exchange Act ("Registered Common Shares"), or such Person is not a corporation, and such Person is a direct or indirect Subsidiary of another Person that has Registered Common Shares outstanding, "Principal Party" shall refer to such other Person; (B) if the Common Shares of such Person are not Registered Common Shares or such Person is not a corporation, and such Person is a direct or indirect Subsidiary of another Person but is not a direct or indirect Subsidiary of another Person which has Registered Common Shares outstanding, "Principal Party" shall refer to the ultimate parent entity of such first-mentioned Person; (C) if the Common Shares of such Person are not Registered Common Shares or such Person is not a corporation, and such Person is directly or indirectly controlled by more than one Person, and one or more of such other Persons has Registered
Common Shares outstanding, "Principal Party" shall refer to whichever of such
other Persons is the issuer of the Registered Common Shares having the
highest aggregate current market price (determined in accordance with Section
11(d)); and (D) if the Common Shares of such Person are not Registered Common
Shares or such Person is not a corporation, and such Person is directly or
indirectly controlled by more than one Person, and none of such other Persons
have Registered Common Shares outstanding, "Principal Party" shall refer to
whichever ultimate parent entity is the corporation having the greatest
stockholders' equity or, if no such ultimate parent entity is a corporation,
shall refer to whichever ultimate parent entity is the entity having the
greatest net assets.
(c) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(o)), (ii) permit or cause any Person to consolidate with the Company, or merge with and into the Company (other than a Subsidiary of the Company in a transaction that complies with Section 11(o)), or (iii) sell or otherwise transfer (or permit any Subsidiary to sell or transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o)), if, at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect that would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or, prior to, simultaneously with or immediately after such consolidation, merger or sale, the stockholders of the Person who constitutes, or would constitute, the "Principal Party" for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates. The Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto the Company and such other Person shall have executed and delivered to the Rights Agent a supplemental agreement evidencing compliance with this Section 11(n).
(d) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23, Section 24 or Section 27 hereof, take (or permit any Subsidiary of the Company to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.
In the event that at any time after the occurrence of an event
described in Section 11(a)(ii) hereof some or all of the Rights shall not have
then been exercised at the time of the occurrence of an event described in
Section 13(a) hereof, the Rights which have not theretofore been exercised shall
thereafter be exercisable in the manner described in Section 13(a) (without
taking into account any prior adjustment required by Section 11(a)(ii)).
(e) The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers.
(f) Notwithstanding anything in this Agreement to the contrary, this
Section 13 shall not be applicable to a transaction described in Section
13(a)(i), (ii) or (iii) if: (i) such transaction is consummated with a Person or
Persons who acquired Common Shares pursuant to a tender offer described in
Section 11(a)(iii) (or with a wholly-owned Subsidiary of any such Person or
Persons), (ii) the price per Common Share offered in such transaction is not
less than the price per Common Share paid to all holders of Common Shares whose
shares were purchased pursuant to such tender or
exchange offer, and (iii) the form of consideration being offered to the remaining holders of Common Shares pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer. Upon consummation of any such transaction contemplated by this Section 13(e), all Rights shall expire.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES
(a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular or, in case no such sale takes place on such day, the average of the closing bid and asked prices, way in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last reported trade in the over-the-counter market, as reported by Nasdaq or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred Shares (other than fractions which are integral multiples of one one-thousandth of a Preferred Share) upon exercise of the Rights or to distribute certificates which evidence fractional Preferred Shares (other than fractions which are integral multiples of one one-thousandth of a Preferred Share). Fractions of Preferred Shares in integral multiples of one one-thousandth of a Preferred Share may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it; PROVIDED, that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares represented by such depositary receipts. In lieu of fractional Preferred Shares that are not integral multiples of one one-thousandth of a Preferred Share, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Preferred Share. For the purposes of this Section 14(b), the current market value of a Preferred Share shall be the closing price of a Preferred Share (as determined pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided above).
SECTION 15. RIGHTS OF ACTION
All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares), may, on his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS
Every holder of a Right, by accepting the same, consents and agrees with the Company and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary.
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER
No holder, as such, of any Right Certificate, shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Shares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT
The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT
Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the stock transfer or corporate trust business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT
The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, the Chief Executive Officer, the President, any Executive Vice President, or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other Person only for its own negligence, bad faith or willful misconduct. Anything in this Agreement to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
(d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice that such change or adjustment is required); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares to be issued pursuant to this Agreement or any Right Certificate or as to whether any Preferred Shares will, when issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the Chief Executive Officer, the President, any Executive Vice President, the Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become peculiarly interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof.
SECTION 21. CHANGE OF RIGHTS AGENT
The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation (or an affiliate of a corporation) organized and doing business under the laws of the United States or any state of the United States so long as such corporation is authorized to do business as a banking institution, is authorized under such laws to exercise corporate trust or stock transfer powers, is in good standing, and is subject to supervision or examination by federal or state authority, and has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100 million. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice with the predecessor Rights Agent and each transfer agent of the Common Shares or Preferred Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES
Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement.
SECTION 23. REDEMPTION
(a) The Board of Directors of the Company may, at its option, at any
time prior to such time as any Person becomes an Acquiring Person, redeem all
but not less than all the then outstanding Rights at a redemption price of $0.01
per Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"); PROVIDED, HOWEVER, that if,
following the occurrence of a Shares Acquisition Date and following the
expiration of the right of redemption hereunder but prior to any event described
in clause (B) of Section 11(a)(ii) or clauses (i), (ii), (iii) or (iv) of
Section 13(a) hereof, (i) a Person who is an Acquiring Person shall have
transferred or otherwise disposed of a number of shares of Common Shares in one
transaction or series of transactions, not directly or indirectly involving the
Company or any of its Subsidiaries, which did not result in the occurrence of an
event described in clause (B) of Section 11(a)(ii) or clauses (i), (ii) or (iii)
of Section 13(a) hereof such that such Person is thereafter a Beneficial Owner
of less than 10% of the outstanding Common Shares, and (ii) there are no other
Persons, immediately following the occurrence of the event described in clause
(i), who are Acquiring Persons, then the right of redemption shall be reinstated
and thereafter be subject to the provisions of this Section 23. The redemption
of the Rights by the Board of Directors may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish. The Company may, in its discretion, round up the
redemption price to be paid to any holder of Rights to the nearest whole cent.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; PROVIDED, HOWEVER, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors ordering
the redemption of the Rights, the Company shall mail a notice of redemption to
all the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made.
SECTION 24. EXCHANGE
(a) The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company (including without limitation the Employee Plans) or of any such Subsidiary, or of any entity holding Common Shares for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its option, may substitute Preferred Shares (or equivalent preferred shares, as such term is defined in Section 11(b) hereof) for Common Shares exchangeable for Rights, at the initial rate of one one-thousandth of a Preferred Share (or equivalent preferred share) for each Common Share, as appropriately adjusted to reflect adjustments in the voting rights of the Preferred Shares pursuant to the terms thereof, so that the fraction of a Preferred Share delivered in lieu of each Common Share shall have the same voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common Shares or Preferred Shares issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24, the Company shall use its best efforts to cause all such action to be taken as may be necessary to authorize additional Common Shares or Preferred Shares for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of Common Shares or to distribute certificates which evidence fractional Common Shares. In lieu of such fractional Common Shares,
the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional Common Shares would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Common Share. For the purposes of this paragraph (e), the current market value of a whole Common Share shall be the closing price of a Common Share (as determined pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24.
SECTION 25. NOTICE OF CERTAIN EVENTS
(a) In case the Company shall propose (i) to pay any dividend payable in stock of any class to the holders of its Preferred Shares or to make any other distribution to the holders of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares rights or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Preferred Shares (other than a reclassification involving only the subdivision of outstanding Preferred Shares), (iv) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the liquidation, dissolution or winding up of the Company, or (vi) to declare or pay any dividend on the Common Shares payable in Common Shares or to effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares), then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, or distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Common Shares and/or Preferred Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Preferred Shares for purposes of such action, and in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares and/or Preferred Shares, whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof shall occur, the Company shall as soon as practicable thereafter give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
SECTION 26. NOTICES
Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows:
Monolithic System Technology, Inc. 1020 Stewart Drive Sunnyvale, CA 94086 Attn: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows:
[Name of Rights Agent]
Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS
The Company may from time to time, and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Right Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions with respect to the Rights which the Company may deem necessary or desirable other than an Acquiring Person and its Affiliates and Associates. Any such supplement or amendment to be evidenced by a writing signed by the Company and the Rights Agent; PROVIDED, HOWEVER, that from and after such time as any Person becomes an Acquiring Person, this Agreement shall not be amended in any manner which would adversely affect the interests of the holders of Rights.
SECTION 28. REGISTRATION OF SECURITIES
The Company may temporarily suspend, for a period of time not to exceed 90 days, the exercisability of the Rights in order to prepare and file, if deemed necessary by the Company, such registration statements and other filings under the Securities Act of 1933, as amended, and the securities or "blue sky" laws of any state, with respect to any securities purchasable upon the exercise of the Rights, and to permit the same to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction has been obtained.
SECTION 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS
The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to interpret the provisions of this Agreement, and make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or to not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations which are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders
of the Rights and all other parties, and (y) not subject the Board to any liability to the holders of the Rights.
SECTION 30. SUCCESSORS
All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.
SECTION 31. BENEFITS OF THIS AGREEMENT
Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares).
SECTION 32. SEVERABILITY
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
SECTION 33. GOVERNING LAW
This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State.
SECTION 34. COUNTERPARTS
This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.
SECTION 35. DESCRIPTIVE HEADINGS
Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
By______________________________
Fu-Chieh Hsu
President and Chief Executive Officer
RIGHTS AGENT
[______________________________]
By______________________________
Title___________________________
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 11(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 9 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:_____________________________
Title:__________________________
Address: 1020 Stewart Drive
Sunnyvale, CA 94085
AGREED TO AND ACCEPTED:
By: _________________________
______________________________
Name
Address:
|
Facsimile Number:
Exhibit 10.13
MEMORANDUM OF UNDERSTANDING
FOR
CUSTOM TOUCH-TM- 1T-SRAM-TM- MEMORY COMPILER
FOR TSMC 0.18 ohms microns & 0.15 ohms microns LOGIC PROCESSES
This Memorandum of Understanding (the "MOU") is entered into and effective as of the date of the last signature below ("Effective Date") by and between Taiwan Semiconductor Manufacturing Co., Ltd., a company duly incorporated under the laws of the Republic of China ("ROC"), having its principal place of business at No. 121, Park Avenue 3, Science Based Industrial Park, Hsin-Chu, Taiwan, ROC ("TSMC"), Monolithic System Technology Incorporated, a company duly incorporated under the laws of the State of California, USA, having its principal place of business at 1020 Stewart Drive, Sunnyvale, CA 94086 USA ("MoSys"), and Virage Logic Corporation, a company duly incorporated under the laws of the State of California, USA, having its principal place of business at 46501 Landing Parkway, Fremont, CA 94538 USA ("Virage").
PURPOSE
This MOU is to set forth parameters for an agreement for MoSys and Virage to develop a Custom Touch-TM- 1T-SRAM-TM- memory compiler (the "Compiler") for TSMC's 0.18 ohms microns and 0.15 ohms microns standard logic semiconductor processes to be jointly marketed by all parties and sold to TSMC customers by MoSys and Virage.
TERM
This MOU is in place only as long as it takes the three parties to establish a definitive agreement ("Definitive Agreement") covering the terms and conditions of establishing and licensing the Compiler, but in no event longer than one (1) year. TSMC may terminate this MOU at any time in the event there is a technological reason why the Compiler does not provide the functionality agreed to in the Compiler Statement of Work ("SOW") as defined herein.
Following the signature of this MOU, all parties shall use good faith efforts to conclude a definitive agreement within sixty (60) days of the signature of this MOU.
CONSIDERATION
TSMC shall share the cost of the development of the Compiler with MoSys and Virage in consideration for developing the Compiler for TSMC's 0.18 ohms microns process prior to any one else which would provide an advantage to TSMC and its customers in the access to the Compiler. TSMC agrees to pay < omitted pursuant to a request for confidential treatment as filed with the SEC > US dollars, excluding any taxes and withholdings, for the Development of the Compiler to MoSys and Virage jointly.
TSMC and MoSys shall amend the agreement executed between them dated March 31, 1999 to incorporate wafer-based running royalties for the compiled instances. It is the intent of TSMC and MoSys to amend their agreement prior to the execution of the Definitive Agreement.
TSMC and Virage agree that the Compiler and the resulting instances shall be considered as "0.18 ohms microns Licensed Products" and thus covered under TSMC's Pay-for-Performance program as detailed in the Development and Licensing Agreement executed between them on March 3, 1999.
In consideration for the cost sharing amount paid by TSMC, MoSys and Virage agree to provide the Compiler for the 0.15 ohms microns process to TSMC before any other foundry customer so long as TSMC has provided the said process in a timely manner. Such development shall be free of charge to TSMC from either MoSys or Virage provided that at least five (5) TSMC 0.18 ohms microns customers purchase the Compiler from either MoSys and/or Virage for use in their chip development. TSMC understands that the free of charge development of the Compiler for the 0.15 ohms microns process does not necessarily mean no charge for future cost sharing of future process generations.
PRODUCT
MoSys and Virage shall jointly develop the Compiler initially for TSMC's 0.18 ohms microns standard process that is not low voltage. The Compiler shall be developed in accordance with the SOW which shall be agreed to by all parties, and shall be updated from time to time by mutual agreement of all parties.
MoSys and Virage shall engineer the Compiler such that instances generated include BIST, redundancy and fuse programming to ensure high yield and density. MoSys and Virage shall provide the plans for all DFT planned such as BIST and diagnostics.
The schedule for the Compiler development project shall be in accordance with the SOW. The current date for the start of the development is intended to be 2 weeks after receipt of cost sharing purchase order from TSMC. TSMC shall issue the cost sharing purchase order to Virage in a timely manner from the date of full execution of this MOU. The front-end view and GDS availability dates are to be determined during the schedule development.
JOINT MARKETING ACTIVITIES
TSMC, MoSys and Virage agree to perform joint marketing activities to promote the relationship and the Compiler established by this MOU. Each entity shall be financially responsible for its own marketing activities and all such activities must be pre-approved by the other two entities prior launching of such activities. The activities shall include, but not be limited to, the following:
a) A joint press release that announces the established partnership and planned Compiler, published after signature of this MOU by all parties and the issuance of a purchase order for the cost sharing amount by TSMC to MoSys and/or Virage;
b) Joint sales activities with TSMC by MoSys and Virage, to determine customers for the Compiler;
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
c) Quarterly technology reviews to inform all parties of subsequent technology developments that could lead to the modification of the product established under this agreement, or to additional products developed by and/or for the parties; and
d) Advertisement of the Compiler in the list of off-the-shelf components by both MoSys and Virage, including published datasheets to be used by both companies in the selling of the compiler
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed in triplicate on their behalf by their duly authorized officers and representatives on the date first given above.
TAIWAN SEMICONDUCTOR
MANUFACTURING CO., LTD.
MOSYS INCORPORATED VIRAGE LOGIC CORPORATION _______________________________ _______________________________ Fu-Chieh Hsu Adam Kablanian Chairman, President & CEO President & CEO |
Exhibit 10.14
DEVELOPMENT AND PROMOTION AGREEMENT
THIS DEVELOPMENT AND PROMOTION AGREEMENT is entered into on March 31, 1999 ("Effective Date") by and between Taiwan Semiconductor Manufacturing Company Ltd., a company duly incorporated under the laws of Republic of China having its principal place of business at No. 121, Park Avenue 3, Science Based Industrial Park, Hsinchu, Taiwan, ROC ("TSMC"), and Monolithic System Technology, Inc., a company duly incorporated under the laws of the State of California having its principal place of business at 1020 Stewart Drive, Sunnyvale, CA 94086, U.S.A. ("MoSys"), collectively referred to as "Parties".
WHEREAS, MoSys desires to adapt and port certain of its semiconductor circuits and devices to be compliant to certain TSMC process technologies (the "Virtual Component"); and
WHEREAS, Parties desire to jointly promote and/or distribute the Virtual Component pursuant to the terms and provisions as provided in this Agreement.
NOW THEREFORE, the Parties hereto agree as follows:
I. VIRTUAL COMPONENT DELIVERABLES AND TAPE-OUT
1.1 MoSys agrees to develop the Virtual Component for TSMC as specified in Exhibit A. MoSys agrees to deliver to TSMC the information specified in the Exhibit A and the following deliverables regarding each Virtual Component (the "MoSys's Deliverables"). MoSys authorizes TSMC to use MoSys's Deliverables for tape-out, production and packaging of thirty (30) testchips ("Prototypes") by TSMC:
GDSII files
DRC / LVS report files
Virtual Component Size
Virtual Component Datasheet
Methodology and solution for pre-fabrication simulation
(including simulation models, and testability on silicon)
The GDSII file may contain only those errors acceptable to TSMC. If not acceptable, TSMC will so notify MoSys, in writing, and MoSys shall promptly review and correct the unacceptable errors and resubmit the file to TSMC. MoSys shall identify, in writing and with specificity, each and every separate and individual Virtual Component contained in the GDSII File.
1.2 For the purposes of this Agreement, TSMC agrees to provide the following information to MoSys upon request:
Design rules
SPICE models
DRC command files
Maximum permissible test chip die size
Layout mapping file
Test chip tape-out schedule
1.3 Upon completion of tapeout, TSMC will fabricate and package thirty (30) testchips incorporating this Virtual Component for MoSys on its next available "hot run". TSMC shall provide MoSys one engineering iteration upon request.
II. VERIFICATION REPORT AND JOINT MARKETING
2.1 MoSys agrees to start its own verification and qualification procedure on the Prototypes produced by TSMC, and, within 60 days after receiving the Prototypes, MoSys shall prepare and provide a verification report for the Virtual Component to TSMC which shall include the information as outlined in the Exhibit B (the "Verification Report").
2.2 Parties shall cooperate in jointly publishing the availability of the Virtual Component on TSMC's processes, including making datasheets available for the Virtual Component and a white paper describing the technology and benefits to customers.
III. DISTRIBUTION OF THE VIRTUAL COMPONENT
3.1 Both TSMC and MoSys will actively promote the Virtual Component to customers of both Parties. All customers who desire to use the Virtual Component may obtain it through either TSMC or MoSys directly. Both Parties agree to inform customers that they shall only use the TSMC process-ported version of the Virtual Component for tape-out and production exclusively at TSMC or its designated facility. Neither party shall be forced to accept the other party's customers.
3.2 TSMC may incorporate the Virtual Component as specified in Exhibit A in customer designs following execution of a license agreement between TSMC and MoSys that contains payment provisions for fees of 5% of net wafer sales for wafers that include the Virtual Component, where the term "net wafer sales" will be defined. TSMC shall not release the GDSII physical view to customers, but may provide an abstract for place and route purposes.
3.3 TSMC and MoSys agree to enter into good faith discussions on the licensing terms (including, but not limited to NRE and running royalty rates) for variants (changes to memory size, organization or process) of the Virtual Component as well as 1T-SRAM memory compilers, if required by customer demand.
IV. PAYMENT
4.1 TSMC agrees to pay MoSys the sum of Thirty Thousand Dollars ($30,000.00) within thirty (30) days upon the first tapeout of a testchip incorporating the Virtual Component. TSMC agrees to pay MoSys an additional sum of Thirty Thousand Dollars ($30,000.00) within thirty (30) days of a successful completion of evaluation of testchips including the Virtual Component by MoSys and the delivery of the Verification Report to TSMC.
4.2 Either TSMC or MoSys may offset any due payment to the other party if the receiving party has an outstanding balance owed to the other party at the time that payment is due.
4.3 The Parties agree that this Agreement does not oblige TSMC to pay an additional royalty to MoSys when customers have executed license agreements directly with MoSys for the Virtual Component.
V. PROPRIETARY INFORMATION
5.1 The term "Proprietary Information" shall mean any information provided by a party hereto identified as proprietary and/or confidential and disclosed to the other party according to this Agreement. Written Proprietary Information shall be clearly marked "Confidential" or "Proprietary". All oral disclosures of Proprietary Information shall be identified as such prior to disclosure and confirmed in writing by the disclosing party within thirty (30) days of the oral disclosure. In case of disagreement, the receiving party must make a written objection thereto within thirty (30) days after receipt of the information, or after receipt of written confirmation for orally disclosed information. The terms and conditions of this agreement are Proprietary Information. The Proprietary Information shall not include information that: (1) is now or subsequently in the public domain or otherwise becomes available to the
public other than by breach of this Agreement by the receiving party; (2) has been rightfully in the receiving party's possession prior to receipt from the disclosing party; (3) is rightfully received by the receiving party from a third party; and (4) is independently developed by the receiving party without use of any proprietary information or trade secrets of the disclosing party, and is authorized by the disclosing party to be disclosed or released.
5.2 Both Parties hereto agree to maintain Proprietary Information in strict confidence, not to make use thereof other than for the performance of this Agreement, to release it only to employees who have a reasonable need to know the same, and not to release or disclose it to any third party, without the prior written consent of the disclosing party.
5.3 All Proprietary Information and any copies thereof shall remain the property of the disclosing party. Upon expiration or termination of this Agreement, or at the request of the disclosing party, the receiving party shall return the original and all copies of Proprietary Information in tangible forms, or at the sole option of the disclosing party destroy any and all copies, partial or complete, in whatever media, and provide certification in writing signed by an officer of the company that such destruction of such information has been completed.
5.4 Parties acknowledge and agree that due to the unique nature of the Proprietary Information, there can be no adequate remedy at law for any breach of the obligations hereunder, that any such breach may result in irreparable harm to the non-breaching party, and therefore, that upon any such breach or any threat thereof, the non-breaching party shall be entitled to appropriate equitable relief in addition to whatever remedies it might have at law.
5.5 This Section 5 shall survive the termination or expiration of this Agreement for a period of five (5) years.
VI. LIMITED LIABILITY
6.1 NEITHER PARTY SHALL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
VII. WARRANTY AND INDEMNIFICATION
7.1 MoSys hereby warrants and represents that the Virtual Component was and will be developed by MoSys, and/or that it has the right and authority to authorize TSMC to use the Virtual Component as set forth herein.
7.2 MoSys agrees to indemnify, hold harmless and defend TSMC from and against any and all damages, costs and expenses, excluding indirect, incidental, or consequential damages, incurred in connection with a claim that the Prototypes infringe on any valid patent, copyright, or any other intellectual property right.
VIII. INTELLECTUAL PROPERTY OWNERSHIP
8.1 All worldwide rights, titles and interests, including without limitation all intellectual property rights, in and to the information, specifications, and other materials provided by one party to the other party under this Agreement shall remain the sole and exclusive property of the one party. No licenses are granted herein, and neither party shall have any rights in the intellectual property rights of the other, whether express, implied, arising by estoppel or otherwise.
IX. TERM AND TERMINATION
9.1 This Agreement shall have an initial term of two (2) years from the Effective Date and it shall be automatically renewed for successive one (1) year terms unless one party gives another party a written notice 30 days prior to the expiry of the term then in effect.
9.2 This Agreement may be early terminated by either party if the other party (1) breaches any material provision of this Agreement and does not cure or remedy such breach within thirty (30) days after receipt of the notice of breach from the other party; (2) becomes the subject of a voluntary or involuntary petition in bankruptcy or any proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors if such petition or proceeding is not dismissed with prejudice within sixty (60) days after filing. Termination of this Agreement shall be effective 30 days after issuance of a written notice of termination to the other party by the nondefaulting party.
9.3 Termination of this Agreement for any reason shall not affect (1) the obligations accruing prior to the effective date of termination; and (2) any obligations under Sections IV, V, VI, VII and VIII hereof, all of which shall survive termination or expiry of this Agreement.
9.4 Upon expiration or termination of this Agreement, both Parties shall immediately cease using the other party's name or goodwill to promote the Virtual Component.
X. EXPORT CONTROL
10.1 TSMC and MoSys are subject to national export control regulations of the Republic of China and United States of America. TSMC and MoSys will take all appropriate measures not to violate these regulations and will keep the other party fully harmless from all damages arising out of or in connection with any violation.
XI. MISCELLANEOUS
11.1 Neither party shall be responsible for any failure to perform under this Agreement, if such failure is caused by unforeseen circumstances or due to causes beyond its reasonable control, including but not limited to acts of God, riot, labor stoppages, acts of civil and military authorities, fire, floods or accidents.
11.2 This Agreement shall be governed by and construed in accordance with the laws of the State of California, USA. In the event of any dispute arising out of or in connection with this Agreement which cannot be amicably settled by Parties hereto, Parties agree to submit any such dispute to a binding arbitration in English in San Jose, California in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be before three (3) arbitrators, one to be selected by each party and the third to be selected by the two selected arbitrators. Each party shall bear its own expenses for the arbitration. The award rendered by the arbitration shall be final and binding upon all Parties, and may be enforced in any court of competent jurisdiction. Parties, their representatives, other participants and arbitrators shall hold the existence, content and result of the arbitration in confidence. Nothing in this Section shall be construed to preclude any party hereto from seeking provisional remedies, including, but not limited to, temporary restraining orders and preliminary injunctions from any court of competent jurisdiction, in order to protect its rights pending arbitration. All information relating to or disclosed by any party in connection with the arbitration shall be treated by Parties and the arbitration panel as Proprietary Information and no disclosure of such information shall be made by either party or the arbitration panel without the prior written consent of the disclosing party.
11.3 No waiver of any breach or failure by either party to enforce any provision of this Agreement shall be deemed a waiver of any other or subsequent breach or a waiver of future enforcement of that or any other provision.
11.4 No modification, alteration or amendment of this Agreement shall be effective unless in writing and signed by both Parties.
11.5 In the event that any provision of this Agreement shall be determined to be illegal or unenforceable, that provision will be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.
11.6 Neither party shall have any right or ability to assign, transfer, or sublicense any obligations or benefit under this Agreement without the written consent of the other except that a party (i) may assign and transfer this Agreement and its rights and obligations hereunder to any third party who succeeds to substantially all of its business or assets, (ii) may assign or transfer any rights to receive payments hereunder, or (iii) in order to perform its obligations under this Agreement, a party may assign to a sub-contractor who shall be subject to confidentiality obligations and with the other party's prior approval. The party who assigns to such sub-contractor shall be fully responsible to the other party for the acts of such sub-contractor.
11.7 The relation of Parties hereto is that of independent contractors, and neither party is an employee, agent, partner or joint venture of the other.
IN WITNESS WHEREOF, Parties hereto have caused this Agreement to be duly executed in duplicate on their behalf by their duly authorized officers and representatives on the date given above.
Taiwan Semiconductor Monolithic System Technology, Inc. Manufacturing Co., Ltd. By: By: -------------------------------- ----------------------------------- Name: Name: |
Title: Title:
Exhibit 10.15
TERMINATION AGREEMENT
THIS AGREEMENT is made as of August 6, 1998 by and among Taiwan Semiconductor Manufacturing Company Limited ("TSMC"), a company organized under the laws of the Republic of China ("R.O.C."), with its registered address at No. 121, Park Avenue 3, Science Based Industrial Park, Hsinchu, Taiwan, R.O.C., Monolithic System Technology Incorporated ("MOSYS"), a company organized under the laws of California, United States of America ("U.S.A.") with its registered address at 2670 Seely Avenue, San Jose, CA 95134, U.S.A., and M-One Technology Incorporated ("MONE"), a company organized under the laws of the Republic of China, with its registered address at Room 106, 47 Park Avenue 2, Science Based Industrial Park, Hsinchu, Taiwan, R.O.C.
WHEREAS, TSMC, MOSYS and MONE (collectively referred to as the "Parties") have entered into an option agreement ("Option Agreement", attached hereto as Attachment 1) on November 23, 1995 and amended subsequently on September 23, 1996 ("Amendment", attached hereto as Attachment 2); and
WHEREAS, the Parties desire to terminate the Option Agreement and the Amendment, to release each other of all obligations and commitments contained therein and to terminate any rights associated therewith;
NOW, THEREFORE, the Parties agree as follows:
1. This Agreement is effective as of the date hereof.
2. The Parties shall not be responsible for any further duties, obligations and commitments, and the Parties shall not be entitled to any further rights, including but not limited to wafer capacity and option fee, specified in and under the Option Agreement and the Amendment, except TSMC's right stipulated in Section 3 of this Agreement.
3. TSMC is granted the right to purchase UP TO One Million Two Hundred Thousands (1,200,000) shares of MOSYS' common stock at the exercise price of U.S. Six Dollars and Fifty Cents (US$6.50) per share anytime prior to the closing of the issuance of shares of common stock of Mosys in an underwritten public offering or when Mosys is acquired by third parties.
4. This Agreement does not affect the rights and obligations of the Parties existing and accrued prior to the date hereof. Specifically, MOSYS and MONE shall be and remain liable to TSMC for any obligations and duties, including all outstanding payments for the wafers already ordered and/or shipped.
5. The duty of confidentiality of the Parties contained in the Option Agreement and the Amendment shall survive after this Agreement.
6. This Agreement shall be governed and interpreted in accordance with the laws of the Republic of China.
IN WITNESS WHEREOF, the Parties have signed and dated this Agreement in the spaces provided below:
TAIWAN SEMICONDUCTOR MONOLITHIC SYSTEM
MANUFACTURING COMPANY TECHNOLOGYINCORPORATED
LIMITED
BY: BY:
------------------------------------ -----------------------------------
NAME: NAME:
---------------------------------- ---------------------------------
TITLE: TITLE:
--------------------------------- --------------------------------
DATE: DATE:
---------------------------------- ---------------------------------
M-ONE TECHNOLOGY
INCORPORATED
BY:
-----------------------------------
NAME:
---------------------------------
TITLE:
--------------------------------
DATE:
---------------------------------
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THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
August 6, 1998
MONOLITHIC SYSTEM TECHNOLOGY, INC.
a California corporation
COMMON STOCK PURCHASE WARRANT AGREEMENT
THIS CERTIFIES THAT, for value received, Taiwan Semiconductor Manufacturing Co., Ltd. (hereinafter, the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, to purchase from Monolithic System Technology, Inc., a California corporation (the "Company"), that number of fully paid and nonassessable shares of the Company's Common Stock at the purchase price per share as set forth in Section 1 below.
TERMS AND CONDITIONS OF WARRANT
1. NUMBER OF SHARES; EXERCISE PRICE; TERM.
(a) The Holder shall be entitled to subscribe for and purchase up to One Million, Two Hundred Thousand (1,200,000) shares of the fully paid and nonassessable Common Stock of the Company (the "Shares") at an exercise price of U.S. $6.50 per share (the "Exercise Price").
(b) The Holder may exercise this Warrant at any time and from time to time prior to 5:00 p.m. (California Time) on August 6, 2002 (the "Expiration Date"). This Warrant shall expire and cease to be exercisable after the Expiration Date.
2. EXERCISE OF WARRANT. This Warrant may be exercised by the Holder as to the whole or any lesser number of the Shares covered hereby, at any time and from time to time prior to the Expiration Date, upon surrender of this Warrant to the Company at its principal executive office together with the Notice of Exercise and Investment Representation Statement annexed hereto as EXHIBITS A and B. respectively, duly
completed and executed by the Holder, and payment to the Company of the aggregate Exercise Price for the Shares to be purchased in the form of a check made payable to the Company in an amount equal to the aggregate Exercise Price for the Shares to be purchased. Certificates for the Shares so purchased shall be delivered to the Holder within a reasonable time not to exceed 21 days after exercise of the stock purchase rights represented by this Warrant. The exercise of this Warrant shall be deemed to have been effected on the day on which the Holder surrenders this Warrant to the Company and satisfies all of the requirements of this Section 2. Upon such exercise, the Holder will be deemed a shareholder of record of those Shares for which the warrant has been exercised with all rights of a shareholder (including, without limitation, all voting rights with respect to such Shares and all rights to receive any dividends with respect to such Shares). If this Warrant is to be exercised in respect of less than all of the Shares covered hereby, the Holder shall be entitled to receive a new warrant covering the number of Shares in respect of which this Warrant shall not have been exercised and for which it remains subject to exercise. Such new warrant shall be in all other respects identical to this Warrant.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees that all equity securities which may be issued upon the exercise of the rights represented by this Warrant, upon issuance and payment therefor in accordance herewith, will be duly authorized, validly issued, fully paid, and nonassessable shares of capital stock of the Company. The Company further covenants and agrees that, during the period within which the stock purchase rights represented by this Warrant may be exercised, the Company will at all times have duly authorized and duly reserved for issuance upon the exercise of the purchase rights evidenced by this Warrant a number of shares of its Common Stock sufficient for such issuance.
4. TRANSFER, EXCHANGE, OR LOSS OF WARRANT.
(a) This Warrant may not be assigned or transferred except as provided in this Section 4 and in accordance with and subject to the provisions of the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder (collectively, the "Securities Act"). Any purported transfer or assignment made other than in accordance with this Section 4 shall be null and void and of no force or effect.
(b) Prior to any transfer of this Warrant, other than in an offering registered under the Securities Act, the Holder shall notify the Company of its intention to effect such transfer, indicating the circumstances of the proposed transfer and, upon request, furnish the Company with an opinion of its counsel, in form and substance satisfactory to counsel for the Company, to the effect that the proposed transfer may be made without registration under the Securities Act or qualification under any applicable state securities laws. The Company will promptly notify the Holder if the opinion of counsel furnished to the Company is satisfactory to counsel for the Company. Unless the Company notifies the Holder within ten (10) days after its receipt of such opinion that such opinion is not
satisfactory to counsel for the Company, the Holder may proceed to effect the transfer.
(c) Unless a registration statement under the Securities Act is effective with respect to the Shares or any other security issued upon exercise of this Warrant, the certificate representing such Shares or other securities shall bear the following legend, in addition to any legend imposed by applicable state securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
(d) Upon receipt by the Company of satisfactory evidence of loss, theft, destruction, or mutilation of this Warrant and of indemnity satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date and any such lost, stolen, or destroyed Warrant shall thereupon become void. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not the Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which such holder would otherwise be entitled, such holder shall be entitled, at its option, to receive either (i) a cash payment equal to the excess of the Fair Market Value for such fractional share above the Exercise Price for such fractional share (as mutually determined by the Company and the Holder) or (ii)a whole share if the Holder tenders the Exercise Price for one whole share.
6. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the holder hereof to any voting rights, dividend rights, or other rights as a shareholder of the Company prior to the exercise hereof.
7. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday or a Sunday or a legal holiday.
8. ADJUSTMENTS. The Exercise Price per Share and the number of Shares purchasable hereunder shall be subject to adjustment from time to time as follows:
(a) MERGER. If at any time there shall be a merger or consolidation of the Company with or into another corporation when the Company is not the surviving
corporation, then, as a part of such merger or consolidation, lawful provision shall be made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the aggregate Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from such merger or consolidation, to which a holder of the stock deliverable upon exercise of this Warrant would have been entitled in such merger or consolidation if this Warrant had been exercised immediately before such merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the merger or consolidation.
(b) RECLASSIFICATION, ETC. If the Company shall, at any time, by subdivision, combination, or reclassification of securities or otherwise, change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, the Exercise Price shall be adjusted such that this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination, reclassification or other change.
(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time while this Warrant remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, the Exercise Price shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination.
9. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Exercise Price or number of Shares issuable upon exercise hereof shall be adjusted pursuant to Section 8 hereof, the Company shall issue a written notice setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Exercise Price and number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such notice to be mailed to the holder of this Warrant.
10. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any successors or assigns of the Company.
(b) GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of California as applied to agreements between California residents entered and to be performed entirely within California.
(c) ATTORNEYS' FEES. In any litigation, arbitration, or court proceeding between the Company and the holder relating hereto, the prevailing party shall be entitled to reasonable attorneys' fees and expenses incurred in enforcing this Warrant.
(d) AMENDMENTS. This Warrant may be amended and the observance of any term of this Warrant may be waived only with the written consent of the Company and the Holder.
(e) NOTICE. Any notice, request, or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered, sent by facsimile, or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier or personal delivery at the respective addresses or facsimile number of the parties as set forth below. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when received.
If to the Holder: Taiwan Semiconductor Manufacturing Co., Ltd.
No. 121, Park Avenue 3
Science-Based Industrial Park
Hsinchu, Taiwan
Republic of China
If to the Company: Monolithic System Technology, Inc.
1020 Stewart Drive
Sunnyvale, California 94086
Attn: Chief Financial Officer
Fax: (408) 731-18993
|
(f) INVESTOR RIGHTS. All Shares issuable upon exercise of this Warrant are subject to the registration rights provisions of the Fourth Amended and Restated Investor Rights Agreement dated March 31, 1998 (the "Rights Agreement"), as such agreement may be amended from time to time, as evidenced by an Addendum to the Rights Agreement executed by the original holder of this Warrant in connection with its purchase of the Notes and this Warrant pursuant to the Purchase Agreement.
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IN WITNESS WHEREOF, the Company and the Holder have caused this Common Stock Purchase Warrant Agreement to be executed as of the date first above written.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
Acknowledged and Agreed:
TAIWAN SEMICONDUCTOR
MANUFACTURING CO., LTD.
Exhibit 10.16
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
May 30, 1997
MONOLITHIC SYSTEM TECHNOLOGY, INC.
a California corporation
COMMON STOCK PURCHASE WARRANT AGREEMENT
(U.S. HOLDER)
THIS CERTIFIES THAT, for value received, [___________________________] (hereinafter, the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, to purchase from Monolithic System Technology, Inc., a California corporation (the "Company"), that number of fully paid and nonassessable shares of the Company's Common Stock at the purchase price per share as set forth in Section 1 below.
TERMS AND CONDITIONS OF WARRANT
1. NUMBER OF SHARES; EXERCISE PRICE, TERM.
(a) The Holder shall be entitled to subscribe for and purchase up to [____________________________ (____________)] shares of the fully paid and nonassessable Common Stock of the Company (the "Shares") at an exercise price of U.S. $5.50 per share (the "Exercise Price").
(b) The Holder may exercise this Warrant at any time and from time to time prior to 5:00 p.m. (California Time) on April 22, 2000 (the "Expiration Date"). This Warrant shall expire and cease to be exercisable after the Expiration Date.
2. EXERCISE OF WARRANT. This Warrant may be exercised by the Holder as to the whole or any lesser number of the Shares covered hereby, at any time and from time to time prior to the Expiration Date, upon surrender of this Warrant to the Company at its principal
executive office together with the Notice of Exercise and Investment Representation Statement annexed hereto as EXHIBITS A and B, respectively, duly completed and executed by the Holder, and payment to the Company of the aggregate Exercise Price for the Shares to be purchased in the form of a check made payable to the Company in an amount equal to the aggregate Exercise Price for the Shares to be purchased. Certificates for the Shares so purchased shall be delivered to the Holder within a reasonable time not to exceed 21 days after exercise of the stock purchase rights represented by this Warrant. The exercise of this Warrant shall be deemed to have been effected on the day on which the Holder surrenders this Warrant to the Company and satisfies all of the requirements of this Section 2. Upon such exercise, the Holder will be deemed a shareholder of record of those Shares for which the warrant has been exercised with all rights of a shareholder (including, without limitation, all voting rights with respect to such Shares and all rights to receive any dividends with respect to such Shares). If this Warrant is to be exercised in respect of less than all of the Shares covered hereby, the Holder shall be entitled to receive a new warrant covering the number of Shares in respect of which this Warrant shall not have been exercised and for which it remains subject to exercise. Such new warrant shall be in all other respects identical to this Warrant.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees that all equity securities which may be issued upon the exercise of the rights represented by this Warrant, upon issuance and payment therefor in accordance herewith, will be duly authorized, validly issued, fully paid, and nonassessable shares of capital stock of the Company. The Company further covenants and agrees that, during the period within which the stock purchase rights represented by this Warrant may be exercised, the Company will at all times have duly authorized and duly reserved for issuance upon the exercise of the purchase rights evidenced by this Warrant a number of shares of its Common Stock sufficient for such issuance.
4. TRANSFER, EXCHANGE, OR LOSS OF WARRANT.
(a) This Warrant may not be assigned or transferred except as provided in this Section 4 and in accordance with and subject to the provisions of the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder (collectively, the "Securities Act"). Any purported transfer or assignment made other than in accordance with this Section 4 shall be null and void and of no force or effect.
(b) Prior to any transfer of this Warrant, other than in an offering registered under the Securities Act, the Holder shall notify the Company of its intention to effect such transfer, indicating the circumstances of the proposed transfer and, upon request, furnish the Company with an opinion of its counsel, in form and substance satisfactory to counsel for the Company, to the effect that the proposed transfer may be made without registration under the Securities Act or qualification under any applicable state securities laws. The Company will promptly notify the Holder if the opinion of counsel furnished to the Company is satisfactory to counsel for the Company. Unless the Company notifies the Holder within ten (10) days after its receipt of such opinion that such opinion is not satisfactory to counsel for the Company, the Holder may proceed to effect the transfer.
(c) Unless a registration statement under the Securities Act is effective with respect to the Shares or any other security issued upon exercise of this Warrant, the certificate
representing such Shares or other securities shall bear the following legend, in addition to any legend imposed by applicable state securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
(d) Upon receipt by the Company of satisfactory evidence of loss, theft, destruction, or mutilation of this Warrant and of indemnity satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date and any such lost, stolen, or destroyed Warrant shall thereupon become void. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not the Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which such holder would otherwise be entitled, such holder shall be entitled, at its option, to receive either (i) a cash payment equal to the excess of the Fair Market Value for such fractional share above the Exercise Price for such fractional share (as mutually determined by the Company and the Holder) or (ii) a whole share if the Holder tenders the Exercise Price for one whole share.
6. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the holder hereof to any voting rights, dividend rights, or other rights as a shareholder of the Company prior to the exercise hereof.
7. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday or a Sunday or a legal holiday.
8. ADJUSTMENTS. The Exercise Price per Share and the number of Shares purchasable hereunder shall be subject to adjustment from time to time as follows:
(a) MERGER. If at any time there shall be a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, then, as a part of such merger or consolidation, lawful provision shall be made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the aggregate Exercise Price then in effect, the
number of shares of stock or other securities or property of the successor corporation resulting from such merger or consolidation, to which a holder of the stock deliverable upon exercise of this Warrant would have been entitled in such merger or consolidation if this Warrant had been exercised immediately before such merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the merger or consolidation.
(b) RECLASSIFICATION, ETC. If the Company shall, at any time, by subdivision, combination, or reclassification of securities or otherwise, change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, the Exercise Price shall be adjusted such that this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination, reclassification or other change.
(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time while this Warrant remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, the Exercise Price shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination.
9. NOTICE OF ADJUSTMENTS, NOTICES. Whenever the Exercise Price or
number of Shares issuable upon exercise hereof shall be adjusted pursuant to
Section 8 hereof, the Company shall issue a written notice setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the Exercise
Price and number of Shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such notice to be mailed to the holder of
this Warrant.
10. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any successors or assigns of the Company.
(b) GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of California as applied to agreements between California residents entered and to be performed entirely within California.
(c) ATTORNEYS' FEES. In any litigation, arbitration, or court proceeding between the Company and the holder relating hereto, the prevailing party shall be entitled to reasonable attorneys' fees and expenses incurred in enforcing this Warrant.
(d) AMENDMENTS. This Warrant may be amended and the observance of any term of this Warrant may be waived only with the written consent of the Company and the Holder.
(e) NOTICE. Any notice, request, or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered, sent by facsimile, or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier or personal delivery at the respective addresses or facsimile number of the parties as set forth below. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when received.
If to the Holder: [_________________________________]
[_________________________________]
[_________________________________]
[_________________________________]
If to the Company: Monolithic System Technology, Inc.
1020 Stewart Drive
Sunnyvale, California 95134
ATTN: Fu-Chieh Hsu, President
FAX: (408) 731-1893
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(f) INVESTOR RIGHTS. All Shares issuable upon exercise of this Warrant are subject to the registration rights provisions of the Third Amended and Restated Investor Rights Agreement dated as of May 30, 1997 (the "Rights Agreement"), as such agreement may be amended from time to time.
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IN WITNESS WHEREOF, the Company and the Holder have caused this Common Stock Purchase Warrant Agreement to be executed as of the date first above written.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
Acknowledged and Agreed:
[___________________________________]
Exhibit 10.17
NOTE AND WARRANT CANCELLATION AGREEMENT
WHEREAS, Monolithic System Technology, Inc. (the "Company") and Berg & Berg Enterprise, Inc. (the "Purchaser") entered into the Subordinated Note and Warrant Purchase Agreement dated June 18, 1996 (the "Note and Warrant Agreement");
WHEREAS, in connection with the Note and Warrant Agreement, the Company and Purchaser also entered into the Common Stock Purchase Warrant Agreement dated June 18, 1996 (the "Warrant") for the purchase of up to 76,923 shares of Common Stock;
WHEREAS, in connection with the Note and Warrant Agreement, the Company issued to the purchaser the 8.25% Subordinated Note dated June 18, 1996 in the principal amount of 1,000,000.00 (the "Note");
WHEREAS, in connection with this Note and Warrant Cancellation Agreement dated May 30, 1998 the "Cancellation Agreement"), the Company and the Purchaser entered into the Series F Preferred Stock Purchase Agreement (the "Series F Agreement") pursuant to which the Purchaser shall purchase a certain number of shares of Series F Preferred Stock issued by the Company together with warrants for the purchase of additional shares of Common Stock (the Series F Warrants");
WHEREAS, the payment of the purchase price for the shares of the Series F Preferred Stock and the Series F Warrants by the Purchaser pursuant to the Series F Agreement shall be effected by cancellation of the Warrant and cancellation of the Note by the Purchaser upon completion of the transaction contemplated by the Series F Agreement.
NOW, THEREFORE, the consideration of the foregoing and the mutual covenants contained herein, the Company and the Purchaser agree as follows:
1. Effective upon completion of the transaction contemplated by the Series F Agreement (the "Cancellation Date"), the Purchaser hereby cancels the Note including the principal amount of $1,000,000.00 and all accrued but unpaid interest through the Cancellation Date in the amount of $78,205.48.
2. The Purchaser shall have no rights to receive any further payment from the Company pursuant to the terms of the Note, and all amounts payable under terms of the Note shall be deemed to have been paid in full by the Company to the Purchaser as of the Cancellation Date.
3. The Purchaser shall, as soon as practical after the Cancellation Date, return the Company the original Note which has been marked on its face "canceled - paid in full".
4. The Company accepts cancellation of the Note, including the principal plus all accrued but unpaid interest through the Cancellation Date and cancellation of the Warrant, as payment of the purchase price of the shares of the Series F Preferred Stock purchased by the Purchaser pursuant to the terms of the Series F Agreement.
5. The Purchaser and the Company hereby cancel and terminate the Warrant as of the Cancellation Date.
6. Neither the Purchaser nor the Company shall have any further rights or obligations under the terms of the Warrant as of the Cancellation Date.
7. This Cancellation Agreement shall be governed and construed in accordance with the laws of the State of California as applied to agreements between California residents entered into and to be performed entirely in California.
8. This Cancellation Agreement and the other documents delivered hereto (including the Series F Agreement and the exhibits thereto) constitute the entire understanding and agreement between the Company and the Purchaser with regard to the subjects hereof and thereof. Neither this Cancellation Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge, or termination is sought.
9. In any litigation, arbitration, or court proceeding between the Company and the Purchaser relating hereto, the prevailing party shall be entitled to reasonable attorney's fees and expenses incurred in enforcing this Cancellation Agreement.
10. This Cancellation Agreement may be executed in any number of counterparts.
In witness whereof, the parties have executed this Cancellation Agreement as of the Cancellation Date.
"Company" Monolithic System Technology, Inc.
a California corporation
1020 Stewart Drive
Sunnyvale, CA 94086
By:
---------------------------------
Wayne B. Snyder
Vice President - Finance & Administration
Chief Financial Officer
"Purchaser" By:
---------------------------------
Print Name:
-------------------------
Title:
-----------------------------
Address:
----------------------------
----------------------------
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Exhibit 10.18
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
June __, 1996
MONOLITHIC SYSTEM TECHNOLOGY, INC.
a California corporation
COMMON STOCK PURCHASE WARRANT AGREEMENT
THIS CERTIFIES THAT, for value received, FIELD(1) (hereinafter, the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, to purchase from Monolithic System Technology, Inc., a California
corporation (the "Company"), that number of fully paid and nonassessable shares
of the Company's Common Stock at the purchase price per share as set forth in
Section 1 below.
This Warrant is one of a duly authorized series of warrants (collectively, the "Warrants") issued in accordance with and subject to all terms and conditions of the Note and Warrant Purchase Agreement dated June __, 1996 (the "Purchase Agreement") among the Company and each of the Purchasers identified in the Schedule of Purchasers attached thereto pursuant to which the Company purchased the Warrants and the Company's 8.25% Promissory Notes with an aggregate principal amount of $15 million (the "Notes"). The term "Purchase Agreement" shall include the agreement, in each of its respective forms, used in connection with the purchase and sale of the Warrants to certain investors resident in the United States and to certain additional non-U.S. investors pursuant to the requirements of Regulation S promulgated under the United States Securities Act of 1933, as amended (the "Securities Act"). The term "Warrants" shall refer to all Warrants issued pursuant to the Purchase Agreement in each of its respective forms.
TERMS AND CONDITIONS OF WARRANT
1. NUMBER OF SHARES: EXERCISE PRICE; TERM.
(a) The Holder shall be entitled to subscribe for and purchase up to that number of shares of the fully paid and nonassessable Common Stock of the Company (the "Shares") determined by dividing (i) FIELD(2) by (ii) the Exercise Price in effect at the time of such subscription and purchase.
(b) Until the earlier of (i) the closing of the initial public
offering of the Company's Common Stock (the "IPO Closing") pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission (the "IPO Closing") and (ii) one year from the date of this
Warrant, the Exercise Price shall equal $6.50 per Share. After the earlier of
(i) the IPO Closing and (ii) the date one year from the date of this Warrant,
the Exercise Price shall equal $8.50 per Share.
(c) The Holder may exercise this Warrant at any time and from time to time prior to 5:00 p.m. (California Time) on May 31, 1998 (the "Expiration Date"). This Warrant shall expire and cease to be exercisable after the Expiration Date.
2. EXERCISE OF WARRANT.
(a) This Warrant may be exercised by the Holder as to the whole or any lesser number of the Shares covered hereby, at any time and from time to time prior to the Expiration Date, upon surrender of this Warrant to the Company at its principal executive office together with the Notice of Exercise and Investment Representation Statement annexed hereto as EXHIBITS A and B, respectively, duly completed and executed by the Holder, and payment to the Company of the aggregate Exercise Price for the Shares to be purchased in the form of (i) a check made payable to the Company, (ii) forgiveness (evidenced by a writing signed by the holder of the respective Note) of outstanding principal owed by the Company under the Notes in an amount equal to the aggregate Exercise Price for the Shares to be purchased, or (iii) any combination of (i) and (ii). Certificates for the Shares so purchased shall be delivered to the Holder within a reasonable time not to exceed 21 days after exercise of the stock purchase rights represented by this Warrant. The exercise of this Warrant shall be deemed to have been effected on the day on which the Holder surrenders this Warrant to the Company and satisfies all of the requirements of this Section 2. Upon such exercise, the Holder will be deemed a shareholder of record of those Shares for which the warrant has been exercised with all rights of a shareholder (including, without limitation, all voting rights with respect to such Shares and all rights to receive any dividends with respect to such Shares). If this Warrant is to be exercised in respect of less than all of the Shares covered hereby, the Holder shall be entitled to receive a new warrant covering the number of Shares in respect of which this Warrant shall not have been exercised and for which it remains subject to exercise. Such new warrant shall be in all other respects identical to this Warrant.
(b) In the event (i) the Exercise Price in effect at the time of exercise of this Warrant by the Holder is $6.50 and (ii) the per-share price at which shares of the Company's Common Stock are sold to the public at the IPO Closing is less than $12.50, the Company shall pay to the Holder an amount equal to the product determined by the following equation:
Z=X*Y*[I-(P / IPO)], where
Z = the amount to be paid by the Company to the
Holder pursuant to this subSection 2(b);
X = the number of Shares for which the Holder
exercised the Warrant at an Exercise Price
of $6.50;
Y = $6.50;
P = the per-share price at which shares of
the Company's Common Stock are sold to the
public at the IPO Closing; and
IPO = $12.50;
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PROVIDED, however, that in no event shall the value calculated as "Z" above exceed the product of (i) X and (ii) $1.50. The Company may satisfy any obligation to the Holder pursuant to this Section 2(b) by delivery to the Holder of (i) a check made payable to the Holder or (ii) a note in an amount equal to the value of "Z" and in form and substance equivalent to the Notes (including, without limitation, with respect to interest rate and maturity date).
3. COVENANTS OF THE COMPANY. The Company covenants and agrees that all equity securities which may be issued upon the exercise of the rights represented by this Warrant, upon issuance and payment therefore in accordance herewith, will be duly authorized, validly issued, fully
paid, and nonassessable shares of capital stock of the Company. The Company further covenants and agrees that, during the period within which the stock purchase rights represented by this Warrant may be exercised, the Company will at all times have duly authorized and duly reserved for issuance upon the exercise of the purchase rights evidenced by this Warrant a number of shares of its Common Stock sufficient for such issuance.
4. TRANSFER, EXCHANGE, OR LOSS OF WARRANT.
(a) This Warrant may not be assigned or transferred except as provided in this Section 4 and in accordance with and subject to the provisions of the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder (collectively, the "Securities Act"). Any purported transfer or assignment made other than in accordance with this Section 4 shall be null and void and of no force or effect.
(b) Prior to any transfer of this Warrant, other than in an offering registered under the Securities Act, the Holder shall notify the Company of its intention to effect such transfer, indicating the circumstances of the proposed transfer and, upon request, furnish the Company with an opinion of its counsel, in form and substance satisfactory to counsel for the Company, to the effect that the proposed transfer may be made without registration under the Securities Act or qualification under any applicable state securities laws. The Company will promptly notify the Holder if the opinion of counsel furnished to the Company is satisfactory to counsel for the Company. Unless the Company notifies the Holder within ten (10) days after its receipt of such opinion that such opinion is not satisfactory to counsel for the Company, the Holder may proceed to effect the transfer.
(c) Unless a registration statement under the Securities Act is effective with respect to the Shares or any other security issued upon exercise of this Warrant, the certificate representing such Shares or other securities shall bear the following legend, in addition to any legend imposed by applicable state securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
(d) Upon receipt by the Company of satisfactory evidence of loss, theft, destruction, or mutilation of this Warrant and of indemnity satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date and any such lost, stolen, or destroyed Warrant shall thereupon become void. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not the Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which such holder would otherwise be entitled, such holder shall be entitled, at its option, to receive either (i) a cash payment equal to the excess of the Fair Market Value for such fractional share above the Exercise
Price for such fractional share (as mutually determined by the Company and the Holder) or (ii) a whole share if the Holder tenders the Exercise Price for one whole share.
6. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the holder hereof to any voting rights, dividend rights, or other rights as a shareholder of the Company prior to the exercise hereof.
7. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday or a Sunday or a legal holiday.
8. ADJUSTMENTS. The Exercise Price per Share and the number of Shares purchasable hereunder shall be subject to adjustment from time to time as follows:
(a) MERGER. If at any time there shall be a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, then, as a part of such merger or consolidation, lawful provision shall be made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the aggregate Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from such merger or consolidation, to which a holder of the stock deliverable upon exercise of this Warrant would have been entitled in such merger or consolidation if this Warrant had been exercised immediately before such merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the merger or consolidation.
(b) RECLASSIFICATION, ETC. If the Company shall, at any time, by subdivision, combination, or reclassification of securities or otherwise, change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, the Exercise Price shall be adjusted such that this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination, reclassification or other change.
(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time while this Warrant remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, the Exercise Price shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination.
9. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Exercise Price or
number of Shares issuable upon exercise hereof shall be adjusted pursuant to
Section 8 hereof, the Company shall issue a written notice setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the Exercise
Price and number of Shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such notice to be mailed to the holder of
this Warrant.
10. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any successors or assigns of the Company.
(b) GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of California as applied to agreements between California residents entered and to be performed entirely within California.
(c) ATTORNEYS' FEES. In any litigation, arbitration, or court proceeding between the Company and the holder relating hereto, the prevailing party shall be entitled to reasonable attorneys' fees and expenses incurred in enforcing this Warrant.
(d) AMENDMENTS. This Warrant may be amended and the observance of any term of this Warrant may be waived only with the written consent of the Company and the holders of then-outstanding Warrants exercisable for a majority of the shares of the Company's Common Stock then issuable upon exercise of all outstanding unexercised Warrants sold pursuant to the Purchase Agreement.
(e) NOTICE. Any notice, request, or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered, sent by facsimile, or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier or personal delivery at the respective addresses or facsimile number of the parties as set forth below. Any Party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when received.
If to the Holder: At the address set forth for the
Holder in the Schedule of Purchasers
to the Purchase Agreement.
If to the Company: Monolithic System Technology, Inc.
2670 Seeley Road
San Jose, California 95134
ATTN: Wayne B. Snyder,
Chief Financial Officer
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FAX: (408) 321-0780
(f) INVESTOR RIGHTS. All Shares issuable upon exercise of this Warrant are subject to the registration rights provisions of the Second Amended and Restated Investor Rights Agreement dated July 26, 1995 (the "Rights Agreement"), as such agreement may be amended from time to time, as evidenced by an Addendum to the Rights Agreement executed by the original holder of this Warrant in connection with its purchase of the Notes and this Warrant pursuant to the Purchase Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company and the Holder have caused this Common Stock Purchase Warrant Agreement to be executed as of the date first above written.
MONOLITHIC SYSTEM TECHNOLOGY, INC.
Acknowledged and Agreed:
Exhibit 10.19
MONOLITHIC SYSTEM TECHNOLOGY, INC.
NOTE AND WARRANT PURCHASE AGREEMENT
(U.S. SUBSCRIBERS)
This Subordinated Note and Warrant Purchase Agreement (the "Agreement") is made as of June ___, 1996, by and among Monolithic System Technology, Inc., a California corporation with its principal office located at 2670 Seeley Road, San Jose, California 95134 (the "Company"), and each of the persons and entities listed on the Schedule of Purchasers attached hereto as EXHIBIT A (the "Purchasers").
SECTION 1
SALE OF NOTES AND STOCK WARRANTS
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up to $15,000,000 in aggregate principal amount of indebtedness, which shall be represented by promissory notes in the form attached hereto as EXHIBIT B (each, a "Note," and collectively, the "Notes"). The Company has further authorized the issuance to the Purchasers of warrants in substantially the form attached hereto as EXHIBIT C (each, a "Warrant," and collectively, the "Warrants") to acquire up to an aggregate maximum of 1,153,847 shares of the Company's Common Stock, subject to adjustment of the exercise price and number of shares as set forth therein.
1.2 SALE OF THE NOTES. Subject to the terms and conditions of this Agreement, each Purchaser severally agrees to lend to the Company the sum set forth in Column 2 of EXHIBIT A, and the Company agrees to issue to each such Purchaser upon delivery by the Purchaser to the Company of the aggregate consideration therefor, a Note in such principal amount.
1.3 SALE OF THE WARRANTS. Subject to the terms and conditions of this Agreement, the Purchaser agrees to purchase and the Company agrees to issue to each Purchaser a Warrant exercisable for the number of shares of the Company's Common Stock set forth in Column 3 of EXHIBIT A opposite such Purchaser's name, subject to adjustment of the exercise price and number of shares as set forth in such Purchaser's respective Warrant. The shares of the Company's Common Stock issued or issuable upon exercise of the Warrants are referred to herein as the "Warrant Stock." The Company's agreements with each of the Purchasers are separate agreements, and the sales of the Notes and the Warrants to each of the Purchasers are separate sales.
1.4 BIFURCATED OFFERING. Each of the Purchasers acknowledges and agrees that the Company proposes to sell and issue the Notes and the Warrants pursuant to this Agreement in reliance on the exemption(s) from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), set forth in Section 4(2) thereof and/or Regulation D promulgated thereunder. Each of the Purchasers acknowledges and agrees that the Company proposes to sell and
issue a portion of the Notes and the Warrants outside the United States pursuant to the exemption from the registration requirements of the Securities Act set forth in Regulation S promulgated thereunder. Each Purchaser acknowledges and agrees that the Notes and the Warrants to be sold outside the United States will be sold pursuant to a separate purchase agreement (the "Foreign Purchase Agreement") containing financial terms and conditions materially equivalent to those set forth in this Agreement and the forms of Note and Warrant used in connection herewith, PROVIDED, HOWEVER, that the Company shall obtain such representations and warranties of the Purchasers and shall enter such covenants as are necessary to ensure compliance with applicable securities laws. A list of those individuals and entities purchasing the Notes and Warrants pursuant to the Foreign Purchase Agreement is set forth in the Schedule of Foreign Purchasers attached hereto as EXHIBIT A-1.
SECTION 2
CLOSING DATE; DELIVERY
2.1 MULTIPLE CLOSING DATES. The Company may schedule closings of the purchase and sale of the Notes and Warrants hereunder (each, a Closing) on such date or dates prior to June 7, 1996 as the Company may determine; PROVIDED, HOWEVER, that the Company's Board of Directors may extend the date of the final Closing at its discretion and provided further that the Company may accept subscriptions as received. Purchasers purchasing Notes and Warrants at each Closing shall be deemed to become parties to this Agreement as if all Purchasers had purchased Notes and Warrants simultaneously at a single Closing. At each Closing, the Schedule of Purchasers attached hereto shall be amended to include all Purchasers purchasing at such Closing and all Purchasers who purchased at any prior Closing. Upon the Company's termination of its offering of the Notes and the Warrants, the Company shall provide to each Purchaser a revised Schedule of Purchasers identifying all Purchasers who purchased Notes and Warrants at any Closing and a revised Schedule of Foreign Purchasers identifying all purchasers who purchased Notes and Warrants pursuant to the Foreign Purchase Agreement.
2.2 DELIVERY. At each Closing, the Company will deliver to each Purchaser purchasing at such Closing a Note in the principal amount set forth opposite such Purchaser's name in Column 2 of EXHIBIT A and a Warrant initially exercisable for the number of shares of Common Stock set forth opposite such Purchaser's name in Column 3 of EXHIBIT A. Such delivery shall be made against payment to the Company of the principal amount of such Purchaser's Note (as set forth in EXHIBIT A) by cashier's check made payable to the Company or wire transfer according to the Company's instructions.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedule of Exceptions attached hereto as EXHIBIT D, the Company hereby represents and warrants as of each Closing to the Purchasers purchasing Notes and Warrants at such Closing as follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate power to own and operate its properties and assets and to carry on its business as presently conducted. The Company is presently qualified to do business in each state in which the failure to be so qualified would have a material adverse effect on the Company's business as now conducted.
3.2 CORPORATE POWER. The Company will have at the Closing Date all requisite legal and corporate power to execute and deliver this Agreement, to sell and issue the Notes and Warrants hereunder, to issue the Warrant Stock issuable upon exercise of the Warrants, and to carry out and perform its obligations under the terms of this Agreement.
3.3 CAPITALIZATION. At each Closing, the authorized capital stock of the Company will consist of 30,000,000 shares of Common Stock, of which 8,836,860 shares are issued and outstanding and 5,000,000 shares of Preferred Stock, of which 500,000 shares have been designated as Series A Preferred Stock, all of which are issued and outstanding; of which 1,000,000 shares have been designated as Series B Preferred Stock, all of which are issued and outstanding; of which 1,100,000 shares have been designated as Series C Preferred Stock, 1,010,000 of which are issued and outstanding; of which 300,000 shares have been designated as Series D Preferred Stock, all of which are issued and outstanding; of which 420,000 shares have been designated Series E Preferred Stock, of which 264,487 shares are issued and outstanding; and of which 166,667 shares have been designated as Series I Preferred Stock, none of which is issued and outstanding. All such issued and outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. The Company has reserved (or will reserve prior to the Closing) (i) 9,223,461 shares of Common Stock for issuance upon conversion of the outstanding Series A, Series B, Series C, Series D, and Series E Preferred Stock, (ii) 3,300,000 shares of Common Stock for issuance to employees and consultants of the Company under the Company's 1992 Stock Option Plan, (iii) 2,000,000 shares of Common Stock for issuance to employees and consultants of the Company under the Company's 1996 Stock Option Plan, (iv) 1,153,847 shares for issuance upon exercise of the Warrants, and (v) 384,616 shares for issuance to Tseng Labs, Inc. ("Tseng"), a Utah corporation, upon exercise of a warrant granted to Tseng in connection with certain debt financing provided by Tseng.
3.4 AUTHORIZATION. Prior to initial Closing, the Company will have taken all requisite corporate action to execute and deliver this Agreement, to sell and issue the Notes and the Warrants (and the Common Stock issuable upon exercise of the Warrants), and to carry out and perform all of its obligations under the terms of this Agreement. This Agreement, when executed and delivered by the Company, shall constitute a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency, and the relief of debtors and rules of law governing specific performance, injunctive relief, or other equitable remedies. The Notes and the Warrants, when issued in compliance with the provisions of this Agreement, will be validly issued and will be free of any liens and encumbrances, assuming the Purchasers take the Notes and the Warrants with no notice thereof, other than any liens or encumbrances created by or imposed upon the Purchasers. The Warrant Stock has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement and the Warrants, will be validly issued, fully paid, and nonassessable and will be free of any liens or encumbrances, assuming the Purchasers take the Warrant Stock with no notice thereof, other than any liens or encumbrances created by or imposed upon the Purchasers; PROVIDED, HOWEVER, that the Notes,
the Warrants, and the Warrant Stock may be subject to restrictions on transfer under applicable state and/or federal securities laws and as set forth herein.
3.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation of any term of its Articles of Incorporation or Bylaws, as each are amended to date, or, in any material respect, of any term or provision of any mortgage, indebtedness, indenture, contract, agreement, instrument, judgment, or decree and is not in violation of any order, statute, rule, or regulation applicable to the Company where such violation would materially and adversely affect the Company. The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated herein and the issuance of the Warrant Stock have not resulted and will not result in any violation of, or conflict with, or constitute a default under the Company's Articles of Incorporation or Bylaws, as each are amended to date, any of the Company's agreements, or any applicable statute, rule, regulation, order, or restriction of any federal or state governmental entity or agency thereof nor result in the creation of any mortgage, pledge, lien, encumbrance, or charge upon any of the properties or assets of the Company.
3.6 LITIGATION. There are no actions, suits, proceedings, or investigations pending against the Company or its properties before any court or governmental agency (nor, to the best of the Company's knowledge, is there any basis therefor or threat thereof), which, either in any case or in the aggregate, might result in any material adverse change in the business or financial condition of the Company or any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business as now conducted or as proposed to be conducted, or in any material liability on the part of the Company.
SECTION 4
INVESTMENT REPRESENTATIONS OF PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company with respect to the purchase of the Notes and the Warrants as follows:
4.1 EXPERIENCE. It has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests.
4.2 INVESTMENT. It is acquiring the Notes, the Warrants, and the Warrant Stock for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. It understands that the Notes, the Warrants, and the Warrant Stock have not been, and when issued will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and accuracy of such Purchaser's representations as expressed herein and in response to the Company's inquiries.
4.3 TRANSFERABILITY. It acknowledges that the Notes, the Warrants, and the Warrant Stock must be held indefinitely unless subsequently registered under the Securities Act or unless an
exemption from such registration is available. It understands and acknowledges that the Company is under no obligation to register the Notes, the Warrants, or the Warrant Stock except as set forth in the Addendum to the Second Amended and Restated Investor Rights Agreement (the "Rights Agreement") dated as of July 26, 1995 to be executed by the Company and the Purchaser (the "Addendum") in connection with the sale of the Notes and the Warrants. It understands that the Notes, the Warrants, and the Warrant Stock may be imprinted with a legend which prohibits the transfer of such securities unless they are registered under the Securities Act or such registration is not required in the opinion of counsel for the Company.
4.4 RULE 144. It acknowledges that it is familiar with the provisions of Rule 144 promulgated under the Securities Act ("Rule 144"), which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering, subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the Company's securities, the availability of certain public information about the Company, the resale occurring not less than two years after the party has purchased and paid for the securities to be sold, and the sale being effected through a broker in an unsolicited "broker transaction" or in a transaction directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations.
4.5 NO PUBLIC MARKET. It understands that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company's securities. It understands that even if such a public market exists in the future, the Company may not, at the time such Purchaser wishes to sell the Notes, the Warrants, or the Warrant Stock, be satisfying the current public information requirements of Rule 144, and that, in such event, it would be precluded from selling such securities under Rule 144 even if the two-year minimum holding period had been satisfied.
4.6 ACCESS TO DATA. It has received all the information it considers necessary or appropriate for deciding whether to acquire the Notes and the Warrants. It has had an opportunity to discuss the Company's business, management, and financial affairs with the Company's management and has had the opportunity to review the Company's facilities. It has also had an opportunity to ask questions of officers of the Company concerning the terms of this offering, which questions were answered to its satisfaction. It understands that such discussions, as well as any written information issued by the Company were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. It acknowledges that any estimates or projections as to events that may occur in the future are based on the best judgment of the Company's management as of the date of this Agreement and that whether or not such estimates or projections may be achieved will depend upon the Company's achieving its overall business objectives, including the availability of funds from the sale of the Notes and the Warrants hereby. It acknowledges that there can be no assurances that any projections will be attained.
4.7 AUTHORIZATION. This Agreement and the Addendum, when executed and delivered by the Purchaser, will constitute a valid and legally binding obligation of such Purchaser, enforceable in accordance with its terms.
4.8 RESPONSIBILITY FOR TAX CONSEQUENCES. It has had an opportunity to review the federal, state, local, and foreign tax consequences of this investment and the transactions contemplated by this
Agreement (including any tax consequences that may result now or in the future under recently enacted tax legislation) and has had the opportunity to consult with such tax advisors as it deems appropriate regarding such consequences. It acknowledges that it is not relying on any statements or representations of the Company or its agents in regard to such tax consequences and understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. It acknowledges that the Company has no obligation in regard to the future conduct of its business, or to act or refrain from acting in any manner, regardless of the loss of any tax benefit to the Purchaser in connection with the purchase, ownership, or sale of the Notes, the Warrants, or the Warrant Stock.
4.9 NO LEGAL, TAX, OR INVESTMENT ADVICE. It understands that nothing in this Agreement or any other material presented to it in connection with the purchase and sale of the Notes, the Warrants, or the Warrant Stock constitutes legal, tax, or investment advice. It has consulted such legal, tax, and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Notes and the Warrants.
4.10 GOVERNMENT APPROVALS. The Purchaser has obtained, or obtained waivers of, all governmental consents, waivers, approvals, and permits required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated thereby.
SECTION 5
CONDITIONS TO CLOSING
The Purchasers' and the Company's obligations to purchase and to sell and issue, respectively, the Notes and Warrants at the Closing are subject to the fulfillment on or prior to the Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES OF COMPANY. The representations and warranties made by the Company in Section 3 hereof shall be true and correct when made and shall be true and correct on the Closing Date.
5.2 REPRESENTATIONS AND WARRANTIES OF PURCHASERS. The representations made by the Purchasers in Section 4 hereof shall be true and correct when made and shall be true and correct on the Closing Date.
5.3 BLUE SKY COMPLIANCE. The Company shall have obtained all necessary blue sky law permits and qualifications, or secured exemptions therefrom, required by any state for the offer and sale of the Notes and the Warrants.
5.4 RIGHTS AGREEMENT. The Company and each Purchaser shall have executed the Addendum pursuant to which the Warrant Stock shall become subject to the registration rights provisions of the Rights Agreement.
SECTION 6 MISCELLANEOUS
6.1 ENTIRE AGREEMENT. This Agreement and the other documents delivered pursuant hereto at the Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to the other in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein.
6.2 SUCCESSORS AND ASSIGNS. Except as otherwise 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; PROVIDED, HOWEVER, that the rights of a Purchaser to purchase the Notes and the Warrants shall not be assignable without the consent of the Company.
6.3 AMENDMENT BY AGREEMENT. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged, or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge, or termination is sought, PROVIDED, HOWEVER, that any provision of this Agreement may be waived, modified, or amended with the written consent of the Company and a majority-in-interest of the holders of the Notes.
6.4 NOTICES. Any notice, request, or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered, sent by facsimile, or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier or personal delivery at the respective addresses or facsimile phone number of the parties as set forth below. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when received.
If to a Purchaser: At the address set forth in the Schedule of Purchasers
If to Company: Monolithic System Technology, Inc.
2670 Seeley Road
San Jose, California 95134
ATTN: Wayne B. Snyder, Chief Financial Officer
FAX: (408) 321-0780
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6.5 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be severed from this Agreement as if such provision(s) were not included, and the balance of this Agreement shall be enforceable in accordance with its terms.
6.6 EXPENSES. The Company and each Purchaser shall bear its own expenses and legal fees incurred on its behalf with respect to this Agreement and the transactions contemplated hereby.
6.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEEPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION, OR EXEMPTION THEREFROM, IS UNLAWFUL. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION, OR EXEMPTION THEREFROM, BEING OBTAINED.
6.8 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements between California residents entered and to be performed entirely within California.
6.9 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
6.10 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Subordinated Note and Warrant Purchase Agreement as of the date first above written.
"COMPANY" MONOLITHIC SYSTEM TECHNOLOGY, INC.
a California corporation
By:
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Name:
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Title:
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"PURCHASER"
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By:
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Name:
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Title:
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[SIGNATURE PAGE TO SUBORDINATED NOTE AND WARANT PURCHASE AGREEMENT]
[U.S. SUBSCRIBER]
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 September 12, 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 September 14, 2000 |
EXHIBIT 24.1
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.
/s/ WEI YEN
-------------------------------------- September , 2000
Wei Yen
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