<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SILICON IMAGE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3674 77-0517246
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
------------------------
10131 BUBB RD.
CUPERTINO, CALIFORNIA 95014
(408) 873-3111
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
DAVID D. LEE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
10131 BUBB RD.
CUPERTINO, CALIFORNIA 95014
(408) 873-3111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
DENNIS R. DEBROECK, ESQ. JOHN A. FORE, ESQ.
SUSAN A. DUNN, ESQ. KATHLEEN B. BLOCH, ESQ.
DAVID K. MICHAELS, ESQ. PAUL W. HARTZEL, ESQ.
ANDREW Y. LUH, ESQ. WILSON SONSINI GOODRICH & ROSATI PC
PAMELA A. SERGEEFF, ESQ. 650 PAGE MILL ROAD
FENWICK & WEST LLP PALO ALTO, CA 94304
TWO PALO ALTO SQUARE (650) 493-9300
PALO ALTO, CA 94306
(650) 494-0600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / / ________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, 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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
COMMON STOCK, $0.001 PAR VALUE PER SHARE $45,000,000 $12,510
</TABLE>
(1) ESTIMATED SOLELY FOR THE PURPOSE OF COMPUTING THE AMOUNT OF THE REGISTRATION
FEE PURSUANT TO RULE 457(O) UNDER THE SECURITIES ACT OF 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED , 1999
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 these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
Shares
[SILICONE IMAGE, INC. LOGO]
Common Stock
-----------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $ and
$ per share. We have applied to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "SIMG."
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotment of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" STARTING ON
PAGE 5.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO SILICON
TO PUBLIC COMMISSIONS IMAGE
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total................................................. $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
The date of this prospectus is , 1999
<PAGE>
[Description of graphics on inside front cover page]
The inside front cover contains two pages of graphics. The graphic on the
first page is entitled "Silicon Image--Proliferating All-Digital Host Systems
and Displays." In the center of the page is the Silicon Image logo. Above the
logo is a vertical, three-dimensional, open-ended cylinder. Two arcs originate
from directly above the top of the cylinder and end at a horizontal series of
graphics across the top of the page below the title. One arc curves to the left
and the other arc curves to the right. A series of zeroes and ones is depicted
inside each arc. The horizontal series of graphics above the arcs depict
representations of a personal digital assistant, a gaming station, a set-top
box, a personal computer, a notebook computer, a DVD player and a digital
camcorder. The representations are labeled as follows: "PDA," "Gaming Station,"
"Set-Top Box," "PC," "Notebook," "DVD" and "Digital Camcorder." The arc curving
to the left ends below the graphic labeled "PC" while the arc curving to the
right ends below the graphic labeled "Notebook." To the right of the "PC" and
"Notebook" labels are logos depicting Silicon Image's PanelLink Technology.
Below and to the left of the Silicon Image logo in the center of the page is
Silicon Image's PanelLink Technology logo. To the right of the logo is the label
"PanelLink Digital." Below the logo and label is the phrase "High-Speed Digital
Interconnect Technology." Below and to the right of the Silicon Image logo in
the center of the page is Silicon Image's DVC Architecture logo. Below the logo
is the phrase "All-Digital Architecture to Enable Intelligent Displays." Below
the Silicon Image logo in the center of the page is a vertical,
three-dimensional, open-ended cylinder. To the left of the cylinder is the
phrase "Our solution provides a seamless connection to all types of digital
displays . . ." To the right of the cylinder is the phrase ". . . and Integrates
New Features and Functionality to Enable Intelligent Displays." Five arcs
originate from directly below the bottom of the cylinder and end at a horizontal
series of graphics across the bottom of the page. Each arc ends above a
different graphic. The horizontal series of graphics across the bottom of the
page consist of a series of representations of a digital CRT display, a HDTV
display, a LCD monitor, a projector, a plasma display, a point of sale display,
a kiosk, an automobile dashboard display and a wearable display. The
representations are labeled as follows: "Digital CRT," "HDTV," "LCD Monitor,"
"Projector," "Plasma Display," "Point of Sale," "Kiosk," "Auto" and "Wearables."
To the right of the "Projector," "Plasma Display," "Point of Sale" and "Kiosk"
labels are logos depicting Silicon Image's PanelLink Technology. To the right of
and slightly above the "LCD Monitor" label is a logo depicting Silicon Image's
DVC Architecture. To the right of and slightly below the "LCD Monitor" label is
a logo depicting Silicon Image's PanelLink Technology. To the right of the
graphic labeled "Wearables" is a large fuzzy circle. Above the circle is the
title "Future Intelligent Display." In the upper left quadrant of the circle,
two rows of zeroes and ones are shown crossing the boundary of the circle. To
the right of the upper row, inside the circle, is an arrow pointing toward the
inside of the circle. To the left of the lower row, outside the circle, is an
arrow pointing away from the circle. Inside the circle is a graphical
representation of a flat panel display. Below the graphic are seven bullet
points. The first point reads, "All-digital HDTV format image." The second point
reads, "Real time, high bandwidth video / video conferencing." The third point
reads, "Visual User ID." The fourth point reads, "Video message indicator." The
fifth point reads, "Speech processing (next to microphone)." The sixth point
reads, "Handwriting capability." The seventh point reads, "Drive other displays
(e.g., projector)."
The graphic on the second page is entitled "Semiconductor Solutions for
High-Speed Digital Communications." Below the title is the sentence "The
connection between host systems and displays is one of the last remaining analog
holdouts." Below and to the left of the sentence is a graphic depicting a
computer. Inside the graphic at the top right of the computer is a rectangle
with the word "Digital" inside of it. Inside the graphic at the bottom right of
the computer is a rectangle with the word "Analog" inside of it. The two
rectangles are connected by a series of zeroes and ones. To the right of the top
half of the graphic is the phrase Video Data with a line connecting the phrase
to the series of zeroes and ones that connects the two rectangles. Below and to
the right of the sentence that is below the title is a picture of a cathode ray
tube video display. Below the picture is the phrase "Limited Functionality." A
curving line connects the video display picture with the rectangle labeled
"Analog" inside the graphic of the computer. Above the line connecting the
computer graphic with the video display picture are the phrases "Flicker" and
"Color Variation." Below the line connecting the computer graphic with the video
display picture is the phrase "Fuzziness." In the center of the page is the
sentence "Silicon Image solves the bandwidth challenge needed to enable digital
displays." Below the sentence is a graphic depicting a computer. Inside the
graphic is a rectangle with the phrase "Pure Digital" inside of it. To the left
of the graphic is another graphic depicting the label "Storage." The graphic
labeled "Storage" is connected to the computer graphic by a thick line that is
open in the middle. In the open section is a series of zeroes and ones. Below
the graphic labeled "Storage" is the word "SCSI." Below "SCSI" is the phrase
".08-.32 Gbps." A thin line connects "SCSI" and the phrase with the thick line
that connects the "Storage" graphic with the computer graphic. To the left and
below the computer graphic is a cloud-shaped graphic. Inside the graphic is the
word "LAN." Below the word "LAN" is a series of lines that intersect with large
points at the ends of each line. The cloud-shaped graphic is connected to the
computer graphic by a thick line that is open in the middle. In the open section
is a series of zeroes and ones. To the right of the cloud-shaped graphic is the
phrase "Fast Ethernet." Below the "Fast Ethernet" phrase is the phrase "0.1
Gbps." A thin line connects the two phrases with the thick line that connects
the cloud-shaped graphic with the computer graphic. To the right of the computer
graphic is Silicon Image's PanelLink Technology logo. To the right of the logo
is the label "PanelLink Digital." To the right of the label is a picture of a
flat panel video display. The computer graphic is connected to the video display
picture by a thick cylinder that is open in the middle. In the open section is a
series of zeroes and ones. Below the cylinder are the phrases "Digital Video
Interface" and "5.0 Gbps." A thin line connects the phrases with the cylinder.
Below the phrases are three bullet points. The first point reads, "High-Speed
Digital Interface." The second point reads, " `Pure Digital' Visual Experience
with No Image Degradation." The third point reads, " `Plug and Play' Ease of
Use."
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 5
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS................................... 16
USE OF PROCEEDS................................ 17
DIVIDEND POLICY................................ 17
CAPITALIZATION................................. 18
DILUTION....................................... 19
SELECTED FINANCIAL DATA........................ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 21
BUSINESS....................................... 31
<CAPTION>
PAGE
-----
<S> <C>
MANAGEMENT..................................... 47
CERTAIN TRANSACTIONS........................... 58
PRINCIPAL STOCKHOLDERS......................... 62
DESCRIPTION OF CAPITAL STOCK................... 64
SHARES ELIGIBLE FOR FUTURE SALE................ 67
UNDERWRITING................................... 69
NOTICE TO CANADIAN RESIDENTS................... 71
LEGAL MATTERS.................................. 72
EXPERTS........................................ 72
ADDITIONAL INFORMATION......................... 72
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
This preliminary prospectus is subject to completion prior to this offering.
Among other things, this preliminary prospectus describes our company as we
currently expect it to exist at the time of this offering.
EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES:
- THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED;
- ALL OUTSTANDING SHARES OF PREFERRED STOCK ARE CONVERTED INTO SHARES OF
COMMON STOCK UPON THE CONSUMMATION OF THIS OFFERING;
- THE REINCORPORATION OF SILICON IMAGE IN DELAWARE; AND
- THE ADOPTION OF VARIOUS NEW EMPLOYEE BENEFIT PLANS, WHICH WILL OCCUR PRIOR
TO THE CONSUMMATION OF THIS OFFERING.
PanelLink-Registered Trademark- is a federally registered trademark of
Silicon Image, Inc. Certain titles and logos of Silicon Image, Inc.'s products
and services appearing in this prospectus, including PixelPrecision-TM-, Silicon
Image-TM-, TMDS-TM-, the PanelLink Logo and the Silicon Image Logo, are
trademarks or service marks of Silicon Image, Inc. and may be registered in
other jurisdictions. Each trademark or service mark of any other company
appearing in this prospectus belongs to its holder.
DEALER PROSPECTUS DELIVERY OBLIGATIONS
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THE OUTCOME OF THE
EVENTS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS SUBJECT TO RISKS AND
ACTUAL RESULTS COULD DIFFER MATERIALLY. THE SECTIONS ENTITLED "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS" AS WELL AS DISCUSSIONS ELSEWHERE IN THIS PROSPECTUS,
CONTAIN A DISCUSSION OF SOME OF THE FACTORS THAT COULD CONTRIBUTE TO THESE
DIFFERENCES.
SILICON IMAGE, INC.
We design, develop and market semiconductor solutions for applications that
require cost-effective, high-bandwidth, integrated solutions for high-speed data
communications. We are initially focusing our technology on the local
interconnect between host systems, such as PCs, set-top boxes and DVD players,
and digital displays, such as flat panel displays and CRTs. Our current products
enable host systems to transmit digital video data and enable displays to
receive and manipulate digital video data. As with other consumer electronic
devices, such as digital cellular phones, significant benefits can be achieved
by converting displays from analog to digital and by replacing conventional
analog connections between host systems and displays with digital connections.
Until recently, there was no commercially viable standard that addressed the
challenges of enabling digital communications between host systems and video
displays. A principal reason that such a standard did not exist was the
substantial technical challenge of developing a cost-effective, high-bandwidth
solution capable of transmitting data at the multi-gigabit rates needed to
support high-resolution displays. These rates can be as high as 50 times faster
than Fast Ethernet and 500 times faster than cable modems.
Recognizing the need for a cost-effective, high-bandwidth digital display
solution, we developed a digital interconnect technology and began shipping
semiconductor products for digital displays in 1997. To provide a worldwide,
open specification for an all-digital display solution, we, together with Intel,
Compaq, IBM, Hewlett-Packard, NEC and Fujitsu, formed the Digital Display
Working Group to define such a specification based on our technology. In April
1999, the DDWG published the Digital Visual Interface specification, which
defines a high-speed, synchronous data communications link between host systems
and digital displays. The formation of the DDWG and the release of the DVI
specification have accelerated the shift of display technology to digital.
Our key products are based on our PanelLink digital interface technology and
Digital Visual Controller architecture. PanelLink technology is our proprietary
implementation of the DVI specification. The DVC architecture is our platform
for developing controllers that integrate PanelLink receiver technology with
additional functionality to enable low-cost, intelligent displays for the mass
market. Our high-bandwidth, highly integrated solutions eliminate the need for
analog technology in host systems and displays, improve image quality and allow
display manufacturers to increase the functionality of their products.
Our objective is to be a leading provider of semiconductor solutions that
enable high-speed digital communications and optimize cost per bandwidth across
targeted communications markets. Key elements of our strategy are to:
- Target the display market first
- Promote open industry standards
- Drive broad adoption of digital-ready host systems
- Increase the intelligence of displays through highly-integrated receiver
solutions
- Maintain technology leadership
- Penetrate new markets and applications
As of June 30, 1999 we had shipped over four million units of our PanelLink
products to leading host system and display manufacturers such as Apple, ATI,
Compaq, Fujitsu, Gateway, Hitachi, IBM, LG, Matrox, NEC, Samsung, Sharp, Toshiba
and ViewSonic.
We incorporated in California as Silicon Image, Inc. on January 1, 1995 and
plan to reincorporate in Delaware before the completion of this offering. Our
address is 10131 Bubb Road, Cupertino, California 95014, and our telephone
number is (408) 873-3111.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Silicon Image.......... shares
Common stock to be outstanding after this shares
offering.......................................
Use of proceeds................................ For general corporate purposes, including
working capital and capital expenditures, and
for the repayment of the outstanding balance
under our line of credit. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol......... SIMG
</TABLE>
In addition to the shares of common stock to be outstanding after
the offering, we may issue additional shares of common stock under the following
plans and arrangements:
- 1,149,000 shares issuable upon exercise of outstanding stock options, at a
weighted average exercise price of $0.53 per share;
- 317,856 shares issuable upon the exercise of outstanding warrants, at a
weighted average exercise price of $2.08 per share, and 142,857 shares
issuable upon exercise of a warrant at an exercise price of $0.35 a share
that we are obligated to issue upon satisfaction of a milestone as
described under "Certain Transactions--Transactions with Intel and Its
Subsidiary, Chips and Technologies;" and
- 2,689,000 shares available for future issuance under our 1995 Equity
Incentive Plan, 1999 Equity Incentive Plan, and 1999 Employee Stock
Purchase Plan, subject to automatic annual increases each January 1 as
described under "Management--Employee Benefit Plans."
SUMMARY FINANCIAL DATA
The as adjusted balance sheet data summarized below reflects the receipt of
the net proceeds from the sale of shares of common stock offered by us
at an assumed initial public offering price of $ per share after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable by us and the application of net proceeds from the offering. See "Use of
Proceeds." The statement of operations data for the six months ended June 30,
1999 summarized below is unaudited.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- ----------------
1995 1996 1997 1998 1998 1999
----- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Product revenue........................................... $ -- $ 30 $ 1,280 $ 7,703 $ 2,652 $ 7,706
Development and license revenue........................... -- 1,121 1,582 100 25 575
Cost of product revenue................................... -- 5 851 4,314 1,711 3,328
Stock compensation and warrant expense.................... -- -- -- 1,361 184 2,898
Net loss.................................................. (178) (1,944) (4,036) (6,622) (3,103) (3,909)
Basic and diluted net loss per share...................... $(0.51) $ (1.25) $ (1.36) $ (1.40) $ (0.73) $ (0.73)
Weighted-average shares of common stock used to compute
basic and diluted net loss per share.................... 350 1,550 2,978 4,744 4,235 5,332
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------
ACTUAL AS ADJUSTED
--------- -------------
<S> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and short-term investments................................................................ $ 12,647
Working capital................................................................................ 8,740
Total assets................................................................................... 16,014
Line of credit................................................................................. 757
Capital lease obligations, long-term........................................................... 773
Total stockholders' equity..................................................................... 9,152
</TABLE>
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS DESCRIBED BELOW ARE INTENDED TO HIGHLIGHT RISKS
THAT ARE SPECIFIC TO US AND ARE NOT THE ONLY ONES THAT WE FACE. ADDITIONAL RISKS
AND UNCERTAINTIES, SUCH AS THOSE THAT GENERALLY APPLY TO OUR INDUSTRY OR TO
COMPANIES UNDERTAKING INITIAL PUBLIC OFFERINGS, MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS, INCLUDING THE DISCUSSIONS SET FORTH IN "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS OUR FINANCIAL
STATEMENTS AND THE RELATED NOTES.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
PROSPECTS.
We were founded in 1995 and have a limited operating history, which makes an
evaluation of our future prospects difficult. In addition, the revenue and
income potential of our business and the digital display market are unproven. We
began volume shipments of our first products, the SiI 100 and SiI 101, in the
third quarter of 1997. The Digital Visual Interface specification, which is
based upon technology developed by us and used in many of our products, was
first published in April 1999. Accordingly, we face risks and difficulties
frequently encountered by early-stage companies in new and rapidly evolving
markets. If we do not successfully address these risks and difficulties, our
business would be seriously harmed.
WE HAVE A HISTORY OF LOSSES AND MAY NOT BECOME PROFITABLE.
We incurred net losses of $4.0 million in 1997, $6.6 million in 1998 and
$3.9 million for the first six months of 1999. As of June 30, 1999, we had an
accumulated deficit of approximately $16.7 million. In the future, we expect
research and development and sales and general administrative expenses to
increase. We will incur substantial non-cash charges relating to the
amortization of deferred compensation and issuances of warrants. Accordingly, we
expect to continue to incur additional operating losses. Although our revenues
have increased in recent quarters, they may not continue to increase, and we may
not achieve and subsequently sustain profitability. See "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO A NUMBER OF
FACTORS WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE SIGNIFICANTLY.
Our quarterly operating results are likely to vary significantly in the
future based on a number of factors, some of which are not in our control and
any of which may cause our stock price to fluctuate. The following factors may
cause our operating results to fluctuate:
- the growth of the market for digital-ready host systems and displays;
- the evolution of industry standards;
- the availability of digital flat panel displays at reasonable costs;
- the fluctuation of demand for our products;
- the timing of a non-cash expense associated with the issuance of a warrant
to Intel upon achievement of a milestone;
- the deferral of customer orders in anticipation of new products or
enhancements by us or our competitors;
- the failure to develop, introduce and market new products and product
enhancements on a timely basis;
- the management of product transitions;
- the timing and amount of orders from customers;
- the announcement and introduction of products and technologies by our
competitors;
5
<PAGE>
- the mix of the products we sell and the distribution channels through
which they are sold;
- the varying availability of production capacity at the semiconductor
fabrication foundry that manufactures our products;
- the deferral of customer orders which may occur in anticipation of
problems associated with the Year 2000; and
- the general economic conditions and economic conditions specific to the
personal computer, display and semiconductor markets.
These factors are difficult to forecast, and these or other factors could
seriously harm our business. Furthermore, for the foreseeable future, we intend
to increase our investment in research and development; selling, general and
administrative functions; and inventory. We anticipate the rate of new orders
may vary significantly from quarter to quarter. Our expenses and inventory
levels are based on our expectations of future revenues and our expenses are
relatively fixed in the short term. Consequently, if anticipated sales and
shipments in any quarter do not occur when expected, expenses and inventory
levels could be disproportionately high, and our operating results for that
quarter and, potentially, future quarters may be negatively impacted, adversely
affecting the price of our stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WE ARE DEPENDENT UPON THE ADOPTION AND USE OF THE DVI SPECIFICATION.
Our business strategy is based upon the rapid and widespread adoption of the
DVI specification, which defines a high-speed synchronous data communication
link between host systems and digital displays. Due to the recent release of the
DVI specification, we cannot predict whether or at what rate the DVI
specification will be adopted by manufacturers of host systems and displays. To
date, no end-to-end DVI-compliant system has been shipped. Adoption of the DVI
specification may be affected by the availability of DVI-compliant transmitters,
receivers, connectors and cables necessary to implement the specification. Other
specifications may also emerge, which could adversely affect the acceptance of
the DVI specification. For example, a number of companies have promoted
alternatives to the DVI specification which use other interface technologies,
such as LVDS, which is used in notebook PCs. Any delay in the widespread
adoption of the DVI specification would seriously harm our business.
OUR SUCCESS IS DEPENDENT ON INCREASING SALES OF OUR RECEIVER AND DISPLAY
CONTROLLER PRODUCTS, WHICH DEPENDS ON HOST SYSTEM MANUFACTURERS INCLUDING
DVI-COMPLIANT TRANSMITTERS IN THEIR SYSTEMS.
Our success depends on increasing sales of our receiver and display
controller products to display manufacturers. In 1998, a substantial majority of
our revenues resulted from the sale of transmitter products. While revenues from
the sale of receivers and display controllers have increased in the past six
months, transmitters continue to represent a majority of our product revenues.
Our strategy is focused primarily on increasing the sale of receiver and display
controller products. To achieve this, we need manufacturers of host systems to
incorporate DVI-compliant transmitters into their systems, making these systems
digital-ready. Unless host systems are digital-ready, they will not operate with
digital displays. If we are unable to increase revenues from receivers and
display controllers, we would remain dependent on the market for transmitters,
which we expect to become particularly competitive. This would seriously harm
our business. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations."
OUR SUCCESS WILL DEPEND ON THE GROWTH OF THE DIGITAL DISPLAY MARKET.
Our business depends on the growth of the digital display market, which is
at an early stage of development. The potential size of this market and its rate
of development are uncertain and will depend on many factors, including:
- the number of digital-ready host systems;
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- the rate at which display manufacturers replace analog interfaces with
DVI-compliant interfaces; and
- the availability of cost-effective semiconductor solutions implementing a
DVI-compliant interface.
The failure of the digital display market to grow for any reason would
seriously harm our business.
WE DEPEND ON AN INCREASE IN THE SUPPLY OF FLAT PANEL DISPLAYS AND A
CORRESPONDING DECREASE IN THEIR PRICE.
In order for the market for many of our products to grow, flat panel
displays must be widely available and affordable to consumers. Currently, there
is a limited supply of flat panels, and increasing the supply of flat panels is
a costly and lengthy process requiring significant capital investment.
Accordingly, we do not expect the current shortage of flat panels or their high
prices to change in the near term. In the past, the supply of flat panels has
been cyclical. We expect this pattern to continue. Undercapacity in the flat
panel market may limit our ability to increase our revenues.
WE NEED TO OBTAIN DESIGN WINS.
Our future success will depend on manufacturers of host systems and displays
designing our products into their systems. To achieve design wins we must define
and deliver cost-effective, innovative and integrated semiconductor solutions.
Once a manufacturer has designed a supplier's products into its systems, the
manufacturer may be reluctant to change its source of components due to the
significant costs associated with qualifying a new supplier. Accordingly, the
failure to achieve design wins with key manufacturers of host systems and
displays will seriously harm our business.
OUR LENGTHY SALES CYCLE CAN RESULT IN UNCERTAINTY AND DELAYS IN GENERATING
REVENUES.
Because our products are based on new technology and standards, a lengthy
sales process is often required before potential customers begin the technical
evaluation of our products. This technical evaluation can exceed six months. It
can take an additional six months before a customer commences volume shipments
of systems that incorporate our products. However, even when we achieve a design
win, the customer may never ship systems incorporating our products. Given our
lengthy sales cycle, we may experience a delay between the time we increase
expenditures for research and development, sales and marketing efforts and
inventory and the time we generate revenues, if any, from these expenditures. As
a result, our business could be seriously harmed if a significant customer
curtails, reduces or delays orders or chooses not to release products
incorporating our products.
OUR PARTICIPATION IN THE DIGITAL DISPLAY WORKING GROUP REQUIRES US TO LICENSE
SOME OF OUR INTELLECTUAL PROPERTY FOR FREE.
We are a member of the DDWG which published and promotes the DVI
specification. We have based our strategy on promoting and enhancing the DVI
specification and developing and marketing products based on the specification
and future enhancements. As a result:
- we must license for free specific elements of our intellectual property to
others for use in implementing the DVI specification; and
- we may license additional intellectual property for free as the DDWG
promotes enhancements to the DVI specification.
Accordingly, companies that implement the DVI specification in their
products can use specific elements of our intellectual property for free to
compete with us.
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OUR RELATIONSHIP WITH INTEL INVOLVES CERTAIN RISKS.
In September 1998, Intel agreed to work with us to develop and promote
adoption of the DVI specification and an enhanced version of the DVI
specification. As part of this effort, Intel has been an important founder of,
contributor to and promoter of the DDWG. We have benefited from Intel's
cooperation and support. We cannot be sure that Intel will continue to devote
attention and resources to the DDWG and the Silicon Image relationship. If Intel
were to breach our agreements with them, it is possible that no adequate remedy
would be available to us. Further, Intel could endorse a competing digital
interface, or develop its own proprietary digital interface, which would
seriously harm our business.
We also entered into a patent cross-license with Intel in which each of us
granted the other a license to use the grantor's patents, except in identified
types of products. We believe that the scope of our license to Intel excludes
our current products and anticipated future products. Intel could, however,
exercise its rights under this agreement to use our patents to develop and
market other products without payment to us. Additionally, Intel's rights to our
patents could reduce the value of our patents to any third party who otherwise
might be interested in acquiring rights to use our patents in such products. For
more information regarding our relationship with Intel, see "Certain
Transactions-- Transactions with Intel and Its Subsidiary, Chips and
Technologies."
WE DEPEND ON A FEW KEY CUSTOMERS AND THE LOSS OF ANY OF THEM COULD SIGNIFICANTLY
REDUCE OUR REVENUES.
Historically, a relatively small number of customers and distributors have
accounted for a significant portion of our product revenues. In 1998, sales of
transmitter products to Mitac, a third party manufacturer, accounted for 54% of
our total revenues, and ATI Technologies, a leading graphics board manufacturer,
accounted for 12% of our total revenues. These manufacturers are significant
suppliers to Compaq, with whom we had a major design win for our transmitter in
1998. For the six month period ended June 30, 1999, Mitac accounted for 13% of
our total revenues, Kanematsu, a Japanese distributor, accounted for 13% of our
total revenues and Microtek, a Japanese distributor, accounted for 11% of our
total revenues. As a result of customer concentration any of the following
factors could seriously harm our business:
- a significant reduction, delay or cancellation of orders from one or more
of our key customers or OEMs; or
- if one or more significant customers selects products manufactured by a
competitor for inclusion in future product generations.
We expect our operating results to continue to depend on sales to or design
decisions of a relatively small number of host system and display OEMs and their
suppliers. See "Business-- Customers."
WE DO NOT HAVE LONG-TERM COMMITMENTS FROM OUR CUSTOMERS, AND WE ALLOCATE
RESOURCES BASED ON OUR ESTIMATES OF CUSTOMER DEMAND.
Our sales are made on the basis of purchase orders rather than long-term
purchase commitments. In addition, our customers may cancel or defer purchase
orders. We manufacture our products according to our estimates of customer
demand. This process requires us to make multiple demand forecast assumptions,
each of which may introduce error into our estimates. If we overestimate
customer demand, we may allocate resources to manufacturing products which we
may not be able to sell. As a result, we would have excess inventory, which
would increase our losses. Conversely, if we underestimate customer demand or if
sufficient manufacturing capacity is unavailable, we would forego revenue
opportunities, lose market share and damage our customer relationships. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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OUR INCREASING DEPENDENCE ON SELLING THROUGH DISTRIBUTORS INCREASES THE RISKS
AND COMPLEXITY OF OUR BUSINESS.
Over the past four quarters, the percentage of our revenues attributable to
distributors has increased substantially, and in the quarter ended June 30,
1999, sales through distributors constituted a majority of our revenues. Much of
this increase reflects design wins with new OEMs which rely on third-party
manufacturers or distributors to provide inventory management and purchasing
functions. Selling through distributors reduces our ability to forecast sales
and increases the complexity of our business, requiring us to:
- manage a more complex supply chain;
- manage the level of inventory at each distributor;
- provide for credits, return rights and price protection;
- estimate the impact of credits, return rights, price protection and unsold
inventory at distributors; and
- monitor the financial condition and credit worthiness of our distributors.
Any failure to manage these challenges could seriously harm our business.
COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED SALES OF OUR PRODUCTS, INCREASED
LOSSES AND REDUCED MARKET SHARE.
The high-speed communication, display and semiconductor industries are
intensely competitive. These markets are characterized by rapid technological
change, evolving standards, short product life cycles and decreasing prices. Our
current products face competition from a number of sources including analog
solutions, DVI-compliant solutions and other digital interface solutions.
- ANALOG SOLUTIONS. Display systems still predominantly employ an analog
interface. Improvements to analog interface display solutions may slow the
adoption of all-digital display systems. We compete with analog solution
vendors such as Analog Devices and Genesis Microchip.
- DVI-COMPLIANT SOLUTIONS. We believe that over time, the DVI specification
may become widely adopted in the digital display industry and attract
additional market entrants that will compete with us. For example, we
believe that a number of providers of video graphics accelerators are
currently integrating DVI-compliant transmitter technology into their
products. ATI Technologies, a major provider of video graphics
accelerators and one of our significant customers in 1998, currently
offers a product that incorporates an internally developed transmitter
capable of supporting XGA resolution.
We anticipate that various companies will develop DVI-compliant receivers.
Entrants in this market may include companies currently shipping analog
image processing solutions, such as Arithmos, Genesis Microchip,
Pixelworks and Sage, as well as companies with other digital interface
solutions such as Texas Instruments and National Semiconductor.
- OTHER DIGITAL INTERFACE SOLUTIONS. Texas Instruments and National
Semiconductor offer proprietary digital interface solutions based on LVDS
technology. While LVDS technology has gained broad market acceptance in
notebook PCs, few PC and display manufacturers have adopted this
technology for use outside of the notebook PC market.
The market for our panel controller products is also very competitive. Some
of our panel controller products are designed to be "plug compatible" with
similar products sold by Texas Instruments, National Semiconductor and Thine.
In the process of establishing our technology as an industry standard, and
to ensure rapid adoption of the DVI specification, we have agreed to license
specific elements of our intellectual property to others for free. In addition,
we have licensed elements of our intellectual property to Intel and other
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semiconductor companies and we may continue to do so. Competitors could use
these elements of our intellectual property to compete against us. Many of our
competitors have longer operating histories and greater presence in key markets,
greater name recognition, access to large customer bases and significantly
greater financial, sales and marketing, manufacturing, distribution, technical
and other resources than we do. As a result, they may be able to adapt more
quickly to new or emerging technologies and customer requirements or devote
greater resources to the promotion and sale of their product than we may. In
particular, well-established semiconductor companies, such as Analog Devices,
Intel, National Semiconductor and Texas Instruments, may compete against us in
the future. We cannot assure you that we can compete successfully against
current or potential competitors, or that competition will not seriously harm
our business.
WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS IN A TIMELY MANNER.
The development of new products is highly complex, and we have experienced
delays in completing the development and introduction of new products at times
in the past. We expect to introduce new transmitter, receiver and controller
products in the future. We also plan to develop our initial products designed
for high-speed networking and storage applications. As our products integrate
additional system-level functionality, they become more complex and increasingly
difficult to design and debug. Successful product development and introduction
depends on a number of factors, including:
- accurate prediction of market requirements and evolving standards,
including enhancements to the DVI specification;
- development of advanced technologies and capabilities;
- definition of new products which satisfy customer requirements;
- timely completion and introduction of new product designs;
- use of leading-edge foundry processes and achievement of high
manufacturing yields; and
- market acceptance of the new products.
Accomplishing all of this is extremely challenging, time-consuming and
expensive. We cannot assure you that we will succeed. If we are not able to
develop and introduce our products successfully, our business will be seriously
harmed.
WE DEPEND ON A SINGLE THIRD-PARTY WAFER FOUNDRY TO MANUFACTURE ALL OF OUR
PRODUCTS.
We do not own or operate a semiconductor fabrication facility. We rely on
Taiwan Semiconductor Manufacturing Company, an outside foundry, to produce all
of our semiconductor products. Our reliance on an independent foundry involves a
number of significant risks, including:
- reduced control over delivery schedules, quality assurance, manufacturing
yields and production costs;
- lack of guaranteed production capacity or product supply; and
- unavailability of, or delayed access to, next-generation or key process
technologies.
We do not have a long-term supply agreement with TSMC and instead obtain
manufacturing services on a purchase order basis. This foundry has no obligation
to supply products to us for any specific period, in any specific quantity or at
any specific price, except as set forth in a particular purchase order. Our
requirements represent a small portion of the total production capacity of this
foundry and TSMC may reallocate capacity to other customers even during periods
of high demand for our products. If TSMC were to become unable or unwilling to
continue manufacturing our products in the required volumes, at acceptable
quality, yields and costs, in a timely manner, our business would be seriously
harmed. As a result, we would have to identify and qualify substitute foundries,
which would be time consuming and difficult, resulting in unforeseen
manufacturing and operations problems.
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We may qualify additional foundries in the future. If we do not qualify an
additional foundry, we may be exposed to increased risk of capacity shortages
due to our complete dependence on TSMC. See "Business--Manufacturing, Wafer
Fabrication."
WE DEPEND ON THIRD-PARTY SUBCONTRACTORS FOR ASSEMBLY AND TEST.
Our semiconductor products are assembled and tested by two independent
subcontractors: Anam in Korea and Advanced Semiconductor Engineering in Taiwan
and California. We do not have long-term agreements with either of these
subcontractors and typically obtain services from them on a purchase order
basis. Our reliance on these subcontractors involves risks such as reduced
control over delivery schedules, quality assurance and costs. These risks could
result in product shortages or increase our costs of manufacturing, assembling
or testing our products. If these subcontractors are unable or unwilling to
continue to provide assembly and test services and deliver products of
acceptable quality, at acceptable costs and in a timely manner, our business
would be seriously harmed. We would also have to identify and qualify substitute
subcontractors, which could be time consuming and difficult and result in
unforeseen operations problems.
OUR SEMICONDUCTOR PRODUCTS ARE COMPLEX AND ARE DIFFICULT TO MANUFACTURE
COST-EFFECTIVELY.
The manufacture of semiconductors is a complex process. It is often
difficult for semiconductor foundries to achieve acceptable product yields.
Product yields depend on both our product design and the manufacturing process
technology unique to the semiconductor foundry. Since low yields may result from
either design or process difficulties, identifying yield problems can only occur
well into the production cycle, when actual product exists which can be analyzed
and tested.
The high-speed nature of our products makes it difficult to perform wafer
probe testing cost-effectively. Therefore, we do not perform wafer probe testing
before our die are packaged. As a result, faulty die are not discovered until
after they have been packaged. If there are problems with wafer processing, this
could result in a substantial number of defective die being assembled and
tested, lowering our yields and increasing our costs, which would seriously harm
our business.
DEFECTS IN OUR PRODUCTS COULD INCREASE OUR COSTS AND DELAY OUR PRODUCT
SHIPMENTS.
Although we test our products, they are complex and may contain defects and
errors when first introduced or when new versions are released. In the past we
have encountered defects and errors in our products. Delivery of products with
defects or reliability, quality or compatibility problems may damage our
reputation and our ability to retain existing customers and attract new
customers. In addition, product defects and errors could result in additional
development costs, diversion of technical resources, delayed product shipments,
increased product returns, and product liability claims against us which may not
be fully covered by insurance. Any of these could seriously harm our business.
WE COULD LOSE KEY PERSONNEL DUE TO COMPETITIVE MARKET CONDITIONS AND ATTRITION.
Our success depends to a significant extent upon the continued contributions
of our key management, technical and sales personnel, many of whom would be
difficult to replace. The loss of one or more of these employees could seriously
harm our business. We do not have key person life insurance on any of our key
personnel. Our success also depends on our ability to identify, attract and
retain qualified technical, sales, marketing, finance and managerial personnel.
Competition for such personnel is intense, and we may not be able to retain our
key personnel or identify, attract or retain other highly-qualified personnel in
the future. We have experienced, and may continue to experience, difficulty in
hiring and retaining candidates with appropriate qualifications. If we do not
succeed in hiring and retaining candidates with appropriate qualifications, our
business could be seriously harmed. See "Management."
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OUR DEPENDENCE ON ACADEMIC RESEARCHERS LOCATED IN KOREA COULD ADVERSELY AFFECT
OUR ABILITY TO DEVELOP AND PROTECT KEY TECHNOLOGY.
Some of our key technology is developed by academic researchers at Seoul
National University in Korea whom we have retained as consultants. These
researchers operate under the direction of Dr. Jeong, a founder of Silicon Image
and our Chief Technical Adviser. Since neither Dr. Jeong nor these researchers
are our employees, we have limited control over their activities and can expect
only limited amounts of their time to be dedicated to developing our technology.
These researchers are also not actively involved in managing our business or in
developing our products. They may also have relationships with other commercial
entities, some of which could compete with us. These researchers generally sign
agreements which require them to keep our proprietary information and the
results of their research confidential. However, we may not be able to keep this
information confidential and its dissemination could seriously harm our
business. Also, we generally obtain an assignment of intellectual property
rights in technology that may result from these researchers' projects. However,
the laws of Korea may not protect our intellectual property rights to the same
extent as the laws of the United States. As a result, our dependence on these
researchers could adversely affect our ability to develop and protect key
technology. For additional information regarding our relationship with academic
researchers located in Korea, see "Certain Transactions--Relationship with Dr.
Jeong."
WE FACE FOREIGN BUSINESS, POLITICAL AND ECONOMIC RISKS BECAUSE A MAJORITY OF OUR
PRODUCTS AND OUR CUSTOMERS' PRODUCTS ARE MANUFACTURED AND SOLD OUTSIDE OF THE
UNITED STATES.
A substantial portion of our business is conducted outside of the United
States. All of our products are manufactured outside of the United States. Many
of our customers are the manufacturers or suppliers for OEMs who have designed
in our products. Many of these manufacturers and suppliers are located outside
of the United States, primarily concentrated in Japan, Korea and Taiwan. Sales
outside of the United States accounted for 94% of our revenues in 1997, 95% of
our revenues in 1998 and 91% of our revenues in the first six months of 1999. We
anticipate that sales outside of the United States will continue to account for
a substantial portion of our revenue in future periods. In addition, OEMs who
design our semiconductors into their products sell them outside of the United
States, thereby exposing us indirectly to foreign risks. Accordingly, we are
subject to international risks, including:
- increased complexity and costs of conducting international operations;
- difficulties in managing distributors;
- difficulties in staffing and managing foreign operations;
- political and economic instability;
- foreign currency exchange fluctuations;
- difficulties in accounts receivable collections;
- potentially adverse tax consequences;
- timing and availability of export licenses;
- changes in regulatory requirements, tariffs and other barriers;
- reduced or limited protection of our intellectual property; and
- the burden of complying with complex foreign laws and treaties.
Because sales of our products have been denominated to date exclusively in
United States dollars, increases in the value of the United States dollar will
increase the price of our products so that they become relatively more expensive
to customers in the local currency of a particular country, leading to a
reduction in sales and profitability in that country. A portion of our
international revenues may be
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denominated in foreign currencies in the future, which will subject us to risks
associated with fluctuations in those foreign currencies.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY.
We rely on a combination of patent, copyright, trademark and trade secret
laws, as well as nondisclosure agreements and other methods to protect our
proprietary technologies. We have been issued patents and have a number of
pending United States patent applications; however, we cannot assure you that
any patent will issue as a result of any applications or, if issued, that any
claims allowed will be sufficiently broad to protect our technology. In
addition, it is possible that existing or future patents may be challenged,
invalidated or circumvented. It may be possible for a third party to copy or
otherwise obtain and use our products, or technology without authorization,
develop similar technology independently or design around our patents. Effective
copyright, trademark and trade secret protection may be unavailable or limited
in foreign countries.
Our participation in the DDWG requires that we license for free specific
elements of our intellectual property to others for use in implementing the DVI
specification in their products. Disputes may occur regarding the scope of the
license. These disputes may result in:
- costly and time consuming litigation; or
- the license of additional elements of our intellectual property for free.
OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US WHICH COULD BE TIME-CONSUMING
AND EXPENSIVE TO DEFEND.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We may become a party
to litigation in the future to protect our intellectual property or as a result
of an alleged infringement of others' intellectual property. These lawsuits
could subject us to significant liability for damages and invalidate our
proprietary rights. These lawsuits, regardless of their success, would likely be
time-consuming and expensive to resolve and would divert management time and
attention. Any potential intellectual property litigation also could force us to
do one or more of the following:
- stop selling products or using technology that contain the allegedly
infringing intellectual property;
- attempt to obtain a license to the relevant intellectual property, which
license may not be available on reasonable terms or at all; and
- attempt to redesign those products that contain the allegedly infringing
intellectual property.
If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, which could seriously harm our business.
THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY MAY LEAD TO SIGNIFICANT
VARIANCES IN THE DEMAND FOR OUR PRODUCTS.
In the past, the semiconductor industry has been characterized by
significant downturns and wide fluctuations in supply and demand. Also, during
this time, the industry has experienced significant fluctuations in anticipation
of changes in general economic conditions, including economic conditions in
Asia. This cyclicality has led to significant variances in product demand and
production capacity. It has also accelerated erosion of average selling prices
per unit. We may experience periodic fluctuations in our future financial
results because of changes in industry-wide conditions.
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WE FACE CHALLENGES MANAGING RAPID GROWTH.
We are experiencing a period of significant growth that will continue to
place a great strain on our management and other resources. We have grown from
50 employees on January 1, 1999 to 66 employees on June 30, 1999. To manage our
growth effectively, we must:
- implement and improve operational and financial systems;
- train and manage our employee base;
- attract and retain qualified personnel with relevant experience; and
- lease additional facilities within the next nine months.
We must also manage multiple relationships with customers, business
partners, the DDWG and other third parties, such as our foundry and test
partners. Moreover, we will spend substantial amounts of time and money in
connection with our rapid growth and may have unexpected costs. Our systems,
procedures or controls may not be adequate to support our operations and we may
not be able to expand quickly enough to exploit potential market opportunities.
Our future operating results will also depend on expanding sales and marketing,
research and development and administrative support. If we cannot attract
qualified people or manage growth effectively, our business would be seriously
harmed.
YEAR 2000 RISKS MAY ADVERSELY AFFECT US.
The Year 2000 problem is the potential for system and processing failure of
date-related data as a result of computer-controlled systems that use two digits
rather than four to define a year in the date field. Many computer hardware
systems and software applications could fail or create erroneous results unless
corrected so that they can correctly process data related to the year 2000 and
beyond. Failures by our internal systems, or by systems used by our suppliers,
distributors or customers, could seriously harm our business. For additional
information concerning this risk and our assessment of its impact, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
STOCKHOLDERS MAY NOT AGREE WITH MANAGEMENT REGARDING THE USE OF THE NET PROCEEDS
OF THIS OFFERING.
Our management has broad discretion as to how to spend the net proceeds from
this offering and may spend those proceeds in ways with which our stockholders
may not agree. We cannot assure you that our investments and use of the net
proceeds of this offering will yield favorable returns or results. See "Use of
Proceeds."
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF SILICON IMAGE AND MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK.
Provisions of our certificate of incorporation and bylaws may discourage,
delay or prevent a merger or acquisition that a stockholder may consider
favorable. These provisions include:
- authorizing the issuance of preferred stock without stockholder approval;
- providing for a classified board of directors with staggered, three-year
terms;
- prohibiting cumulative voting in the election of directors;
- requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
- limiting the persons who may call special meetings of stockholders; and
- prohibiting stockholder actions by written consent.
Certain provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us. See "Description of Capital
Stock--Preferred Stock" and "--Anti-takeover Provisions."
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CERTAIN EXISTING STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK.
Immediately after the offering, it is anticipated that our executive
officers, directors and other principal stockholders will beneficially own or
control, directly or indirectly shares of common stock, which in the
aggregate will represent approximately % of the outstanding shares of common
stock. As a result, if these persons act together, they likely will have
significant influence with respect to the election of our directors and approval
or disapproval of our significant corporate actions. This influence over our
affairs might be adverse to the interests of other stockholders. In addition,
the voting power of these stockholders could have the effect of delaying or
preventing a change in control of Silicon Image. See "Principal Stockholders."
OUR COMMON STOCK HAS NOT BEEN PUBLICLY TRADED AND WE EXPECT THAT THE PRICE OF
OUR STOCK MAY FLUCTUATE SUBSTANTIALLY.
Recently, the stock prices of technology companies similar to Silicon Image
have been quite volatile. Moreover, prior to this offering, there has been no
public market for our common stock. The initial public offering price will be
determined through negotiations between the underwriters and us. You may not be
able to resell your shares at or above the initial public offering price. The
market price of our common stock may fluctuate significantly in response to a
number of factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in expectations as to our future financial performance;
- changes in financial estimates of securities analysts;
- changes in market valuations of other technology companies;
- announcements by us or our competitors of significant technical
innovations, design wins, contracts, standards or acquisitions; and
- the operating and stock price performance of other comparable companies.
Due to these factors, the price of our stock may decline and the value of
your investment would be reduced. In addition, the stock market experiences
extreme volatility that often is unrelated to the performance of particular
companies. These market fluctuations may cause our stock price to decline
regardless of our performance.
OUR BUSINESS MAY BE HARMED BY CLASS ACTION LITIGATION DUE TO STOCK PRICE
VOLATILITY.
In the past, securities class action litigation often has been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and could divert our management's
attention and resources.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS WHICH WOULD LIMIT OUR
ABILITY TO GROW.
We believe our net proceeds from this offering, together with our existing
cash balances and funds available under our credit facilities will be sufficient
to meet our capital requirements for at least the next 12 months. However, we
may need, or could elect, to seek additional funding prior to that time. To the
extent that funds generated by this offering, together with existing resources,
are insufficient to fund our future activities, we may need to raise additional
funds through public or private equity or debt financing. Additional funds may
not be available, or if available, we may not be able to obtain them on terms
favorable to us or our stockholders. Further, if we issue equity securities,
stockholders may experience additional dilution or the new equity securities may
have rights, preferences or privileges senior to those of existing holders of
common stock. If we cannot raise funds on acceptable terms, we not be able to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements. See "Use of
Proceeds" and
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK
PRICE.
After this offering, we will have outstanding shares of common
stock. Sales of a substantial number of shares of our common stock in the public
market following this offering could cause our stock price to decline. All the
shares sold in this offering will be freely tradable. Of the remaining
21,120,274 shares of common stock outstanding after this offering, approximately
19,236,716 shares will be eligible for sale in the public market beginning 180
days after the effective data of this offering. The remaining 1,883,558 shares
will become freely tradable at various times thereafter. In addition, the sale
of these shares could impair our ability to raise capital through the sale of
additional stock. See "Shares Eligible for Future Sale."
NEW INVESTORS WILL INCUR SUBSTANTIAL AND IMMEDIATE DILUTION.
The present owners of our issued and outstanding shares of common stock have
acquired a controlling interest in Silicon Image at a cost substantially less
than the price at which the investors in this offering may purchase their
shares. Therefore, investors in this offering will suffer immediate and
substantial dilution. See "Dilution."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"intend," "potential" or "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions. We cannot
guarantee future results, levels of activity, performance or achievements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risk
outlined under "Risk Factors" and elsewhere in this prospectus.
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USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock
offered by us will be approximately $ or approximately $ if the
underwriters' over-allotment option is exercised in full, at an assumed initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and the estimated offering expenses
payable by us.
We intend to use the net proceeds from this offering primarily for general
corporate purposes, including working capital and capital expenditures, and for
the repayment of the outstanding balance under our line of credit. As of June
30, 1999, the outstanding balance under our line of credit was $757,000, bearing
interest at a rate of 8.25% per year. We may use a portion of the net proceeds
from this offering to acquire or invest in businesses, technologies or services
that are complementary to our business. However, we have no present plans or
commitments and are not engaged in any negotiations with respect to any
transactions of this type.
The amounts that we use for working capital purposes will vary significantly
depending on a number of factors. We will retain broad discretion in the
allocation and use of the net proceeds of this offering. Pending their use, we
intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on shares of our capital
stock. We intend to retain any future earnings to finance future growth and do
not anticipate paying cash dividends in the future. In addition, the terms of
our line of credit prohibit us from paying cash dividends on our capital stock
without prior consent of the lender.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all outstanding shares
of preferred stock into 11,657,000 shares of common stock and the filing
of our amended and restated certificate of incorporation prior to
completion of this offering; and
- on a pro forma as adjusted basis to reflect the sale of shares of
common stock in this offering at an assumed initial public offering price
of $ per share, after deducting estimated underwriting discounts and
commissions and the estimated offering expenses payable by us and the
application of the net proceeds from the offering. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Cash and short term investments.............................................. $ 12,647 $ 12,647 $
--------- ----------- -----------
--------- ----------- -----------
Line of credit............................................................... $ 757 $ 757 $
--------- ----------- -----------
--------- ----------- -----------
Capital lease obligations, long-term......................................... $ 773 $ 773 $
--------- ----------- -----------
Stockholders' equity
Convertible preferred stock, $0.001 par value; 10,065,000 shares
authorized, 9,560,000 shares issued and outstanding, actual; 5,000,000
shares authorized, none issued or outstanding, pro forma and pro forma as
adjusted................................................................. 10 -- --
Common stock, $0.001 par value; 21,500,000 shares authorized, 9,463,000
shares issued and outstanding, actual; 75,000,000 shares authorized,
21,120,000 shares issued and outstanding, pro forma; 75,000,000 shares
authorized, shares issued and outstanding, pro forma as
adjusted................................................................. 9 21
Additional paid-in capital................................................. 34,796 34,794
Notes receivable from stockholders......................................... (1,461) (1,461)
Unearned compensation...................................................... (7,513) (7,513) --
Accumulated deficit........................................................ (16,689) (16,689)
--------- ----------- -----------
Total stockholders' equity............................................... 9,152 9,152
--------- ----------- -----------
Total capitalization................................................... $ 9,925 $ 9,925 $
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- --------------------------
The number of shares of common stock outstanding set forth in the table
above excludes the following:
- 1,149,000 shares issuable upon the exercise of outstanding stock options,
at a weighted average exercise price of $0.53 per share;
- 317,856 shares issuable upon the exercise of outstanding warrants, at a
weighted average exercise price of $2.08 per share, and 142,857 shares
issuable upon exercise of a warrant at an exercise price of $0.35 a share
that we are obligated to issue upon satisfaction of a milestone as
described under "Certain Transactions--Transactions with Intel and Its
Subsidiary, Chips and Technologies;" and
- 2,689,000 shares available for future issuance under our 1995 Equity
Incentive Plan, 1999 Equity Incentive Plan and 1999 Employee Stock
Purchase Plan, subject to automatic annual increases each January 1 as
described under "Management--Employee Benefits Plans."
18
<PAGE>
DILUTION
As of June 30, 1999, our pro forma net tangible book value was approximately
$9.2 million, or $0.43 per share of common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, divided by 21,120,000 shares of common stock outstanding after
giving effect to the conversion of all outstanding shares of preferred stock
into shares of common stock upon completion of this offering. Dilution in net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of our common stock in this offering and the
net tangible book value per share of our common stock immediately following this
offering.
After giving effect to the receipt of the net proceeds from the sale of the
shares of our common stock at an assumed initial public offering price
of $ per share and after deducting estimated underwriting discounts and
commissions and the estimated offering expenses, our pro forma net tangible book
value as of June 30, 1999 would have been approximately $ million, or $
per share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ per share to new investors purchasing shares at the initial public offering
price. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share as of June 30, 1999... $
Increase per share attributable to new investors..................
Pro forma net tangible book value per share after this offering.....
Dilution per share to new investors................................. $
</TABLE>
The following table summarizes as of June 30, 1999, on the pro forma basis
described above, the 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 of common stock in this
offering, before deducting underwriting discounts and commissions and the
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................... % $ % $
New Investors
Total
</TABLE>
The above discussion and tables assume no exercise of any stock options or
warrants for common stock outstanding as of June 30, 1999. As of June 30, 1999,
there were options outstanding to purchase a total of 1,149,000 shares of common
stock at a weighted average exercise price of $0.53 per share and warrants
outstanding to purchase a total of 317,856 shares of common stock with a
weighted average exercise price of $2.08 per share. In addition, upon
satisfaction of a milestone, we are obligated to issue a warrant for an
additional 142,857 shares exercisable at $0.35 per share. If any of these
options or warrants are exercised, there will be further dilution to new public
investors. Please see "Capitalization," "Management--Employee Benefit Plans,"
"Certain Transactions--Transactions with Intel and Its Subsidiary, Chips and
Technologies" and Note 8 of Notes to Financial Statements.
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, our financial statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1996, 1997 and 1998 and six months ended
June 30, 1999, and the balance sheet data as of December 31, 1997 and 1998 and
June 30, 1999, are derived from, and are qualified by reference to, our audited
financial statements which are included elsewhere in this prospectus. The
statement of operations data for the year ended December 31, 1995, and the
balance sheet data as of December 31, 1995 and 1996 are derived from our audited
financial statements which are not included in this prospectus. The statement of
operations data for the six months ended June 30, 1998 are derived from our
unaudited financial statements which are included elsewhere in this prospectus.
In the opinion of management, the unaudited financial statements have been
prepared on the same basis as the audited financial statements and contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of our results of operations for these periods and financial
condition at that date. The historical results presented below are not
necessarily indicative of future results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ --------------------
1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue........................................... $ -- $ 30 $ 1,280 $ 7,703 $ 2,652 $ 7,706
Development and license revenue........................... -- 1,121 1,582 100 25 575
--------- --------- --------- --------- --------- ---------
Total revenue............................................... -- 1,151 2,862 7,803 2,677 8,281
Cost and operating expenses:
Cost of product revenue................................... -- 5 851 4,314 1,711 3,328
Research and development.................................. -- 1,307 3,176 4,524 1,956 3,060
Selling, general and administrative....................... 180 1,811 2,990 4,335 1,906 3,052
Stock compensation and warrant expense.................... -- -- -- 1,361 184 2,898
--------- --------- --------- --------- --------- ---------
Total operating expenses.................................... 180 3,123 7,017 14,534 5,757 12,338
--------- --------- --------- --------- --------- ---------
Loss from operations........................................ (180) (1,972) (4,155) (6,731) (3,080) (4,057)
Interest income............................................. 3 32 171 242 31 210
Interest expense............................................ (1) (4) (52) (133) (54) (62)
--------- --------- --------- --------- --------- ---------
Net loss.................................................... $ (178) $ (1,944) $ (4,036) $ (6,622) $ (3,103) $ (3,909)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net loss per share:
Basic and diluted......................................... $ (0.51) $ (1.25) $ (1.36) $ (1.40) $ (0.73) $ (0.73)
Weighted average shares................................... 350 1,550 2,978 4,744 4,235 5,332
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Pro forma net loss per share:
Basic and diluted (unaudited) $ (0.46) $ (0.23)
--------- ---------
--------- ---------
Weighted average shares (unaudited)....................... 14,448 16,989
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1996 1997 1998
----- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and short-term investments........................................... 802 2,271 2,773 11,497
Working capital........................................................... 715 846 1,530 8,953
Total assets.............................................................. 926 3,175 4,371 14,774
Line of credit............................................................ -- -- 372 757
Capital lease obligations, long term...................................... -- 10 -- 300
Total stockholders' equity................................................ 839 1,658 2,593 9,852
<CAPTION>
JUNE 30,
-----------
1999
-----------
<S> <C>
BALANCE SHEET DATA:
Cash and short-term investments........................................... 12,647
Working capital........................................................... 8,740
Total assets.............................................................. 16,014
Line of credit............................................................ 757
Capital lease obligations, long term...................................... 773
Total stockholders' equity................................................ 9,152
</TABLE>
20
<PAGE>
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 THE NOTES TO THE FINANCIAL STATEMENTS INCLUDED IN THIS
PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE DISCUSSED IN "RISK FACTORS," "BUSINESS" AND ELSEWHERE
IN THIS PROSPECTUS. WE ASSUME NO OBLIGATION TO UPDATE THE FORWARD-LOOKING
STATEMENTS OR SUCH FACTORS.
OVERVIEW
We develop semiconductor solutions for applications that require
high-bandwidth and integrated system-level functionality, such as the local
interconnect between host systems and digital displays, including flat panel
displays and digital CRTs. The products we have shipped to date enable host
systems to transmit digital video data and displays to receive and manipulate
digital video data. These products are based on our PanelLink digital interface
technology and Digital Visual Controller architecture. These solutions enable
our customers to introduce all-digital displays, thereby eliminating the need
for analog technology in both host systems and displays.
From our inception in 1995 through the first half of 1997, we were primarily
engaged in developing products and technology, establishing our digital
interface technology as an open standard and building strategic customer and
foundry relationships. During that period, we derived substantially all of our
revenue from development and license fees. We have incurred losses in each year
since inception, as well as for the six months ended June 30, 1999. At June 30,
1999, we had an accumulated deficit of $16.7 million.
In the third quarter of 1997, we began shipping our first generation
PanelLink digital transmitter and receiver products in volume. Since that time,
we have derived predominantly all of our revenue from the sale of our PanelLink
products. We have introduced two new generations of transmitter and receiver
products providing higher speed and increased functionality since the first
generation PanelLink products. In the first quarter of 1999, we introduced our
first generation digital display controller product based on our DVC
architecture. Our digital display controller products integrate our receiver
with digital image processing and display controller technology, providing a
solution to enable intelligent displays for the mass-market.
We focus our sales and marketing efforts on achieving design wins with
leading host system and display OEMs worldwide. We rely on a combination of
direct sales personnel, distributors, and manufacturer's representatives
throughout the world to sell our products. We recognize revenue from product
sales to direct customers upon shipment. Reserves for sales returns and
allowances are recorded at the time of shipment. Our sales to distributors are
made under agreements allowing for returns or credits under certain
circumstances and we defer recognition of revenue on sales to distributors until
we estimate that the products are resold by the distributor to the end user.
Development and license revenues have been primarily derived from two
development contracts and a limited number of patent and technology licenses.
Development and license revenues are recognized as development milestones are
met or as license fees are earned. We do not anticipate that development and
license revenue will be material in the future.
Historically, a relatively small number of customers and distributors have
accounted for a significant portion of our product revenue. Our top five
customers, including distributors, accounted for 90.6% of product revenue in
1998 and 57.7% of product revenue in the six-month period ended June 30, 1999.
Recently, the percentage of our revenue attributable to sales to distributors
has increased substantially. Much of this increase reflects revenue from design
wins with new OEMs which
21
<PAGE>
rely on third-party manufacturers or distributors to provide inventory
management and purchasing functions. See "Risk Factors--We depend on a few key
customers and the loss of any of them could significantly reduce our revenue"
and "--Our increasing dependence on selling through distributors increases the
risks and complexity of our business."
In addition, a significant portion of our products are sold overseas. Sales
to customers in Asia, including distributors, accounted for 69.1% of product
revenue in 1998 and 72.1% of product revenue in the six-month period ended June
30, 1999. These customers incorporate our products into systems that are sold
worldwide. All revenue to date has been denominated in U.S. dollars. See "Risk
Factors-- We face foreign business, political and economic risks because a
majority of our products and our customers' products are manufactured and sold
outside of the United States."
Product gross margin increased over the past several quarters due to
increasing overall average selling prices and decreasing product costs. The
increase in average selling prices was due to increases in sales of
higher-bandwidth products to a broader customer base, and increases in sales of
our receiver products. We anticipate that our product gross margin may fluctuate
and may decline.
We are a "fabless" semiconductor company. We use independent contractors to
perform wafer manufacturing and assembly and test operations. This approach
allows us to focus on defining, developing, and marketing our products and
significantly reduces the amount of capital we need to invest in manufacturing
assets. See "Risk Factors--We depend on a single third-party wafer foundry to
manufacture all our products" and "--We depend on third-party subcontractors for
assembly and test."
We will incur substantial stock compensation expense in future periods which
represents non-cash charges incurred as a result of the issuance of stock
options to employees and consultants. With respect to stock options granted to
employees, such charges are recorded based on the difference between the deemed
fair value of the common stock and the option exercise price of such options at
the date of grant, which is amortized under the accelerated method over the
option vesting period. At June 30, 1999, the amount of employee unearned
compensation was $7.5 million which will be amortized in future periods. The
charge related to options granted to consultants is calculated at the end of
each reporting period based upon the Black-Scholes model, which approximates
fair value and is amortized based on the term of the consulting agreement or
service period. The amount of the charge in each period can fluctuate depending
on our stock price and volatility.
Charges associated with the fair value of warrants issued to Intel were
expensed as Intel progressed towards achievement of a milestone. In September
1998, we entered into several agreements with Intel Corporation. Under the terms
of these agreements, we issued to Intel two warrants, each to purchase 142,857
shares of our common stock. The first warrant was issued in September 1998 and
was immediately exercisable at an exercise price of $3.50 per share. The second
warrant was issued in September 1998 and became exercisable on March 31, 1999 at
an exercise price of $0.35 per share. Charges associated with the fair value of
the warrants issued to Intel were expensed as Intel progressed towards
achievement of a milestone. We are obligated to issue an additional warrant to
Intel for 142,857 shares of our common stock exercisable at $0.35 per share upon
satisfaction of a milestone. In the event that we issue this warrant, we will
record an expense which will be equal to the fair value of the warrant at the
time of issuance. The size of this expense may be significant and will be
dependent on the price and volatility of our stock at that time. Please see
"Certain Transactions--Transactions with Intel and Its Subsidiary, Chips and
Technologies" and "Risk Factors--Our relationship with Intel involves certain
risks" for a description of our agreements with Intel and risks of the
relationship.
Substantially all of our sales are made on the basis of purchase orders
rather than long-term agreements. In addition, the sales cycle for our products
is long which may cause us to experience a delay between the time we incur
expenses and the time we generate revenue from these expenditures. We intend to
increase our investment in research and development, selling, general and
administrative functions and inventory as we seek to expand our operations. We
anticipate the rate of new orders may
22
<PAGE>
vary significantly from quarter to quarter. Consequently, if anticipated sales
and shipments in any quarter do not occur when expected, expenses and inventory
levels could be disproportionately high, seriously harming our operating results
for that quarter and, potentially, future quarters. See "Risk Factors--Our
quarterly operating results may fluctuate significantly due to a number of
factors which could cause our stock price to fluctuate significantly" and "--Our
lengthy sales cycle can result in uncertainty and delays in generating
revenues."
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data
expressed as a percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue........................................ 2.6% 44.7% 98.7% 99.1% 93.1%
Development and license revenue........................ 97.4 55.3 1.3 0.9 6.9
--------- --------- --------- --------- ---------
Total revenue............................................ 100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- ---------
Cost and operating expenses:
Cost of product revenue 0.4 29.7 55.3 63.9 40.2
Research and development............................... 113.6 111.0 58.0 73.1 37.0
Selling, general and administrative.................... 157.3 104.5 55.6 71.2 36.8
Stock compensation and warrant expense................. 0.0 0.0 17.4 6.9 35.0
--------- --------- --------- --------- ---------
Total operating expenses................................. 271.3 245.2 186.3 215.1 149.0
--------- --------- --------- --------- ---------
Loss from operations..................................... (171.3) (145.2) (86.3) (115.1) (49.0)
Interest income.......................................... 2.8 6.0 3.1 1.2 2.5
Interest expense......................................... (0.4) (1.8) (1.7) (2.0) (0.7)
--------- --------- --------- --------- ---------
Net loss................................................. (168.9)% (141.0)% (84.9)% (115.9)% (47.2)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
PRODUCT REVENUE. Product revenue increased 191%, from $2.7 million for the
six months ended June 30, 1998 to $7.7 million for the six months ended June 30,
1999. The increase in product revenue was derived primarily from significantly
higher unit shipments of transmitters and receivers, driven by increased market
acceptance of digital-ready host systems and displays. In addition, in the six
months ended June 30, 1999, a larger proportion of our revenue was derived from
sales of receiver products, which are generally higher-priced than transmitter
products.
DEVELOPMENT AND LICENSE REVENUE. Development and license revenue increased
from $25,000 for the six months ended June 30, 1998 to $575,000 for the six
months ended June 30, 1999. In the first quarter of 1999, we recognized $550,000
of development revenue, which represented amounts previously recorded as
deferred revenue under a development contract that was terminated during the
period. We do not expect development and license revenue to represent a material
portion of total revenue in the future.
COST OF PRODUCT REVENUE. Cost of product revenue consists primarily of the
costs of manufacturing, assembly and test of our semiconductor devices and our
related overhead costs. Product gross margin increased from 35.5% for the six
month period ended June 30, 1998 to 56.8% for the six month period ended June
30, 1999. The increase in product gross margin was due to higher average
23
<PAGE>
selling prices and lower unit product costs. The increase in average selling
prices was due to an increase in sales of higher-bandwidth products to a broader
customer base, and an increase in sales of our receiver products. The reduction
in product costs was primarily the result of more efficient designs and lower
manufacturing costs. We anticipate that our product gross margin may decrease
from current levels in future periods.
RESEARCH AND DEVELOPMENT. R&D consists primarily of compensation and
associated costs relating to development personnel, consultants and prototypes.
R&D was $2.0 million, or 73.1% of total revenue for the six months ended June
30, 1998, and $3.1 million or 37.0% of total revenue for the six months ended
June 30, 1999. The increase in absolute dollars was primarily due to the hiring
of additional development personnel and outside consultants and an increase in
prototyping costs. We expect that R&D will continue to significantly increase in
absolute dollars in the future.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A consists primarily of employee
salaries, sales commissions, and marketing and promotional expenses. SG&A was
$1.9 million, or 71.2% of total revenue, for the six months ended June 30, 1998,
and $3.1 million or 36.8% of total revenue for the six months ended June 30,
1999. SG&A increased in absolute dollars due primarily to hiring of additional
personnel, expanded sales and marketing activities related to the further
broadening of our customer and product base in 1999 and increased sales
commissions. We expect that SG&A will continue to increase in absolute dollars
as we hire additional personnel, expand our sales and marketing efforts, pay
increased sales commissions and incur costs associated with being a public
company.
STOCK COMPENSATION AND WARRANT EXPENSE. Stock compensation and warrant
expense was $184,000, or 6.9% of total revenue for the six months ended June 30,
1998, and $2.9 million, or 35.0% of total revenue for the six months ended June
30, 1999. A substantial portion of the increase was due to the amortization of
unearned compensation related to the vesting of employee stock options, and
additional amounts related to progress made towards the achievement of a
milestone on a warrant issued to Intel.
INTEREST INCOME. Interest income increased from $31,000 in the six months
ended June 30, 1998 to $210,000 for the six months ended June 30, 1999. This
increase was principally due to higher average cash balances resulting from the
net proceeds of the sale of convertible preferred stock in the third quarter of
1998.
INTEREST EXPENSE. Interest expense increased from $54,000 in the six months
ended June 30, 1998 to $62,000 for the six months ended June 30, 1999. This
increase was the result of an increase in the average outstanding debt and an
increase in fixed assets held under a capital lease.
PROVISION FOR INCOME TAXES. We have not recorded a provision for federal or
state income taxes through June 30, 1999 since we have experienced net tax
losses since inception. We have recorded a valuation allowance for the full
amount of our net deferred tax assets, as the future realization of the tax
benefit is not likely.
At June 30, 1999 we had net operating loss carry-forwards for federal and
state tax purposes. For federal tax purposes our net operating loss
carry-forwards were approximately $16.1 million and our state tax carry-forwards
were $5.4 million. These federal and state tax loss carry-forwards are available
to reduce future taxable income and expire at various dates into fiscal 2019.
Under the provisions of the Internal Revenue Code, some substantial changes in
our ownership may limit the amount of net operating loss carry-forwards that
could be utilized annually in the future to offset taxable income.
YEAR ENDED DECEMBER 31, 1996, 1997 AND 1998
PRODUCT REVENUE. Product revenue increased from $30,000 in 1996 to $1.3
million in 1997, and increased to $7.7 million in 1998. In April 1997, we began
shipping our initial PanelLink transmitter
24
<PAGE>
and receiver products. Product revenue increased from 1997 to 1998 primarily as
a result of significantly higher unit shipments of transmitters.
DEVELOPMENT AND LICENSE REVENUE. Development and license revenue was $1.1
million in 1996, $1.6 million in 1997 and $100,000 in 1998. Development and
license revenue in 1996 and 1997 was primarily derived from two significant
development contracts entered into in 1996. We also derived revenue from certain
technology and patent license agreements during these periods.
COST OF PRODUCT REVENUE. Product gross margin increased from 33.5% in 1997
to 44.0% in 1998. In 1996 product gross margin was 83.3% on $30,000 of product
revenue. The increase in product gross margin in 1998 was primarily due to
higher average selling prices resulting from the introduction of new products
and a reduction in product costs.
RESEARCH AND DEVELOPMENT. R&D was $1.3 million, or 114% of total revenue
for 1996, $3.2 million, or 111% of total revenue for 1997, and $4.5 million, or
58.0% of total revenue for 1998. The increases in absolute dollars were
primarily due to the hiring of additional development personnel and outside
consultants and an increase in prototyping costs.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A was $1.8 million, or 157% of
total revenue for 1996, $3.0 million, or 104% of total revenue for 1997, and
$4.3 million, or 55.6% of total revenue for 1998. The year to year increases in
absolute dollars were due primarily to the hiring of additional personnel,
increased sales commissions, expanded marketing activities for our initial
product introductions in 1997 and the broadening of our customer and product
base in 1998.
STOCK COMPENSATION AND WARRANT EXPENSE. Stock compensation and warrant
expense was $1.4 million, or 17.4% of total revenue in 1998. A substantial
portion of the expense in 1998 was due to the amortization of unearned
compensation related to the vesting of employee stock options, and additional
amounts were related to progress made towards the achievement of milestones on
warrants issued to Intel.
INTEREST INCOME. Interest income was $32,000 in 1996, $171,000 in 1997 and
$242,000 in 1998. In each year, the increase in interest income was primarily
due to interest earned on higher average cash balances.
INTEREST EXPENSE. Interest expense was $4,000 in 1996, $52,000 in 1997 and
$133,000 in 1998. The increases in interest expense were primarily due to higher
average debt balances.
PROVISION FOR INCOME TAXES. We have not recorded a provision for federal or
state income taxes in 1996, 1997 and 1998 as we have experienced net tax losses
since inception.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected quarterly financial information for
each of the six quarters ended June 30, 1999. This information is unaudited but,
in our opinion, reflects all adjustments, consisting only of normal recurring
adjustments that we consider necessary for a fair presentation of this
information in accordance with generally accepted accounting principles. These
quarterly results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1998 1998 1998 1998 1999 1999
----------- --------- --------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue............................ $ 1,051 $ 1,601 $ 2,014 $ 3,037 $ 3,486 $ 4,220
Development and license revenue............ -- 25 25 50 575 --
----------- --------- --------- ----------- ----------- ---------
Total revenue................................ 1,051 1,626 2,039 3,087 4,061 4,220
Cost and operating expenses:
Cost of product revenue.................... 607 1,104 1,140 1,463 1,578 1,750
Research and development................... 1,008 948 1,140 1,428 1,441 1,619
Selling, general and administrative........ 824 1,082 1,165 1,264 1,339 1,713
Stock compensation and warrant expense..... 38 146 554 623 1,391 1,507
----------- --------- --------- ----------- ----------- ---------
Total operating expenses..................... 2,477 3,280 3,999 4,778 5,749 6,589
----------- --------- --------- ----------- ----------- ---------
Loss from operations......................... (1,426) (1,654) (1,960) (1,691) (1,688) (2,369)
Interest income.............................. 22 9 84 127 87 123
Interest expense and other, net.............. (13) (42) (38) (40) (29) (33)
----------- --------- --------- ----------- ----------- ---------
Net loss..................................... $ (1,417) $ (1,687) $ (1,914) $ (1,604) $ (1,630) $ (2,279)
----------- --------- --------- ----------- ----------- ---------
----------- --------- --------- ----------- ----------- ---------
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Product revenue............................ 100.0% 98.5% 98.8% 98.4% 85.8% 100.0%
Development and license revenue............ 0.0 1.5 1.2 1.6 14.2 0.0
----------- --------- --------- ----------- ----------- ---------
Total revenue................................ 100.0 100.0 100.0 100.0 100.0 100.0
Cost and operating expenses:
Cost of revenue............................ 57.8 67.9 55.9 47.4 38.9 41.4
Research and development................... 95.9 58.3 55.9 46.3 35.5 38.4
Selling, general and administrative........ 78.4 66.5 57.1 40.9 33.0 40.6
Stock compensation and warrant expense..... 3.6 9.0 27.2 20.2 34.2 35.7
----------- --------- --------- ----------- ----------- ---------
Total operating expenses..................... 235.7 201.7 196.1 154.8 141.6 156.1
----------- --------- --------- ----------- ----------- ---------
Loss from operations......................... (135.7) (101.7) (96.1) (54.8) (41.6) (56.1)
Interest income.............................. 2.1 0.6 4.1 4.1 2.2 2.9
Interest expense............................. (1.2) (2.6) (1.9) (1.3) (0.7) (0.8)
----------- --------- --------- ----------- ----------- ---------
Net loss..................................... (134.8)% (103.7)% (93.9)% (52.0)% (40.1)% (54.0)%
----------- --------- --------- ----------- ----------- ---------
----------- --------- --------- ----------- ----------- ---------
</TABLE>
PRODUCT REVENUE. Product revenue increased from the preceding quarter in
each of the six quarters ended June 30, 1999. The increase in product revenue
was derived primarily from significantly higher unit shipments driven by
increased market acceptance of digital-ready host systems and displays.
26
<PAGE>
In addition, in the first two quarters of 1999, a larger proportion of our
revenue was derived from sales of receiver products, which are generally
higher-priced than transmitter products.
DEVELOPMENT AND LICENSE REVENUE. In the first quarter of 1999, we
recognized $550,000 of development revenue, which represented amounts previously
recorded as deferred revenue under a development contract that was terminated
during the period. In addition, we received other revenue from patent licenses
during the last three quarters of 1998 and the first quarter of 1999.
COST OF PRODUCT REVENUE. The following table sets forth product gross
margin for the six quarters ended June 30, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1998 1998 1998 1998 1999 1999
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Product gross margin:................................. 42.2% 31.0% 43.4% 51.8% 54.7% 58.5%
</TABLE>
Product gross margin decreased in the second quarter of 1998 to 31.0%
primarily due to establishing reserves for the return of non-saleable products.
In the fourth quarter of 1998, the product margin increase to 51.8% was
primarily attributable to decreases in transmitter product costs. The increases
in product margin in the first two quarters of 1999 are primarily a result of
continued increases in overall average selling prices due to continued increases
in the breadth of our customer base, continued increases in receiver products
sold, and product cost reductions.
RESEARCH AND DEVELOPMENT. R&D increased, in general, in absolute dollars
primarily due to the hiring of additional development personnel and consultants,
and an increase in prototyping costs.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A has increased quarter to quarter
in absolute dollars primarily due to hiring additional personnel, increased
sales commissions and expanded marketing activities to broaden our customer base
and product mix.
STOCK COMPENSATION AND WARRANT EXPENSE. Stock compensation and warrant
expense increased in each quarter primarily as a result of option grants to
employees and increases in the associated amortization of unearned compensation
related to the vesting of employee stock options. In the third and fourth
quarter of 1998 and the first quarter of 1999, we incurred additional expenses
related to the progress made by Intel towards the achievement of milestones on
warrants issued to them.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed operations through a combination of
private sales of convertible preferred stock, lines of credit and capital lease
financing. At June 30, 1999, we had $8.7 million in working capital and $12.6
million in cash, cash equivalents and short-term investments.
We used cash in our operating activities in the amount of $505,000 in 1996,
$4.5 million in 1997 and $3.7 million in 1998. In 1996, 1997 and 1998, cash used
for operating activities was attributable primarily to the net loss in each
year. Our operating activities provided cash in the amount of $269,000 during
the six months ended June 30, 1999. The increase in cash for this period was
primarily a result of an increase in accounts payable and deferred margin on
sales to distributors, partially offset by the net loss and a decrease in
accrued liabilities and deferred revenue.
We used cash in our investing activities in the amount of $724,000 in 1996,
$300,000 in 1997 and $1.7 million in 1998. In 1996 and 1997, cash used in
investing activities was attributable to purchases of property and equipment. In
1998, the use of cash was attributable to purchases of short-term investments
and property and equipment. For the six months ended June 30, 1999, cash used by
27
<PAGE>
investing activities was $673,000 which was primarily attributable to purchases
of short-term investments.
Net cash provided by financing activities was $2.7 million in 1996, $5.3
million in 1997, $12.8 million in 1998 and $994,000 in the first six months of
1999. In 1996, 1997 and 1998, cash provided by financing activities was
primarily attributable to proceeds from the issuance of convertible preferred
stock. In 1999, cash provided by financing activities was primarily attributable
to proceeds from the financing of property and equipment and the exercise of
stock options.
In December 1998, we entered into a line of credit agreement, which provides
for borrowings of up to $4.0 million based on and secured by eligible accounts
receivable. Borrowings accrue interest at the bank's commercial lending rate
plus 0.25%, which equaled 8.25% at June 30, 1999. On June 30, 1999, we were in
compliance with all line of credit covenants and we had borrowed $757,000 under
this line of credit. In February 1999, we entered into a $2.5 million capital
lease line that allows for the leasing of equipment and software over 33 to 42
month terms. The stated interest rate under this lease line is 8.0%. The lease
line expires in October 2000. On June 30, 1999, we were in compliance with all
lease line covenants and we had borrowed $841,000 under this lease line.
We lease equipment and software under short-term and long-term leases with
terms ranging from one to three years. We intend to exercise purchase options at
the end of the lease terms for a minimal cost. We also plan to spend up to
approximately $3.0 million during the next 12 months for test equipment,
potential tenant improvements and additional equipment and software. We lease
our facility under a noncancelable operating lease which expires in December
2002. We currently intend to relocate our headquarters to larger facilities and
are actively seeking rental space. We will incur additional costs related to any
relocation and may have to pay rent on two leases for a period of time.
We believe that the net proceeds from this offering, together with existing
cash balances and funds available under our existing credit facilities, will be
sufficient to meet our capital requirements for at least the next 12 months. Our
future capital requirements will depend on many factors, including the levels at
which we maintain inventory and accounts receivable and increases in our
operating expenses. To the extent that funds generated by this offering,
together with existing resources, are insufficient to fund our future
activities, we may need to raise additional funds through public or private
equity or debt financing. Additional funds may not be available, or if
available, we may not be able to obtain them on terms favorable to us or our
stockholders. See "Use of Proceeds."
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISKS
INTEREST RATE RISK
Our cash equivalents and short-term investments are exposed to financial
market risk due to fluctuation in interest rates, which may affect our interest
income and the fair market value of our investments. We manage the exposure to
financial market risk by performing ongoing evaluations of our investment
portfolio and investing in short-term investment-grade corporate securities.
These securities are highly liquid and generally mature within 12 months from
our purchase date. Due to the short maturities of our investments, the carrying
value approximates the fair value. In addition, we do not use our investments
for trading or other speculative purposes.
We have performed an analysis to assess the potential effect of reasonably
possible near-term changes in interest and foreign currency exchange rates. The
effect of such rate changes is not expected to be material to our results of
operations, cash flows or financial condition. All transaction to date have been
denominated in United States dollars.
As of June 30, 1999, our cash included money market securities. Due to the
short duration of our investment portfolio, an immediate 10% change in interest
rates would not have a material effect on the fair market value of our
portfolio. Therefore, we would not expect our operating results or cash
28
<PAGE>
flows to be affected to any significant degree by the effect of a sudden change
in market interest rates on our securities portfolio.
FOREIGN CURRENCY EXCHANGE RISK
Substantially all of our sales are denominated in U.S. dollars and as a
result, we have relatively little exposure to foreign currency exchange risk
with respect to any of our sales. We do not currently enter into forward
exchange contracts to hedge exposures denominated in foreign currencies or any
other derivative financial instruments for trading or speculative purposes. The
effect of an immediate 10% change in exchange rates would not have a material
impact on our future operating results or cash flows.
YEAR 2000 COMPLIANCE
We are aware of the widely publicized problems associated with computer
systems as they relate to the Year 2000. Many existing computer hardware systems
and software applications, and embedded computer chips, software and firmware in
control devices use only two digits to identify a year in the date field,
without considering the impact of the upcoming change in the century. Others do
not correctly process "leap year" dates. As a result, such system applications
and devices could fail or create erroneous results unless corrected so that they
can correctly process data related to the Year 2000 and beyond. These problems
are expected to increase in frequency and severity as the Year 2000 approaches.
We have commenced our business risk assessment of the impact that the Year
2000 problem may have on our operations. As business conditions warrant, this
assessment may be revised as new information is made available to us. To date,
we have identified the following four key areas of our business that may be
affected:
PRODUCTS. We have evaluated each of our products and believe that they do
not contain date sensitive functionality. We cannot determine whether all of our
customers' products into which our products are incorporated will be Year 2000
compliant because we have little or no control over the design, production and
testing of our customers' products.
THIRD-PARTY SUPPLIERS. We rely, directly and indirectly, on external
systems utilized by our suppliers for the management and control of fabrication,
assembly and test of our products. To date, we have received responses from our
key suppliers, including our most significant supplier TSMC, which indicate that
each believes that it has adequately addressed its Year 2000 issue or is in the
process of developing and implementing mediation plans. In addition, we have
identified our key products and may increase our inventory levels of these
products during the fourth calendar quarter of this year. For such products, we
expect increased demand in 2000 and therefore we do not expect the additional
inventory to have a material effect on our business.
INTERNAL INFRASTRUCTURE. We are conducting an assessment of internal
software applications and computer hardware. The Year 2000 compliance of
hardware including networks, telecommunications equipment, workstations and
other items is nearing completion. Most of the software applications used by us
are generally recent versions of vendor supported, commercially available
products. Because most of the software applications used by us are generally
recent versions of vendor supported, commercially available products, we have
not incurred, and do not expect in the future to incur, significant costs to
upgrade these applications as Year 2000 compliant versions are released by the
respective vendors. We will continue to seek certifications that products
installed are Year 2000 ready, and are targeting October 1999 to complete this
process.
FACILITY SYSTEMS. Systems such as utilities, sprinklers, test equipment and
security at our facilities may also be affected by the Year 2000 problem. We
have commenced assessing the business risks and
29
<PAGE>
costs of remediating the Year 2000 problem on our facility related systems. We
estimate that our total cost of completing any required modifications, upgrades
or replacements of these systems will not have a material adverse effect on our
business or results of operations. We currently expect to complete the
remediation of our facility systems by October 30, 1999.
DISTRIBUTOR AND CUSTOMER READINESS. Distributor and customer readiness
focuses on Year 2000 compliance of customer support and inventory management
systems including the development of contingency plans where appropriate, as
well as the ability of our distributors and customers to continue to conduct
business. We are working with our distributors and customers in this effort and
anticipate completing this program by October 1999.
We presently estimate that the total cost of addressing our Year 2000 issues
will not exceed $100,000. This estimate was derived utilizing numerous
assumptions, including the assumption that we have already identified our most
significant Year 2000 issues and that the plans of our third party suppliers,
distributors and customers will be fulfilled in a timely manner without cost to
us. However, these assumptions may not be accurate, and actual results could
differ materially and adversely from those anticipated after completion of
remediation, testing, and contingency planning phases.
We are currently developing contingency plans to address those Year 2000
issues that may pose a significant risk to our ongoing operations. We currently
expect to complete these contingency plans by October 1999. Such plans could
include accelerated replacement of affected equipment software and systems, the
use of back up test and assembly suppliers and buffer inventories or the
implementation of manual procedures to compensate for system deficiencies.
However, any contingency plans we implement may not succeed or may not be
adequate to meet our needs without materially impacting our operations. In
addition, the delays and inefficiencies inherent in conducting operations in an
alternative manner could materially and adversely affect our results of
operations. More specifically, if our third party suppliers or our distributors
were to lose power, or the ability to ship product as a result of Year 2000
related issues, we would be exposed to missing customer shipments and
potentially lose revenues and profits. We believe the likelihood of losing
revenue and profits from difficulties resulting from Year 2000 issues is low.
INFLATION
The impact of inflation on our business has not been material for the fiscal
years ended December 31, 1996, 1997 and 1998, or the six months ended June 20,
1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards, or SFAS, No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS No. 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. We do not currently enter into
forward exchange contracts to hedge exposures denominated in foreign currencies
or any other derivative financial instruments for trading or speculative
purposes.
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<PAGE>
BUSINESS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS."
We design, develop and market semiconductor solutions for applications that
require cost-effective, high-bandwidth, integrated solutions for high-speed data
communications. We are initially focusing our technology on the local
interconnect between host systems, such as PCs, set-top boxes and DVD players,
and digital displays, such as flat panel displays and CRTs. Our current products
enable host systems to transmit digital video data and enable displays to
receive and manipulate digital video data. As with other consumer electronic
devices, such as digital cellular phones, significant benefits can be achieved
by converting displays from analog to digital and by replacing conventional
analog connections between host systems and displays with digital connections.
Recognizing the need for a cost-effective, high-bandwidth digital display
solution, we developed a digital interconnect technology and began shipping
semiconductor products for digital displays in 1997. To provide a worldwide,
open specification for an all-digital display solution, we, together with Intel,
Compaq, IBM, Hewlett-Packard, NEC and Fujitsu, formed the Digital Display
Working Group to define such a specification based on our technology. In April
1999, the DDWG published the Digital Visual Interface specification, which
defines a high-speed; synchronous data communications link between host systems
and digital displays. The formation of the DDWG and the release of the DVI
specification have accelerated the shift of display technology to digital.
Our key products are based on our PanelLink digital interface technology and
Digital Visual Controller architecture. PanelLink technology is our proprietary
implementation of the DVI specification. The DVC architecture is our platform
for developing controllers that integrate PanelLink receiver technology with
additional functionality to enable low-cost, intelligent displays for the mass
market. Our high-bandwidth, highly integrated solutions eliminate the need for
analog technology in host systems and displays, improve image quality and allow
display manufacturers to increase the functionality of their products.
INDUSTRY BACKGROUND
Two prominent trends in the electronics industry are the increasing demand
for bandwidth and the transition of electronic systems from analog to digital.
Bandwidth, which is often measured in terms of megabits per second, represents
the amount of data that can be transmitted across a medium in a given period of
time. In attempts to address the increasing demand for bandwidth, new
communications standards such as Fast Ethernet, SONET and Fibre Channel have
been adopted, and new classes of communications semiconductors have been
developed to implement these standards. The second trend, the shift from analog
to digital, has made information easier to reliably store, transmit and
manipulate. It has also reduced manufacturing costs, improved quality and
enhanced functionality through the addition of new features that were
unavailable or not practical with analog solutions. For example, many features,
such as messaging, paging and security, became more feasible as wireless phones
from analog to digital.
As with wireless phones, significant benefits can be achieved by replacing
analog displays with digital displays. To enable this transition, displays
require digital communication with the host system. Until recently, however,
there was no commercially viable standard that addressed the challenges of
enabling digital communications between host systems, such as PCs, set-top boxes
and DVD players, and video displays, such as flat panel displays and CRTs. A
principal reason that such a standard did not exist was the substantial
technical challenge of developing a cost-effective high-bandwidth solution
capable of transmitting data at the multi-gigabit rates needed to link the host
system to a high-resolution display. This rate is 50 times faster than Fast
Ethernet and 500 times faster than cable
31
<PAGE>
modems. In the absence of a digital standard, host systems, though processing
data in digital form, have been forced to convert that data to analog form
before transmitting it to the display. Consequently, the functionality of
display devices has changed little since the introduction of analog cathode ray
tubes.
Recognizing the need for a cost-effective, high-bandwidth digital display
solution, Silicon Image developed a digital interconnect technology and began
shipping semiconductor products for digital displays in 1997. To provide a
worldwide, open specification for an all-digital display solution, Silicon
Image, together with Intel, Compaq, IBM, Hewlett-Packard, NEC and Fujitsu,
formed the Digital Display Working Group to define such a specification based on
Silicon Image's technology. In April 1999, the DDWG published the Digital Visual
Interface specification, which defines a high-speed synchronous data
communication link between host systems and displays. Silicon Image authored
major portions of the DVI specification. Today, over 50 companies, including
systems manufacturers, graphics semiconductor companies and monitor
manufacturers are participants in the DDWG, and many are developing hardware and
software products designed to be compliant with the DVI specification.
<TABLE>
<S> <C> <C> <C>
DDWG MEMBERSHIP
DDWG PROMOTERS
Compaq Hewlett-Packard Intel Silicon Image
Fujitsu IBM NEC
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
DDWG PARTICIPANTS
<CAPTION>
HOST SYSTEM ADD-IN BOARD DISPLAY PROJECTOR SEMICONDUCTOR OTHER
<S> <C> <C> <C> <C> <C>
Apple Computer ATI Technologies Amtran Technology Lightware Analog Devices Amphenol
Gateway AVED Display Daewoo Electronics Proxima Ardent Aurora Systems
MaxVision ELSA AG FED Corporation Sanyo Electric Technologies Foxconn (Hon Hai)
Multi Q I-O Data Hitachi Seiko Epson Avance Logic Precision
Toshiba Number Nine Hosiden Chrontel JAE Electronics
S3 LG Electronics Innovative Joinsoon Electronic
STB Systems EIZO Nanao Semiconductors MNC International
VMIC Nokia Display Pixel Fusion Molex Incorporated
Philips Monitors Pixelworks Rainbow Optics
Princeton Graphics Real 3D Tai-Sol Electronics
Van Koevering Rendition
Xerox Sage
Silicon Magic
Silicon Motion
SP3D Chip Design
</TABLE>
The formation of the DDWG and the release of the DVI specification have
accelerated the shift of display technology to digital. The market research firm
DisplaySearch projects that the number of desktop LCD monitors shipped annually
will grow from four million units in 1999 to 18 million units in 2003.
DisplaySearch further estimates that the digital interface will rapidly gain
market share over analog for desktop LCDs, from 18% in the first quarter of 1999
to 82% in the first quarter of 2001. In addition, three of the five largest
desktop CRT manufacturers are developing digital CRTs compliant with the DVI
specification. According to Stanford Resources, Inc., the overall market for
desktop CRTs will grow from 88 million units in 1999 to 123 million units in
2003. In response to projected growth in the market for digital displays,
manufacturers are seeking to differentiate their products by adding
functionality and intelligence to their displays. Consequently, these companies
are looking for integrated semiconductor solutions that combine high-speed
digital communications technology with the functionality required to enable
intelligent displays for the mass market.
THE SILICON IMAGE SOLUTION
Silicon Image designs, develops and markets semiconductor solutions for
high-speed digital communications. Our technology is designed for applications
that require cost-effective, high-bandwidth integrated solutions for data
transmission, such as the local interconnect between host systems and digital
displays, high-speed networking and data storage. Our initial products enable
host systems to transmit digital video data and allow displays to receive and
manipulate digital video data.
32
<PAGE>
Our key products are based on our PanelLink digital interface technology and
Digital Visual Controller architecture. PanelLink technology is our proprietary
implementation of the DVI specification to provide a high-speed, synchronous
digital link between hosts and digital displays. The DVC architecture is our
platform for developing controllers which integrate PanelLink receiver
technology with additional functionality to enable intelligent displays for the
mass market. Key features of our solution include:
- HIGH-SPEED INTERFACE. Our PanelLink technology transmits data over three
high-speed serial channels at up to 1.67 gigabits per second per channel
for an aggregate bandwidth of approximately five gigabits per second.
PanelLink technology supports such speeds over twisted-pair copper wire at
distances of up to 10 meters and permits direct coupling with fiber optic
interconnect modules for longer distance data transmission.
[PanelLink Diagram]
[Description of graphics on page 33]
This graphic is entitled "Silicon Image Solution." The graphic depicts a
small three-dimensional rectangle connected to a large three-dimensional
rectangle. The small rectangle is labeled "Host." Inside the small rectangle is
a cube labeled "Tx." The large rectangle is labeled "All Digital Display."
Inside the large rectangle is an oval. The oval is labeled "DVC Architecture." A
three-dimensional triangle points to the label "DVC Architecture." Inside the
triangle is the phrase "Integration + Intelligence -- > New Functionality."
Inside the oval is a cube labeled "Rx." Above the cube is a three-dimensional
rectangle labeled "Firmware." Below the cube is a three-dimensional rectangle
labeled "Refresh buffer." The cube and the rectangle labeled "Refresh buffer"
are connected by a bi-directional arrow. To the right of the cube is a
three-dimensional rectangle that is divided horizontally into three parts. The
three parts, from top to bottom, are labeled "Display Logic," "DAC" and "Image
Processing." To the right of the rectangle is a three-dimensional rectangle
labeled "Display Control." To the right of the rectangle labeled "Display
Control" and outside the oval is a cube labeled "Display." The small
three-dimensional rectangle labeled "Host" is connected to the large
three-dimensional rectangle labeled "All Digital Display" by three arrows. Above
and below the arrows are series of zeroes and ones. Superimposed on top of the
arrows is Silicon Image's PanelLink Technology logo. To the right of the logo is
the label "PanelLink Digital." A box surrounds the three arrows connects the
small rectangle labeled "Host" and the large rectangle labeled "All Digital
Display." The box surrounding the arrows overlaps with the small rectangle and
the large rectangle. In the small rectangle, the cube labeled "Tx" is also
inside the box containing the arrows. In the large rectangle, the cube labeled
"Rx" is also inside the box containing the arrows.
- LOW COST OF SYSTEM IMPLEMENTATION. PanelLink technology operates at full
speed over inexpensive twisted-pair copper wire. In addition, our products
are manufactured using cost-effective standard foundry CMOS processes and
low-cost plastic packaging. Our all-digital interconnect solution
eliminates the need for additional components currently required in
digital displays to convert data from analog to digital and to remove
errors associated with the conversion.
- SYSTEM LEVEL INTEGRATION. Our solution combines high-speed digital
communication technology with system-level functionality, including
digital image processing and display control. Furthermore, our DVC
architecture and the use of CMOS manufacturing processes simplify the
integration of additional functionality.
- SCALABILITY. We offer products that support the entire range of standard
display resolutions, from VGA (640 x 480 pixels) to UXGA (1600 x 1200
pixels). Support for these resolutions requires our solution to transmit
and receive data at speeds ranging from 250 megabits to 1.65 gigabits per
second per channel.
33
<PAGE>
Our solution enables our customers to introduce digital display products,
thereby eliminating the need for analog technology in both the host system and
display. This provides a number of benefits to our customers:
- LOWER COST FOR MASS MARKET ADOPTION. The low cost of implementing our
PanelLink technology helps our customers offer intelligent displays
targeting the consumer market.
- EASE OF USE. Use of our end-to-end all-digital solution enables "plug and
play" connection of any display to any host system.
- IMPROVED VISUAL EXPERIENCE. Our high-bandwidth solution enables the
transmission of data-intensive video images in digital form, without
degradation of image quality. Because our solution is all-digital, it
eliminates the errors associated with the use of an analog interface, such
as flicker, fuzziness and color variation.
- ABILITY TO ADD NEW FEATURES AND DIFFERENTIATE PRODUCTS. Our technology
enables our customers to add new features and functionality to their
displays and to offer differentiated products. For example, one of our
existing products enables image quality to be directly controlled in the
display rather than in the host system. In addition, our products are
programmable, allowing our customers to configure image processing and
user interface functions.
- ACCELERATED TIME TO MARKET. By using our products instead of developing
solutions internally, our customers can shorten their design time for
digital display products. Our products feature integrated system-level
functionality, which simplifies the design of digital displays.
SILICON IMAGE STRATEGY
Our objective is to be a leading provider of semiconductor solutions that
enable high-speed digital communications and optimize cost per bandwidth across
targeted communications markets. Key elements of our strategy are to:
TARGET THE DISPLAY MARKET FIRST
While our technologies are applicable to solving the bandwidth needs of
multiple markets, we have initially chosen to focus our efforts on being the
leading provider of high-bandwidth solutions for the large and rapidly growing
digital display market. Relative to other data communication applications, the
digital display interface demands a particularly high-speed, low cost solution
that operates over a wide range of transmission speeds. Our technology
effectively addresses these demands and incorporates many additional features
and capabilities. Companies shipping displays which incorporate our products
include Apple, Compaq, Fujitsu, Gateway, Hitachi, IBM, LG, NEC, Samsung, Sanyo,
Tatung and ViewSonic.
PROMOTE OPEN INDUSTRY STANDARDS
We believe that the widespread acceptance of the DVI specification and
subsequent enhancements to this specification will lead to broader market
penetration of digital displays in many different applications, help us maintain
our leadership position and create new opportunities for us. We are one of the
seven founding members of the DDWG and a member of its governing board. We
authored major portions of the DVI specification and developed the core
technology upon which the specification is based. We intend to continue to
actively participate in defining and promoting open industry standards. We
believe that our participation will provide us with valuable insight and
relationships and assist us in rapidly bringing new standards-based products to
market.
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<PAGE>
DRIVE BROAD ADOPTION OF DIGITAL-READY HOST SYSTEMS
We believe that broad adoption of digital-ready host systems will drive the
widespread transition to all-digital displays. Accordingly, we aggressively
market our host-based transmitter products and promote the adoption of the DVI
specification, in order to expand the market for our receiver and display
controller products. To date, we have shipped over 3.5 million units of our
PanelLink transmitter products. In the PC industry, we have achieved transmitter
design wins with leading OEMs, including Compaq, Fujitsu, Hitachi and NEC, and
with makers of video graphics accelerators, including ATI Technologies and
Intel. While continuing to focus on the PC industry, we intend to follow a
similar strategy for other host systems, such as set-top boxes, game consoles
and DVD players.
INCREASE THE INTELLIGENCE OF DISPLAYS THROUGH HIGHLY INTEGRATED RECEIVER
SOLUTIONS
We believe the conversion to end-to-end digital displays allows a
significant amount of functionality to shift from the host system to the display
and the addition of new capabilities to the display. Our display controllers
integrate additional functionality with our receiver technology to enable a new
class of intelligent displays and allow display vendors to differentiate and
increase the value of their products. We are focusing a substantial amount of
our product development, marketing and sales efforts on DVI-compliant display
controllers.
MAINTAIN TECHNOLOGY LEADERSHIP
We are the inventor of the technology upon which the DVI specification is
based and have substantial experience in the design, manufacture and deployment
of semiconductor products incorporating this high-speed data communications
technology. We are developing our fourth generation of transmitter and receiver
products and believe that this experience provides us with significant
competitive advantages. In particular, our broadband clock and data recovery
technology in our receivers exceeds the reliability specifications established
in various multi-gigabit communication standards. The advanced nature of our
high-speed digital design allows us to integrate significant system-level
functionality with high-speed communications capabilities using
industry-standard, low-cost CMOS processes. We intend to continue to focus
significant resources on maintaining and extending our technology leadership.
PENETRATE NEW MARKETS AND APPLICATIONS
We intend to use our core technical competencies and relationships with key
partners and customers to develop solutions for additional markets. We believe
our technology is well suited to many applications requiring high bandwidth and
system level integration. To address these opportunities, we are focusing on
developing products and technologies for new markets, primarily the gigabit
networking and high-speed serial interface storage markets.
STRATEGIC RELATIONSHIPS
As part of our business strategy, we have established strategic
relationships with certain key customers and partners.
INTEL RELATIONSHIP
In September 1998, Silicon Image entered into an agreement with Intel
Corporation to work together to develop and promote adoption by the PC industry
of a complete digital display interface based on our PanelLink technology. As
part of the strategic relationship, Intel became an equity investor in Silicon
Image and the companies entered into a patent cross license and other
agreements. See "Certain Transactions--Transactions with Intel and Its
Subsidiary, Chips and Technologies."
DIGITAL DISPLAY WORKING GROUP
Silicon Image, together with Intel, Compaq, IBM, Hewlett-Packard, NEC and
Fujitsu, announced the formation of the DDWG in October 1998. Subsequently, the
parties entered into a Promoter's Agreement in which they agreed to:
- define, establish and support the DVI specification, an open industry
specification for an all-digital display solution;
- encourage broad and open industry adoption of the DVI specification, in
part by creating an implementer's forum that others may join in order to
receive information and support relating to the DVI specification; and
- invite third parties to enter into a Participant's Agreement in order to
consult on the content, feasibility and other aspects of the DVI
specification.
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JOINT DEVELOPMENT OF DIGITAL CRTS
In the first half of 1999, we entered into agreements with Acer, ADI Corp.
and Samsung, three of the world's top five CRT monitor manufacturers. These
agreements call for the joint development and testing of CRTs incorporating
DVI-compliant semiconductors to be designed by us.
BRANDING RELATIONSHIPS
Currently, we have branding relationships with Compaq, NEC and Sharp. In
exchange for rebates or other consideration, these manufacturers use the
PanelLink brand on their products, product boxes, product collateral and web
sites.
MARKETS
Our current target markets consist of host systems, including PCs, set-top
boxes and DVD players, and displays, including flat panel displays and CRTs. In
addition, we believe our technologies are well suited to new markets such as
high-speed networking and storage applications.
HOST SYSTEMS
PERSONAL COMPUTERS
Dataquest projects that the desktop personal computer market will grow from
89 million units in 1999 to 150 million units in 2003. Several large PC
manufacturers, including Compaq, Fujitsu, Hitachi and IBM, are shipping
digital-ready desktop PCs which incorporate our semiconductor products. Based on
the number of transmitters we have shipped, we estimate that more than three
million digital-ready PCs have shipped over the last 18 months.
Dataquest projects that the notebook PC market will grow from 17 million
units in 1999 to 29 million units in 2003. We believe that there are two
opportunities for DVI-compliant digital interfaces in the notebook PC market:
replacement of the external analog video-out interface and replacement of the
internal interface to the notebook display.
SET-TOP BOXES AND DVD PLAYERS
Selantek Market Research projects that the digital set-top box market will
grow from 19 million units in 1999 to 56 million units in 2002. High definition
content is driving the demand for higher quality displays, such as HDTVs based
on CRTs, digital projectors and flat panel displays. The interface to such a
high definition display/television requires a digital link that provides
high-bandwidth data transmission in order to preserve the digital image quality.
While no digital interface specification has been defined, the DVI specification
is well-suited to the needs of this market. We believe there is a significant
opportunity for DVI-compliant transmitter products in this market. We also
believe that DVD players would similarly benefit from a single digital interface
standard. Selantek Market Research projects that the DVD player market will grow
from four million units in 1999 to 25 million units in 2003.
DISPLAYS
DISPLAYS FOR DESKTOP COMPUTERS
Stanford Resources, Inc. projects that the market for desktop CRTs will grow
from 88 million units in 1999 to 123 million in 2003. The DVI specification is
designed to enable digital CRTs. CRT manufacturers Acer, ADI Corp. and Samsung,
which Stanford Resources, Inc. estimates together shipped over 18 million analog
CRTs in 1998, are developing DVI-compliant digital CRTs. ViewSonic, a monitor
integrator, has also announced plans to market DVI-compliant digital CRTs.
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<PAGE>
DisplaySearch projects that the market for desktop LCDs will grow from
nearly four million units in 1999 to 18 million units in 2003. DisplaySearch
further projects that the digital interface will rapidly gain market share over
analog for desktop LCDs, from 18% in the first quarter of 1999 to 82% in the
first quarter of 2001.
PC manufacturers have recently begun to integrate graphics processing
capabilities with other system functions. We believe this trend creates an
opportunity for digital display OEMs to increasingly shift scaling, video
processing and other functions from the PC to the display. Thus, we believe that
the market growth for digital desktop displays, as well as the trend towards
image processing in the display, provides a significant market opportunity for
DVI-compliant display controller products.
DISPLAYS FOR HDTV SYSTEMS
Stanford Resources, Inc. projects that the market for wide format display
systems, including HDTV display systems, will grow from eight million units in
1999 to over 14 million units in 2003. We believe HDTV systems will benefit from
use of a digital interface and all-digital image processing.
DISPLAYS FOR OTHER APPLICATIONS
In addition to PC applications, LCD displays are used in automobile
navigation, industrial displays, kiosks and point-of-sale displays.
DisplaySearch projects that these combined markets will grow from 8.1 million
units in 1998 to 29.9 million units in 2002. Currently these displays use a
variety of interfaces. We believe the markets for these displays would benefit
from a single industry standard digital interface. We believe that the DVI
specification can address the interface requirements of these markets.
HIGH-SPEED NETWORKING AND STORAGE APPLICATIONS
Dataquest projects that the overall number of Gigabit Ethernet ports will
grow from over two million in 1999 to over 22 million in 2003. Dataquest also
projects that the market for high-bandwidth hard disk drive solutions, which use
high-speed interfaces such as Serial ATA and Fibre Channel, will grow from 1.5
million units in 1999 to over 114 million units in 2003. Our core technology
allows data transmission at 1.67 gigabits per second over twisted-pair copper
wire in display applications. We believe our technology is well-suited to
address the high-bandwidth requirements of the gigabit networking and high-speed
serial interface storage markets.
CUSTOMERS
We have achieved design wins with many leading host system and display
manufacturers. To date, we have shipped over four million semiconductor devices,
including transmitters, receivers and
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controllers. Our products have been designed into host systems and displays from
a number of companies including:
<TABLE>
<S> <C> <C>
HOST SYSTEM COMPANIES DISPLAY SYSTEM COMPANIES
- ----------------------------------- ----------------------------------- -----------------------------------
PCs LCD Displays Projectors
Acer* Acer* Compaq
Compaq Apple CTX*
Fujitsu Compaq NEC
Hitachi Fujitsu Proxima
IBM Gateway Sanyo
Mitac* Hitachi Sharp
NEC IBM -----------------------------------
Sharp LG Electronics* LCD Panels
Toshiba Matsushita LG LCD
- ----------------------------------- Mitac* Samsung
Graphics Add-in Boards NEC Toshiba
ATI Princeton Graphics
Diamond Multimedia Samsung Electronics*
Elsa ViewSonic
Leadtek
Matrox
Number Nine
3Dlabs
</TABLE>
* These companies sell unbranded products to other companies which
incorporate our products.
We focus our sales and marketing efforts on achieving design wins with
leading host system and display OEMs. In most cases, these OEMs outsource
manufacturing functions to third parties. Therefore, once we have won the
design, we typically help these third party manufacturers rapidly bring the
design to production. Once the design is complete, we sell our products to these
third party manufacturers either directly or indirectly through distributors. In
1998, sales to Mitac, a third party manufacturer, accounted for 54% of our total
revenues, and ATI, a leading graphics board manufacturer, accounted for 12% of
our total revenues. These manufacturers are significant suppliers to Compaq,
with whom we had a major design win for our transmitter in 1998. For the six
month period ended June 30, 1999, Mitac accounted for 13% of our total revenues,
Kanematsu, a Japanese distributor, accounted for 13% of our total revenues and
Microtek, a Japanese distributor, accounted for 11% of our total revenues. For a
description of the risk of our customer concentration, see "Risk Factors--We
depend on a few key customers and the loss of any of them could significantly
reduce our revenues."
Recently, the percentage of our revenues attributable to sales through
distributors has increased substantially. Much of this increase reflects design
wins with new OEMs which rely on third-party manufacturers or distributors to
provide inventory management and purchasing functions. See "Risk Factors--Our
increasing dependence on selling through distributors increases the risks and
complexity of our business."
PRODUCTS
Silicon Image designs, develops and markets semiconductor solutions for
high-speed digital communications. We have chosen to focus initially on the
digital display market because it is a rapidly growing and potentially large
market in which we are a technology leader. All of our current products are
manufactured using low-cost, standard foundry CMOS processes at TSMC in Taiwan.
In addition to our primary products, we develop and sell reference design kits
that represent application examples for incorporation of our products into our
customers' equipment. By providing these reference design kits, we can assist
the manufacturer in achieving easier and faster transitions from initial
prototype designs through final production releases. Our primary product lines
are transmitters for host systems and receivers and display controllers for
displays.
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<PAGE>
HOST SYSTEM PRODUCTS
Our PanelLink transmitters reside in the host system and take digital video
data from a graphics source, convert it to DVI-compliant digital output and
transmit that output to a receiver in the display. We market discrete
transmitters to manufacturers of PC motherboards, graphics boards and other
applications such as point-of-sale terminal systems. Our transmitters operate at
bandwidths from 0.75 to five gigabits per second, supporting resolutions from
VGA to UXGA. Our transmitters directly interface with video graphics processors
from companies such as 3Dfx, 3Dlabs, ATI, Intel, Matrox, nVidia, S3 and Trident
and have been included in PC systems from leading companies such as Compaq,
Fujitsu and NEC. As part of our strategy to drive the broad adoption of
digital-ready host systems, we have licensed our transmitter technology to other
semiconductor companies and we intend to do so in the future.
Our host system products are:
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
PANELLINK TRANSMITTERS
MAXIMUM MAXIMUM TARGET INTRODUCTION
PRODUCT RESOLUTION BANDWIDTH MARKETS DATE
SiI 100 Tx XGA 2.04 Gbps Point-of-sale Q2 1997
terminals
SiI 140 Tx high-refresh XGA 2.58 Gbps PC motherboards and Q4 1997
add-in boards
SiI 150 Tx SXGA 3.36 Gbps PC motherboards, add- Q3 1998
in boards and flat
panel displays
SiI 154 Tx SXGA 3.36 Gbps PC motherboards and Q1 1999
add-in boards
SiI 164 Tx UXGA 5 Gbps PC motherboards and Q3 1999*
add-in boards
</TABLE>
* Anticipated introduction date.
DISPLAY SYSTEM PRODUCTS
We have three families of display products: PanelLink receivers, Digital
Visual Controllers and Intelligent Panel Controllers.
PANELLINK RECEIVERS
Our PanelLink receivers reside in the display and receive DVI-compliant
input and restore the digital video data. We market receivers to manufacturers
of flat panel displays, CRTs, projectors and point-of-sale terminals. Our
receivers operate at bandwidths from 0.75 to 5 Gbps, supporting resolutions from
VGA to UXGA. To ensure reliable data transmission, our receivers have been
designed to exceed many of technical requirements of the DVI specification, such
as having a lower pixel error rate than the DVI specification. Our receivers
have been included in display systems from leading manufacturers such as Compaq,
Fujitsu, Hitachi, IBM, NEC, Toshiba and ViewSonic.
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<PAGE>
Our receiver products are:
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
PANELLINK RECEIVERS
MAXIMUM MAXIMUM TARGET INTRODUCTION
PRODUCT RESOLUTION BANDWIDTH MARKETS DATE
SiI 101 Rx XGA 2.04 Gbps Point-of-sale Q2 1997
terminals
SiI 141 Rx high-refresh XGA 2.58 Gbps PC motherboards and Q4 1997
add-in boards
SiI 151 Rx SXGA 3.36 Gbps Flat panel displays Q3 1998
SiI 161 Rx UXGA 5 Gbps PC motherboards and Q4 1999*
add-in boards
</TABLE>
* Anticipated introduction date
DIGITAL VISUAL CONTROLLERS
To enable intelligent displays and consistently deliver a high-quality
digital visual experience, we have developed the Digital Visual Controller
architecture. The DVC architecture is our platform for development of
system-level semiconductors that can deliver value-added functionality to our
display customers. Our DVC architecture includes three functional layers:
[Insert Picture]
[Description of graphics on page 40]
This graphic is entitled "Digital Visual Controller-TM- Architecture." The
left side of the graphic contains graphical representations of a personal
computer, a notebook computer and a DVD player. These representations are
arranged vertically. Each representation is labeled as follows: "PC," "Notebook"
and "DVD." An arrow points from the three graphics to a rectangle labeled
"PanelLink." Above the rectangle is Silicon Image's PanelLink Technology logo.
To the right of the logo is the phrase "PanelLink Digital." The rectangle
labeled "PanelLink" is connected on the right side to another rectangle labeled
"PixelPrecision Processing." Above the rectangle is Silicon Image's
PixelPrecision logo. The rectangle labeled "PixelPrecision Processing" is
connected on the right side to another rectangle labeled "Display Adaption." The
"Display Adaption" rectangle extends above and below the "PixelPrecision
Processing" rectangle. A small rectangle labeled "Flat Panel Monitor" is
connected to the upper right side of the "Display Adaption" rectangle. An arrow
extends from the right of the "Flat Panel Monitor" rectangle to a graphical
representation of a flat panel display labeled "LCD Monitor." A small rectangle
labeled "Micro Display" is connected to the middle of the right side of the
"Display Adaption" rectangle. An arrow extends from the right of the "Micro
Display" rectangle to a graphic labeled "Projector." A small rectangle labeled
"Digital CRT" is connected to the lower right side of the "Display Adaption"
rectangle. An arrow extends from the right of the "Digital CRT" rectangle to a
graphical representation of a digital CRT monitor labeled "Digital CRT."
- THE INTERFACE LAYER. This allows the display to receive digital data from
any DVI-compliant host system. This layer includes our PanelLink receiver
technology. We anticipate that in the future this layer will support
additional input and output capabilities to allow the display to
communicate with the host system or other peripherals.
- THE DIGITAL VIDEO PROCESSING LAYER. This includes our PixelPrecision,
all-digital, image processing technology for functions such as scaling and
on-screen display. This layer takes advantage of the reliable digital data
delivered from the host system across the PanelLink interface to produce
high image quality at low cost when compared to competing solutions. We
anticipate that in the future this layer will contain functions such as
frame rate conversion and support for multiple video streams.
- THE DISPLAY ADAPTION LAYER. This layer formats and optimizes the output
from the Digital Video Processing Layer for use on multiple display types,
such as LCDs and CRTs. Our development plans are to support additional
display types such as plasma displays and micro displays.
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<PAGE>
DVCS FOR FLAT PANEL DISPLAYS. In June 1999, we announced the SiI 801-- the
first product implementing our DVC architecture. The SiI 801 is designed
specifically for high-volume, XGA resolution, flat panel displays. With the SiI
801, a flat panel display supports a full range of digital input resolutions
from VGA to XGA, while scaling the input resolutions to the full XGA resolution
of the display, for a high-quality, full-screen visual experience. The SiI 801
is the first single-chip solution that provides all the necessary interface,
image processing and control functions required for an all-digital flat panel
display. In the third quarter of 1999, we expect to introduce the SiI 851, which
is designed to support input resolutions up to SXGA and to enhance the
functionality of our Display Adaption Layer. As single-chip solutions, our DVCs
for flat panel displays lower overall cost, increase reliability, occupy less
board space and simplify board design and layout. Our DVCs are included in
displays from leading manufacturers such as Compaq and NEC.
DVCS FOR CRTS. During the first half of 1999, we signed agreements with
several leading CRT manufacturers providing for close collaboration in the
design and development of digital CRTs. Using the DVC architecture, we are
focusing on developing products to enable DVI-compliant digital CRTs.
Our DVC products are:
<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
DIGITAL VISUAL CONTROLLER (DVC)
<CAPTION>
MAXIMUM MAXIMUM TARGET INTRODUCTION
PRODUCT RESOLUTION BANDWIDTH KEY FEATURES MARKETS DATE
<S> <C> <C> <C> <C> <C>
SiI 801 DVC XGA 2.58 Gbps - Scaling Flat panel Q2 1999
- On-screen displays
display
- Power
management
SiI 851 DVC SXGA 3.36 Gbps - Scaling Flat panel Q4 1999*
- On-screen displays
display
- Power
management
- Gamma
correction
- Dithering
SiI 901 DVC UXGA 5 Gbps - Integrated Digital CRT Q4 1999*
digital- Progressive scan
to-analog TV
converter
</TABLE>
* Anticipated introduction date.
INTELLIGENT PANEL CONTROLLERS
Our IPCs reside on the LCD module and receive DVI-compliant digital input or
LVDS digital input (which is commonly used in notebook PCs), restore the video
data format and directly interface with LCD module electronics. In addition, our
IPC products contain functionality which simplifies the design of LCD modules by
providing programmable timing controls, and support resolutions from VGA to XGA.
We market IPCs to manufacturers of LCDs for use in notebook and flat panel
displays.
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<PAGE>
Our panel controller products are:
<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
INTELLIGENT PANEL CONTROLLER (IPC)
<CAPTION>
MAXIMUM MAXIMUM TARGET INTRODUCTION
PRODUCT RESOLUTION BANDWIDTH KEY FEATURES MARKETS DATE
<S> <C> <C> <C> <C> <C>
SiI 201 IPC XGA 2.04 Gbps - PanelLink LCDs for notebook Q3 1998
Receiver PCs and flat panel
- LCD timing displays
controller
SiI 211 IPC XGA 2.94 Gbps - LVDS Receiver LCDs for notebook Q4 1999*
- LCD timing PCs and flat panel
controller displays
</TABLE>
* Anticipated introduction date.
SILICON IMAGE TECHNOLOGY
We believe that our key technical competencies are our high-speed serial
link technology, semiconductor design expertise, display systems expertise and
high-speed applications expertise.
HIGH-SPEED SERIAL LINK TECHNOLOGY
Serial link technology is the basis for the physical layer of several data
communication protocols, including Ethernet, Fibre Channel and Asynchronous
Transfer Mode. Our high-speed serial link technology is based on proprietary
oversampling and parallel data recovery algorithms which are implemented using a
digital phase-locked loop combined with a unique phase detecting and tracking
method. These circuit techniques allow for mostly digital implementation of a
high-speed serial link that can be manufactured using standard CMOS processes.
We can readily apply our high-speed serial link technology to all three clocking
methods currently used in communications systems: synchronous, asynchronous, and
plesiochronous. Synchronous systems are appropriate for short-range
communication links such as computer I/O devices and backplane buses.
Asynchronous systems are appropriate for mid- to long-range communication links.
Plesiochronous systems are appropriate for applications such as
processor-to-processor links and general I/O where the sender and the receiver
operate at slightly different clock frequencies.
HIGH-SPEED SEMICONDUCTOR DESIGN EXPERTISE
Our circuit designers are skilled in the design of high-speed, low-power and
mixed-signal CMOS semiconductors. We use advanced design techniques, including
low-power serializer, current mode driver and common mode canceler, to develop
high-bandwidth, system-level semiconductors which can be manufactured using
conventional low-cost packages and can transmit and receive data using
inexpensive cables and connectors. Our design methodology combines logic
synthesis and full-custom mixed-signal design, allowing us to develop small,
cost-effective semiconductor solutions.
DISPLAY SYSTEMS EXPERTISE
Our display systems expertise ranges from display technology, driver and
system design to display processing, testing and system integration. In addition
to experience in existing display technologies, our active involvement within
the display community contributes to our understanding of emerging display
technologies.
HIGH-SPEED APPLICATIONS EXPERTISE
We have developed extensive expertise, at the semiconductor and system
design levels, in solving problems related to designing systems using high-speed
semiconductor devices such as electromagnetic compliance. Our expertise in
solving electromagnetic compliance-related problems enables us to make
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<PAGE>
our semiconductor products easier for our customers to design into their
systems. In addition to providing semiconductor solutions, we assist our
customers throughout the system design process, enabling them to reduce their
time-to-market.
RESEARCH AND DEVELOPMENT
We have assembled a core team of engineers and technologists who have
extensive experience in the areas of high-speed circuit design, digital imaging
and LCD panels and LCD panel electronics. As of June 30, 1999, we had 23
employees in the engineering department, including 13 with Ph.Ds. These
engineers are involved in advancing our PanelLink technology and adding new
features and functionality to our host system and display products.
Some of our key technology is developed by academic researchers at Seoul
National University in Korea whom we have retained as consultants. These
researchers operate under the direction of Dr. Jeong, a founder of Silicon Image
and our Chief Technical Adviser. Significant portions of our high-speed serial
link technology were developed under the direction of Dr. Jeong. He continues to
direct our research and development efforts in Korea which focus on applying our
core technology to new markets, such as high-speed networking and storage.
We have invested, and expect that we will continue to invest, significant
funds on research and development activities. Our research and development
expenses were approximately $1.3 million in 1996, $3.2 million in 1997, $4.5
million in 1998 and $3.1 million in the first six months of 1999. For more
information regarding the risks of our research and development efforts, see
"Risk Factors--We may not be able to develop new products in a timely manner"
and "--Our dependence on academic researchers located in Korea could adversely
affect our ability to develop and protect key technology."
SALES AND MARKETING
We sell our products through a direct sales force and indirectly through
distributors and manufacturer's representatives. As of June 30, 1999, our sales
and marketing organizations included 23 employees in North America, Europe and
Asia, and our network of distributors and manufacturer's representatives
included seven in Asia, seven in Europe and four in North America.
Our sales and marketing strategy is to achieve design wins with key industry
leaders to help accelerate both the adoption of the DVI specification in host
systems and the conversion to end-to-end digital display systems. We believe
that superior field applications and engineering support are key to building
long-term relationships with leading OEMs and third-party manufacturers. Sales
personnel and applications engineers are dedicated to key customers to promote
close communication and provide a high-level of technical support.
Our marketing efforts focus primarily on promoting adoption of the DVI
specification, working closely with other DDWG members, participating in
industry trade shows and forums, and entering into branding relationships to
build awareness of the PanelLink brand.
MANUFACTURING
WAFER FABRICATION
Our semiconductor products are fabricated using standard CMOS processes,
which permits us to engage independent wafer foundries to fabricate our
semiconductors. By outsourcing our manufacturing requirements, we are able to
avoid the high cost of owning and operating a semiconductor wafer fabrication
facility. This allows us to focus our resources on the design and marketing of
our products. We currently outsource all of our wafer manufacturing to TSMC.
However, we do not have a long-term agreement with TSMC. If TSMC were unable or
unwilling to meet our requirements, our business would be seriously harmed. See
"Risk Factors--We depend on a single third-party wafer foundry to
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<PAGE>
manufacture all of our products" and "--Our semiconductor products are complex
and are difficult to manufacture cost-effectively."
Our devices are currently fabricated using both 0.5 micron, double-layer
metal and 0.35 micron, triple-layer metal processes. We continuously evaluate
the benefits and feasibility of migrating to a smaller geometry process
technology in order to reduce costs and improve performance.
ASSEMBLY AND TEST
After wafer fabrication, die are assembled into packages and the finished
products are tested. Our products are designed to use low-cost standard packages
and to be tested with widely-available semiconductor test equipment. We
outsource all of our packaging and test requirements to Anam in Korea and ASE in
Taiwan and California. For a description of risks presented by our dependence on
third-party subcontractors, see "Risk Factors--We depend on third-party
subcontractors for assembly and test."
The high-speed nature of our products makes it difficult to perform wafer
probe testing cost-effectively. Since the fabrication yields of our products
have historically been high and the costs of our packaging have historically
been low, we do not perform wafer probe testing before our die are packaged.
This means that faulty die are not discovered until after they have been
packaged. Our operations personnel closely review the process control monitor
information provided to us by our foundry. To ensure quality, we have firmly
established guidelines for rejecting wafers with PCM data we consider
unacceptable. To date, bypassing wafer probe testing has not caused us to
experience higher final test failures or lower yields. However, lack of wafer
probe testing could have adverse effects in case there are problems with the
wafer processing. See "Risk Factors--Our semiconductor products are complex and
are difficult to manufacture cost-effectively."
QUALITY ASSURANCE
We focus on product quality through all stages of the design and
manufacturing process. Our designs are subjected to in-depth circuit simulation
at temperature, voltage and processing extremes before being committed to
silicon. We pre-qualify each of our subcontractors. This pre-qualification
process consists of a series of industry standard environmental product stress
tests, as well as an audit and analysis of the subcontractor's quality system
and manufacturing capability. We also participate in quality and reliability
monitoring through each stage of the production cycle by reviewing electrical
parametric data from our wafer foundry and assembly subcontractors. We closely
monitor wafer foundry production to ensure consistent overall quality,
reliability and yield levels. The facilities of our independent foundry and
assembly and test subcontractors have achieved ISO 9000 certification.
INTELLECTUAL PROPERTY
Our success and future revenue growth will depend, in part, on our ability
to protect our intellectual property. We rely on a combination of patent,
copyright, trademark and trade secret laws, as well as nondisclosure agreements
and other methods to protect our proprietary technologies. We have been issued
four United States patents. We have filed 17 additional United States patent
applications. Three of these 17 applications have been allowed by the U.S.
Patent and Trademark Office. We cannot assure you that any valid patent will
issue as a result of any applications or, if issued, that any claims allowed
will be sufficiently broad to protect our technology. We also generally control
access to and distribution of our documentation and other proprietary
information. Despite our precautions, it may be possible for a third party to
copy or otherwise obtain and use our products, or technology without
authorization, develop similar technology independently or design around our
patents. See "Risk Factors--We may be unable to adequately protect our
intellectual property."
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<PAGE>
A significant portion of our technology is developed by consultants based in
Korea. While our agreements with these consultants provide for the assignment of
all intellectual property rights in their work product to us, Korean law may not
effectively provide the same level of protection of our intellectual property
rights as United States law. Effective copyright, trademark and trade secret
protection may be unavailable or limited in foreign countries. See "Risk
Factors--Our dependence on academic researchers located in Korea could adversely
affect our ability to develop and protect key technology."
Our participation in the DDWG requires that we grant the right to others to
use specific elements of our intellectual property in implementing the DVI
specification in their products at no cost, in exchange for an identical right
to use specific elements of their intellectual property for this purpose. We
agreed to grant these rights in order to promote the adoption of our technology
as an industry standard. We thereby limited our ability to rely on intellectual
property law to prevent the adopters of the DVI specification from using
specific elements of our intellectual property for free. See "Risk Factors--Our
participation in the Digital Display Working Group requires us to license some
of our intellectual property for free."
We entered into a patent cross-license with Intel in which each of us
granted the other a license to use the grantor's patents, except in identified
types of products. We believe that this cross-license strengthens our business
relationship with Intel. We have forfeited, however, our ability to rely on
intellectual property law to prevent Intel from using our patents to the extent
of this license. See "Risk Factors--Our relationship with Intel involves certain
risks."
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions. This often results in
significant, protracted litigation. For additional information on risks we may
face as a result of intellectual property disputes, see "Risk Factors-- Others
may bring infringement claims against us which can be time-consuming and
expensive to defend."
COMPETITION.
The high-speed communication, display and semiconductor industries are
intensely competitive. These markets are characterized by rapid technological
change, evolving standards, short product life cycles and decreasing prices. We
believe that the principal factors affecting competition in our markets are
levels of product integration, adherence to industry standards, time-to-market,
cost, product capabilities, system design costs, intellectual property, customer
support and reputation. Our current products face competition from a number of
sources including: analog solutions, DVI-compliant solutions and other digital
interface solutions.
- ANALOG SOLUTIONS. Display systems still predominantly employ an analog
interface. Improvements to analog interface display solutions may slow the
adoption of all-digital display systems. We compete with analog solution
vendors such as Analog Devices and Genesis Microchip.
- DVI-COMPLIANT SOLUTIONS. We believe that over time, the DVI specification
may become widely adopted in the digital display industry and attract
additional market entrants that will compete with us. For example, we
believe that a number of providers of video graphics accelerators are
currently integrating DVI-compliant transmitter technology into their
products. ATI Technologies, a major provider of video graphics
accelerators and one of our significant customers in 1998, currently
offers a product that contains an internally developed transmitter capable
of supporting XGA resolution.
We anticipate that various companies will develop DVI-compliant receivers.
Entrants in this market may include companies currently shipping analog
image processing solutions, such as
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Arithmos, Genesis Microchip, Pixelworks and Sage, as well as companies
with other digital interface solutions such as Texas Instruments and
National Semiconductor.
- OTHER DIGITAL INTERFACE SOLUTIONS. Texas Instruments and National
Semiconductor offer proprietary digital interface solutions based on LVDS
technology. While LVDS technology has gained broad market acceptance in
notebook PCs, few PC and display manufacturers have adopted this
technology for use outside of the notebook PC market.
The market for our panel controller products is also very competitive. Some
of our panel controller products are designed to be "plug compatible" with
similar products sold by Texas Instruments, National Semiconductor and Thine.
In the process of establishing our technology as an industry standard, and
to ensure rapid adoption of the DVI specification, we have agreed to license
specific elements of our intellectual property to others for free. In addition,
we have licensed elements of our intellectual property to Intel and other
semiconductor companies, and we may continue to do so. Competitors could use
these elements of our intellectual property to compete against us. Many of our
competitors have longer operating histories and greater presence in key markets,
greater name recognition, access to large customer bases and significantly
greater financial, sales and marketing, manufacturing, distribution, technical
and other resources than we do. As a result, they may be able to adapt more
quickly to new or emerging technologies and customer requirements or devote
greater resources to the promotion and sale of their product than we may. In
particular, well-established semiconductor companies, such as Analog Devices,
Intel, National Semiconductor and Texas Instruments, may compete against us in
the future. We cannot assure you that we can compete successfully against
current or potential competitors or that competition will not seriously harm our
business. See "Risk Factors--Our participation in the Digital Display Working
Group requires us to license some of our intellectual property for free."
EMPLOYEES
As of June 30, 1999, we had a total of 66 employees -- 23 in engineering, 23
in sales and marketing, eight in operations and 12 in finance and
administration. Of these employees, 63 were located in the United States. None
of our employees is represented by a collective bargaining agreement, nor have
we experienced any work stoppage. We consider our relations with our employees
to be good.
We depend on the continued service of our key technical, sales and senior
management personnel and our ability to attract and retain additional qualified
personnel. If we are unable to hire and retain qualified personnel in the
future, our business would be seriously harmed.
FACILITIES
Our headquarters, including our principal administrative and marketing
facilities, are located in approximately 18,000 square feet of space we have
leased in Cupertino, California under a lease expiring December 14, 2002 with a
renewal option for an additional five years. We believe that with our planned
increases in personnel and activities, these facilities will become inadequate
to meet our facility requirements in 2000. Accordingly, we will need to lease
additional space and may need to vacate our current location and attempt to
sublease our current facility. There is currently limited office space available
close to our current location. The additional space we will need to lease may
cost substantially more than our current space, and we may incur substantial
capital expenditures for improvements to a new facility.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND A KEY CONSULTANT
Our executive officers, directors and a key consultant and their ages as of
June 30, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -------------------------------------------------------------------------
<S> <C> <C>
David D. Lee..................... 43 Chairman of the Board, Chief Executive Officer and President
Daniel K. Atler.................. 39 Vice President, Finance and Administration and Chief Financial Officer
Victor M. Da Costa............... 39 Vice President, Engineering
Deog-Kyoon Jeong................. 40 Chief Technical Adviser (consultant)
Parviz Khodi..................... 39 Vice President, Worldwide Sales
Scott A. Macomber................ 42 Vice President, Business Strategy
Jalil Shaikh..................... 45 Vice President, Operations
Herbert Chang(1)................. 37 Director
Sang-Chul Han.................... 44 Director
David A. Hodges(2)............... 61 Director
Andrew S. Rappaport(1)(2)........ 41 Director
Ronald V. Schmidt(1)............. 55 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
DAVID D. LEE has served as Chairman of the Board and Chief Executive Officer
since our inception on January 1, 1995, and in addition served as President from
inception until October 1996 and since June 1999. Prior to founding Silicon
Image, Dr. Lee was a principal investigator at Sun Microsystems, Inc., a
computer networking company, where he led advanced development projects from
1993 to 1995, as a Visiting Scientist at Sun's Technology Development Group and
as Senior Staff Engineer at Sun Labs. Before joining Sun, Dr. Lee was a member
of the research staff at Xerox Corporation's Palo Alto Research Center, from
1989 to 1994. Dr. Lee holds Bachelor of Science, Master of Science and Ph.D.
degrees in Electrical Engineering and Computer Sciences from the University of
California at Berkeley.
DANIEL K. ATLER has served as Silicon Image's Chief Financial Officer and
Vice President of Finance and Administration since June 1998. Mr. Atler served
as Chief Financial Officer and Vice President of Finance and Administration for
Wireless Access, Inc., a two-way wireless communication systems company, from
January 1995 to November 1997, when Wireless Access, Inc., was acquired by
Glenayre Technologies, Inc., a wireless personal communication systems company.
After the merger, Mr. Atler continued in the same position at Wireless Access
Group, a division of Glenayre Technologies, Inc., from November 1997 to June
1998. From July 1992 to December 1994, Mr. Atler served as Corporate Controller
for Global Village Communication, Inc., a designer, developer and marketer of
communication products for personal computers. From July 1982 to July 1992, Mr.
Atler was with Ernst & Young, a financial accounting firm, most recently as a
Senior Manager. Mr. Atler holds a Bachelor of Science degree in Business
Administration from Colorado State University.
VICTOR M. DA COSTA has served as Silicon Image's Vice President of
Engineering since October 1998. Dr. Da Costa joined Silicon Image as a Senior
Staff Engineer in February 1996. Dr. Da Costa was a member of the research staff
at the Xerox Corporation's Palo Alto Research Center, from 1991 to 1996. Dr. Da
Costa was a principal engineer at Versatec, a maker of electrostatic plotters,
from 1988 to 1991. Dr. Da Costa holds a Bachelor of Science degree in Physics
from California State
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University of Fresno, a Master of Arts degree in Physics from the University of
California at Davis and a Ph.D. in Experimental Condensed Matter Physics from
the University of California at Davis.
DEOG-KYOON JEONG was a founder of Silicon Image and has served as Chief
Technical Adviser in a consulting capacity since October 1995. Since August
1991, Dr. Jeong has been on the faculty of the School of Electrical Engineering
at Seoul National University. Dr. Jeong holds the position of associate
professor. From June 1989 to August 1991, Dr. Jeong worked at Texas Instruments,
a semiconductor company, as a research scientist. Dr. Jeong holds Bachelor of
Science and Master of Science degrees in Electrical Engineering from Seoul
National University and a Ph.D. in Electrical Engineering and Computer Sciences
from the University of California at Berkeley.
PARVIZ KHODI has served as Silicon Image's Vice President of Worldwide Sales
since August 1998. Mr. Khodi joined Silicon Image in July 1998 as Director of
Asia Pacific Sales. From November 1987 to July 1998, Mr. Khodi worked at Chips
and Technologies, Inc., a maker of semiconductor chips principally for the
graphics market, where he held various technical and managerial sales positions,
most recently Director, Asia Pacific Sales. From 1986 to 1987, Mr. Khodi was a
field applications engineer at Touch Communications, Inc., a software networking
company. From 1984 to 1986, Mr. Khodi was an applications engineer at Intel. Mr.
Khodi holds Bachelor of Science and Master of Science degrees in Electrical
Engineering from the University of Kansas.
SCOTT A. MACOMBER has served as Silicon Image's Vice President of Business
Strategy since June 1999. Mr. Macomber joined Silicon Image in December 1995, as
Vice President, Business Development and a member of the board of directors. Mr.
Macomber served as President of Silicon Image from October 1996 to June 1999 and
as a director from December 1995 until June 1999. From 1989 until 1995, Mr.
Macomber served in various marketing and management capacities at LSI Logic
Corporation, a semiconductor company, most recently as Director of Corporate
Development. Mr. Macomber was one of a founding group of employees at Silicon
Solutions Corporation, a maker of high-performance computers, and was employed
there from 1983 to 1987 in a number of managerial, marketing and engineering
positions. From 1980 until 1982, Mr. Macomber was a member of the technical
staff at Bell Telephone Laboratories, the research and development division of
the American Telephone and Telegraph Company. Mr. Macomber holds a Bachelor of
Science degree in Electrical Engineering from the University of Michigan, a
Master of Science degree in Electrical Engineering from Stanford University and
a Master of Business Administration degree from Stanford University.
JALIL SHAIKH has served as Silicon Image's Vice President of Operations
since September 1996. From August 1994 to August 1996, he served as Director of
Engineering Operations for graphics and multimedia products at Trident
Microsystems, a designer, developer and marketer of digital media. From July
1991 to August 1994, he served as Product Engineering Manager at Micro Linear
Corporation, an analog and mixed signal semiconductor company. Mr. Shaikh holds
a Master of Science degree in Electrical Engineering from Rutgers, The State
University of New Jersey and a Master of Business Administration degree from the
University of Phoenix.
HERBERT CHANG has served as a director of Silicon Image since July 1998.
Since April 1996, Mr. Chang has served as president of InveStar Capital, Inc., a
venture capital fund management company. From July 1994 to March 1996, Mr. Chang
was Senior Vice President at WK Technology Fund, a venture capital fund. From
September 1991 to June 1994, Mr. Chang was Vice President of DynaLab, Inc., a
developer of fonts for Asian characters. From July 1986 to August 1991, Mr.
Chang was Assistant Vice President at Acer, Inc., a Taiwanese manufacturer of
personal computers. Mr. Chang holds a Bachelor of Science degree in Geology from
National Taiwan University and a Master of Business Administration degree from
National Chiao-Tung University. Mr. Chang currently serves as a director of
several private companies.
SANG-CHUL HAN has served as a director of Silicon Image since April 1996.
Dr. Han is the founder of KNCS, Inc., a cable system operator in Seoul, Korea,
and has served as a director since 1994.
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Dr. Han also founded Ewoo Films, a film production company, and served as its
president from 1992 to 1994. Dr. Han has held the position of director of RK
Industrial Co., a trading company in Seoul, Korea, since 1988. Dr. Han holds a
Bachelor of Science degree in Engineering from Seoul National University and a
Ph.D. in Finance from the New York University.
DAVID A. HODGES has served as a director of Silicon Image since February
1997. Dr. Hodges is a Professor in the Graduate School and the Daniel M. Tellep
Distinguished Professor Emeritus at the University of California at Berkeley,
where he has been a member of the faculty in the department of Electrical
Engineering and Computer Sciences since 1970. From 1990 to 1996, Dr. Hodges
served as Dean of the College of Engineering at the University of California at
Berkeley. From 1966 to 1970, Dr. Hodges worked at Bell Telephone Laboratories,
the research and development division of the American Telephone and Telegraph
Company. Dr. Hodges holds a Bachelor of Electrical Engineering degree from
Cornell University and Master of Science and Ph.D. degrees in Electrical
Engineering from the University of California at Berkeley. Dr. Hodges serves as
a director of Mentor Graphics Corporation, an electronic design automation
company.
ANDREW S. RAPPAPORT has served as a director of Silicon Image since June
1997. Mr. Rappaport has been a partner of August Capital, LLC, a venture capital
firm, since July 1996. Prior to that time, Mr. Rappaport was president of The
Technology Research Group, Inc., a Boston-based strategic management consulting
firm which he founded in August 1984. Mr. Rappaport attended Princeton
University. Mr. Rappaport serves as a director of MMC Networks, Inc., a
developer and supplier of network processors, and several private companies.
RONALD V. SCHMIDT has served as a director of Silicon Image since April
1997. Since 1997, he has held the position of Research Vice President at Lucent
Bell Laboratories Research Silicon Valley, a division of Lucent Technologies,
Inc., a global communications company. From 1994 to 1997, he served as Executive
Vice President and Chief Technical Officer and a director of Bay Networks, Inc.,
a data networking products and services company formed by the merger of
SynOptics Communications, Inc., and Wellfleet Communications, Inc. Dr. Schmidt
was a co-founder of Synoptics in 1985, and served as Senior Vice President,
Chief Technical Officer and a director of SynOptics until the merger. From 1981
to 1985, Dr. Schmidt was a research fellow at Xerox Corporation's Palo Alto
Research Center. Dr. Schmidt holds Bachelor of Science, Master of Science and
Ph.D. degrees in Electrical Engineering and Computer Science from the University
of California at Berkeley. Mr. Schmidt serves as a director of a private
company.
BOARD COMPOSITION
Our bylaws currently provide for a board of directors consisting of six
members. The term of each of our current directors will expire at the next
annual meeting of stockholders. Commencing at the first annual meeting of
stockholders following the annual meeting of stockholders when we shall have had
at least 800 stockholders, the board of directors will be divided into three
classes, each serving staggered three-year terms: Class I, whose term will
expire at the first annual meeting of stockholders following the annual meeting
of stockholders when we shall have had at least 800 stockholders; Class II,
whose term will expire at the second annual meeting of stockholders following
the annual meeting of stockholders when we shall have had at least 800
stockholders; and Class III, whose term will expire at the third annual meeting
of stockholders following the annual meeting of stockholders when we shall have
had at least 800 stockholders. As a result, only one class of directors will be
elected at each annual meeting of stockholders of Silicon Image, with the other
classes continuing for the remainder of their respective terms. Messrs. Chang
and Han have been designated as Class I directors; Drs. Hodges and Schmidt have
been designated as Class II directors; and Dr. Lee and Mr. Rappaport have been
designated as Class III directors. Mr. Chang was elected to the board of
directors pursuant to a voting agreement among Silicon Image and some of its
principal stockholders. This voting agreement will terminate upon completion of
this offering.
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<PAGE>
BOARD COMMITTEES
The audit committee consists of Dr. Hodges and Mr. Rappaport. The audit
committee:
- reviews our financial statements and accounting practices;
- makes recommendations to the board regarding the selection of independent
accountants; and
- reviews the results and scope of the audit and other services provided by
our independent accountants.
The compensation committee consists of Messrs. Chang and Rappaport and Dr.
Schmidt. The compensation committee:
- reviews and recommends to the Board of Directors the compensation and
benefits of all officers, directors and consultants of Silicon Image; and
- reviews general policy relating to compensation and benefits.
Except for grants under the 1995 Equity Incentive Plan made by the
compensation committee at its meeting on November 20, 1998, the board of
directors has continued to administer the issuance of stock options and other
awards under our 1995 Equity Incentive Plan, our 1999 Equity Incentive Plan and
our 1999 Employee Stock Purchase Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of Silicon Image's board of directors is
currently comprised of Messrs. Chang and Rappaport and Dr. Schmidt. None of
these individuals has at any time been an officer or employee of Silicon Image.
For a description of the transactions between Silicon Image and members of the
compensation committee and entities affiliated with the compensation committee
members, see "Certain Transactions." None of our executive officers serves as a
member of the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of our board of directors
or compensation committee.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Silicon Image entered into severance agreements with both David Lee and
Scott Macomber on April 22, 1997, and amended and restated these agreements on
August 15, 1997. The agreements provide that if, on or before December 31, 2000,
the executive is terminated by Silicon Image other than for cause, or if the
executive resigns for good reason, the executive will continue to receive salary
at his current rate for six months and vesting of his stock and options will
accelerate, subject to limitations in the event of certain types of acquisitions
of Silicon Image. In addition, if either Dr. Lee or Mr. Macomber is terminated
for cause, or resigns without good reason, then Silicon Image may elect to
continue his salary for six months. During any period when Dr. Lee or Mr.
Macomber is receiving post-termination salary pursuant to the severance
agreement, he will be available to consult with Silicon Image from time to time
as Silicon Image may request, and he may not compete with Silicon Image in
defined geographical areas. In June 1999, our Board recognized that changes that
had occurred in Mr. Macomber's title and position constituted good reason as
defined in the severance agreement, and that Mr. Macomber will be entitled to
the benefits described above if he resigns from Silicon Image.
Silicon Image entered into an employment agreement with Daniel Atler on June
15, 1998. In addition to describing Mr. Atler's initial title and compensation,
the agreement provides that Mr. Atler will continue to receive salary at his
current rate and benefits for six months in the event that his employment
terminates other than for cause. The agreement further provides that vesting of
Mr. Atler's stock and options will accelerate in part in the event of a change
in control of Silicon
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Image, subject to certain limitations. If Mr. Atler's employment continues after
a change in control of Silicon Image, his options and restricted stock grants
will continue to vest at an accelerated rate.
Silicon Image entered into an employment agreement with Parviz Khodi on June
10, 1999. In addition to describing Mr. Khodi's title and compensation, the
agreement provides for continuation of salary and commission for six months in
the event that there is a change in control of Silicon Image and Silicon Image
terminates Mr. Khodi's employment other than for cause, disability or death. The
agreement also provides that Mr. Khodi may purchase up to $10,000 of Silicon
Image's common stock at the end of each of eight fiscal quarters, commencing
with the fourth quarter of 1998, at the then current fair market value as
determined by the board of directors. Mr. Khodi has exercised this right by
purchasing a total of $20,000 of Silicon Image's stock to date. This stock
purchase opportunity expires upon the earliest of termination of Mr. Khodi's
employment, the closing of Silicon Image's initial public offering, or a change
in control that results in our common stock (or securities issued in exchange
for our common stock) becoming publicly traded.
DIRECTOR COMPENSATION
Directors of Silicon Image do not receive cash compensation for their
services as directors, but are reimbursed for their reasonable and necessary
expenses for attending board and board committee meetings. All board members are
eligible to receive stock options pursuant to the discretionary option grant
program in effect under Silicon Image's 1995 Equity Incentive Plan and 1999
Equity Incentive Plan. In 1998, each of Dr. Hodges and Dr. Schmidt was granted
an option to purchase 40,000 shares under the 1995 Equity Incentive Plan. Each
option is immediately exercisable, and shares purchased upon exercise are
subject to our right of repurchase, which lapses over four years.
Immediately following each annual meeting of our stockholders, each director
who is not an employee and whose direct pecuniary interest in our common stock
is less than 5% will automatically be granted an option under our 1999 Equity
Incentive Plan to purchase 10,000 shares if the director has served continuously
as a member of the board of directors for a period of at least one year, an
additional option for 5,000 shares if the director has served on the audit
committee, and an additional option for 5,000 shares if the director has served
on the compensation committee. Each option will have an exercise price equal to
the fair market value of our common stock on the date of grant. These annual
grants will be immediately vested in full and will have a two-year term, but
will generally terminate three months following the date the option-holder
ceases to be a director or consultant.
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EXECUTIVE COMPENSATION
The following table shows all compensation awarded to, earned by or paid for
services rendered to Silicon Image in all capacities during 1998 by our chief
executive officer and our other executive officers or former executive officers
who earned at least $100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
ANNUAL COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS(#)
- -------------------------------------------------------------------------- ---------- ------------- -----------
<S> <C> <C> <C>
David D. Lee(1) .......................................................... $ 144,473 $ -- --
Chairman of the Board and Chief Executive Officer
Scott A. Macomber(2) ..................................................... 143,672 -- --
Vice President, Business Strategy
Scott Slinker ............................................................ 135,579 17,656 --
former Vice President, Sales(3)
Jalil Shaikh ............................................................. 133,289 -- 60,000
Vice President, Operations
Victor Da Costa .......................................................... 120,621 -- 100,000
Vice President, Engineering
Brian Underwood .......................................................... 112,423 -- --
former Vice President, Marketing(4)
</TABLE>
- ------------------------
(1) Silicon Image authorized the sale of 150,000 shares of common stock to Dr.
Lee in October 1998, and the sale was completed in January 1999. The price
per share was $0.35, which the board of directors determined was the fair
market value of our common stock on the date of sale. We have a right to
repurchase these shares upon termination of employment, which right lapses
over a four-year period.
(2) Silicon Image authorized the sale of 250,000 shares of common stock to Mr.
Macomber in October 1998, and the sale was completed in January 1999. The
price per share was $0.35, which the board of directors determined was the
fair market value of our common stock on the date of sale. We have the right
to repurchase these shares upon termination of employment in some
circumstances, which right lapses over a four-year period.
(3) Mr. Slinker resigned from Silicon Image on October 31, 1998. The
compensation information above for Mr. Slinker includes severance pay up to
the end of 1998.
(4) Mr. Underwood is a founder of Silicon Image and our former Vice President,
Marketing.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information about each stock option granted during
1998 to the officers named in the Summary Compensation Table above.
All options included in the following table are immediately exercisable and
are incentive stock options. We have a right to repurchase the shares issued on
exercise of these options upon termination of the optionee's employment. This
right lapses over four years. We granted the options at an exercise price equal
to the fair market value of our common stock, as determined by our board of
directors on the date of grant. The options generally expire on the earlier of
ten years from the date of grant or
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three months after termination of employment. The percentage numbers are based
on an aggregate of 1,068,500 options granted to our employees during fiscal
1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF PERCENTAGE OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED IN 1998 PER SHARE DATE 5% 10%
- ------------------------------------- ----------- ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David D. Lee......................... -- -- -- -- -- --
Scott A. Macomber.................... -- -- -- -- -- --
Scott Slinker........................ -- -- -- -- -- --
Jalil Shaikh......................... 60,000 5.6% $ 0.35 10/21/08 $ $
Victor Da Costa...................... 100,000 9.4% 0.35 10/21/08
Brian Underwood...................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the assumed initial
public offering price of $ per share, (b) assuming that the aggregate
stock value derived from that calculation compounds at the annual 5% or 10%
rates shown in the table for the entire ten year term of the option, and
(c) subtracting from that result the aggregate option exercise price. The
5% and 10% assumed annual rates of compounded stock price appreciation in
the table above are required by the rules of the Securities and Exchange
Commission and do not represent our estimates or projections of our future
stock prices.
In addition, two of our officers joined us in 1998 and therefore were not
included in the tables relating to summary compensation and option grants in
1998. Mr. Atler, our Vice President, Finance and Administration and Chief
Financial Officer, is compensated at an annual rate of $162,751 and was granted
options to purchase 170,000 shares at an exercise price of $0.25 per share in
1998. Mr. Atler's options represented 15.9% of the total options granted to
employees in 1998. Mr. Khodi, our Vice President, Worldwide Sales, is
compensated at an annual rate of $143,838 and earned commissions and bonuses
totaling $25,229 in 1998. Mr. Khodi was granted options to purchase 60,000
shares at $0.25 per share and 60,000 shares at $0.35 per share in 1998, which
represented an aggregate of 11.2% of the total options granted to employees in
1998. The options granted to Mr. Atler and Mr. Khodi were immediately
exercisable. Upon termination of the optionee's employment, we have a right to
repurchase the shares issued upon exercise of these options. Our right to
repurchase the shares lapses over a four-year period.
FISCAL YEAR END OPTION VALUES
The following table provides information about stock option exercises by
each of the executive officers named in the Summary Compensation Table above
that exercised options in 1998. It also provides information about unexercised
options held by these officers at the end of 1998. We have a
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right to repurchase the shares issued upon exercise of these options upon
termination of the optionee's employment. Our right to repurchase the shares
lapses over a four-year period.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE END(#) FISCAL YEAR END($)(2)
ON EXERCISE REALIZED ---------------------------- --------------------------
NAME (#)(1) ($)(2) EXERCISABLE(3) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- --------------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David D. Lee............. -- $ -- -- -- $ -- --
Scott A. Macomber........ 100,000 -- 100,000 -- -- --
Scott Slinker............ -- -- 108,750 -- -- --
Jalil Shaikh............. 81,000 -- 133,000 -- -- --
Victor Da Costa.......... 140,000 -- 120,000 -- -- --
Brian Underwood.......... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Of these shares, the following numbers were vested as of December 31, 1998:
Scott A. Macomber--80,000 shares, Jalil Shaikh--81,000 shares; Victor Da
Costa--96,250.
(2) The amount set forth represents the difference between the fair market value
of the underlying common stock at June 30, 1999 (using an assumed initial
public offering price of $ per share as the fair market value) and the
exercise price of the option.
(3) Of the shares issuable upon exercise of these options, the following numbers
were vested as of December 31, 1998: Scott A. Macomber--no shares, Scott
Slinker--108,750 shares, Jalil Shaikh-- no shares, Victor Da Costa--5,000
shares.
EMPLOYEE BENEFIT PLANS
1995 EQUITY INCENTIVE PLAN
Our 1995 Equity Incentive Plan was adopted by our board of directors in
September 1995. As of June 30, 1999, there were outstanding options to purchase
a total of 1,098,963 shares of common stock under this plan, and 1,439,000
shares remained available for future grants of options under this plan. This
plan will terminate immediately prior to this offering and no further options
will be granted. However, the termination of this plan will not affect any
outstanding options, which will remain outstanding until they are exercised,
terminate or expire.
1999 EQUITY INCENTIVE PLAN
Our 1999 Equity Incentive Plan will become effective on the date of this
prospectus and will serve as the successor to our 1995 Equity Incentive Plan. We
have reserved 1,000,000 shares of common stock for issuance under this plan. The
number of shares reserved for issuance under this plan will be increased to
include:
- any shares reserved under our 1995 Equity Incentive Plan not issued or
subject to outstanding grants on the date of this prospectus;
- any shares issued under our 1995 Equity Incentive Plan that are
repurchased by us at the original purchase price; and
- any shares issuable upon exercise of options granted under our 1995 Equity
Incentive Plan that expire or become unexercisable without having been
exercised in full.
The number of shares reserved under this plan will be increased
automatically on January 1 of each year by an amount equal to 5% of our total
outstanding shares as of the immediately preceding December 31. Our board of
directors or compensation committee may reduce the amount of the
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increase in any particular year. The following shares will be available for
grant and issuance under our 1999 Equity Incentive Plan:
- shares issuable upon exercise of an option granted under this plan that is
terminated or cancelled before the option is exercised;
- shares issued upon exercise of an option granted under this plan that are
subsequently repurchased by us at the original purchase price;
- shares subject to awards granted under this plan that are subsequently
forfeited or repurchased by us at the original issue price; and
- shares subject to stock bonuses granted under this plan that otherwise
terminate without shares being issued.
Our 1999 Equity Incentive Plan will terminate in 2009, unless sooner
terminated in accordance with the terms of the plan. Our 1999 Equity Incentive
Plan authorizes the award of options, restricted stock awards and stock bonuses.
No person will be eligible to receive more than 500,000 shares in any calendar
year under this plan (750,000 in the case of new employees). This plan is
administered by the compensation committee of our board of directors, which
currently consists of Mr. Chang, Mr. Rappaport and Mr. Schmidt, all of whom are
"outside directors" as defined under applicable federal tax laws. The committee
has the authority to interpret this plan and any agreement made under the plan,
grant awards and make all other determinations for the administration of this
plan. Our 1999 Equity Incentive Plan provides for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code, and
nonqualified stock options. Incentive stock options may be granted only to
employees. Nonqualified stock options, and all other awards other than incentive
stock options, may be granted to employees, officers, directors, consultants,
independent contractors and advisors of Silicon Image or subsidiary of Silicon
Image. However, consultants, independent contractors and advisors are only
eligible to receive awards if they render bona fide services not in connection
with the offer and sale of securities in a capital-raising transaction. The
exercise price of incentive stock options must be at least equal to the fair
market value of our common stock on the date of grant. The exercise price of
incentive stock options granted to 10% stockholders must be at least equal to
110% of that value. The exercise price of nonqualified stock options must be at
least equal to 85% of the fair market value of the our common stock on the date
of grant. The maximum term of options granted under our 1999 Equity Incentive
Plan is ten years. Awards granted under this plan may not be transferred in any
manner other than by will or by the laws of descent and distribution and may be
exercised during the lifetime of the optionee only by the optionee. The
compensation committee may allow exceptions to this restriction with respect to
awards that are not incentive stock options. Options granted under our 1999
Equity Incentive Plan generally expire three months after the termination of the
optionee's service to Silicon Image or a parent or subsidiary of Silicon Image.
In the event of a "change in control" of Silicon Image, if the successor does
not assume the options, they will expire upon conditions determined by the
compensation committee. Alternatively, the compensation committee may accelerate
the vesting of awards upon a change in control of Silicon Image.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan will become effective on the first day
on which price quotations are available for our common stock on the Nasdaq
National Market. We have initially reserved 250,000 shares of common stock for
issuance under this plan. The number of shares reserved for issuance under our
1999 Employee Stock Purchase Plan will be increased automatically on January 1
of each year by an amount equal to 1% of our total outstanding shares as of the
immediately preceding December 31. Our board of directors or compensation
committee may reduce the amount of the increase in any particular year. Our
compensation committee will administer our 1999 Employee Stock Purchase Plan.
Employees generally will be eligible to participate in our 1999 Employee Stock
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Purchase Plan if they are employed by Silicon Image, or any subsidiaries that
Silicon Image designates, for more than 20 hours per week and more than five
months in a calendar year. Employees are not eligible to participate in our 1999
Employee Stock Purchase Plan if they are 5% stockholders, or would become 5%
stockholders as a result of their participation in this plan. Under our 1999
Employee Stock Purchase Plan, eligible employees may acquire shares of our
common stock through payroll deductions. Eligible employees may select a rate of
payroll deduction between 1% and 15% of their cash compensation and are subject
to certain maximum purchase limitations. Participation in this plan will end
automatically upon termination of employment for any reason. A participant will
not be able to purchase shares having a fair market value of more than $25,000,
determined as of the first day of the applicable offering period, for each
calendar year in which the employee participates in this plan. Each offering
period under this plan will be for two years and will consist of four six-month
purchase periods. The first offering period is expected to begin on the first
business day on which price quotations for our common stock are available on the
Nasdaq National Market. The first purchase period may be more or less than six
months long. Offering periods thereafter will begin on February 1 and August 1.
The purchase price for common stock purchased under this plan will be 85% of the
lesser of the fair market value of our common stock on the first day of the
applicable offering period or the last day of each purchase period. The
compensation committee will have the power to change the duration of offering
periods. Our 1999 Employee Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code.
This plan will terminate in 2009, unless it is terminated earlier pursuant to
its terms.
401(K) PLAN
We sponsor a defined contribution plan intended to qualify under Section 401
of the Internal Revenue Code. Participants may make pre-tax contributions to the
plan of up to 20% of their eligible earnings, subject to a statutorily
prescribed annual limit. Participants are fully vested in their contributions
and the investment earnings. We may make matching contributions on a
discretionary basis to the 401(k) plan, but have not done so in the past.
Contributions by the participants or us to the 401(k) plan, and the income
earned on such contributions, are generally not taxable to the participants
until withdrawn. Our matching contributions, if any, are generally deductible by
us when made. Contributions are held in trust as required by law. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation includes a provision that eliminates the
personal liability of a director for monetary damages resulting from breach of
his fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to Silicon Image or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, subject to
certain limited exceptions;
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- we are required to advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law, subject to
certain limited exceptions; and
- the rights conferred in the bylaws are not exclusive.
In addition to the indemnification required in our certificate of
incorporation and bylaws, before the completion of this offering, we intend to
enter into indemnity agreements with each of our current directors and officers.
These agreements provide for the indemnification of our officers and directors
for all expenses and liabilities incurred in connection with any action or
proceeding brought against them by reason of the fact that they are or were
agents of Silicon Image. We also intend to obtain directors' and officers'
insurance to cover our directors, officers and some of our employees for certain
liabilities, including public securities matters. We believe that these
indemnification provisions and agreements and this insurance are necessary to
attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. They
may also reduce the likelihood of derivative litigation against directors and
officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, a stockholder's investment may be adversely affected
to the extent we pay the costs of settlement and damage awards against directors
and officers as required by these indemnification provisions. At present, there
is no pending litigation or proceeding involving any of our directors, officers
or employees regarding which indemnification by Silicon Image is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
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CERTAIN TRANSACTIONS
Since we were incorporated in January 1995, there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which
Silicon Image was or is to be a party in which the amount involved exceeds
$60,000 and in which any director, executive officer or holder of more than 5%
of our common stock had or will have a direct or indirect interest, other than
compensation arrangements, which are described where required under
"Management," and the transactions described below.
FORMATION OF SILICON IMAGE. In connection with the formation of Silicon
Image, we issued and repurchased shares of common stock as set forth in the
following table.
<TABLE>
<CAPTION>
DATE OF NUMBER OF NUMBER OF
PURCHASE OR SHARES SHARES PRICE PER
NAME REPURCHASE PURCHASED REPURCHASED SHARE
- --------------------------------------------------------------- ----------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
David Lee...................................................... 01/01/95 1,735,000 $ 0.0005
03/01/95 800,000 0.0005
10/02/95 335,000* 0.0005
Deog-Kyoon Jeong............................................... 01/01/95 640,000 0.0005
09/05/95 360,000 0.0150
Brian Underwood................................................ 01/01/95 800,000 0.0005
09/05/95 400,000 0.0150
</TABLE>
- ------------------------
* We repurchased shares from Dr. Lee in the course of negotiating the terms of
our Series A preferred stock financing.
All shares were subject to our right of repurchase, which expired in quarterly
increments over a four-year period. This repurchase right has now expired with
respect to all of the shares described above.
RELATIONSHIP WITH DR. JEONG. Effective in May 1995, we entered into a
license agreement with Dr. Jeong, a founder of Silicon Image and our Chief
Technical Adviser, pursuant to which Dr. Jeong granted us a royalty-bearing
license to serial link technology. Dr. Jeong released Silicon Image from the
obligation to pay further royalties as part of the amendment of his consulting
agreement in 1999. At that time, we had paid Dr. Jeong royalties totaling
$5,828.
Dr. Jeong has been a consultant to Silicon Image continuously since October
1995, and has managed advanced research and development projects on our behalf.
We paid Dr. Jeong $77,000 for his services in fiscal 1998, and we paid him
$48,000 for his services in the six month period ended June 30, 1999. In
addition, since February 1996, we have entered into four research and
development agreements with the Inter-University Semiconductor Research Center
of Seoul National University for research projects relating to advanced
interconnect technologies. Dr. Jeong is an associate professor of the School of
Electrical Engineering at Seoul National University and is named as the primary
technical and faculty contact under each of these four contracts. We paid the
Inter-University Semiconductor Research Center of Seoul National University a
total of $60,000 under these agreements in fiscal 1998, and we paid it $80,000
for the six months ended June 30, 1999. See "Business--Research and
Development."
PREFERRED STOCK. Since our inception in January 1995, we have issued shares
of preferred stock in private placement transactions as described below. Share
numbers and per share prices for the transactions described below are adjusted
for a change in the conversion ratio of the Series A preferred stock and Series
B preferred stock caused by the issuance of the Series C Preferred Stock.
- 3,130,000 shares of Series A preferred stock at $0.50 per share from
October 1995 to March 1996.
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- 932,203 shares of Series B preferred stock at $2.36 per share in September
1996.
- 4,000,000 shares of Series C preferred stock at $1.25 per share in June
1997.
- 3,594,859 shares of Series D preferred stock at $3.50 per share from July
1998 to September 1998.
The investors who negotiated the terms of these transactions were not affiliated
with Silicon Image prior to purchasing the shares. The following table
summarizes the shares of preferred stock purchased by each of the executive
officers named in the Summary Compensation Table above and by directors,
principal stockholders and entities associated with them in the foregoing
private placement transactions:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
SERIES A SERIES C SERIES D
PREFERRED PREFERRED PREFERRED
INVESTOR STOCK STOCK STOCK
- --------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Entities Affiliated with August Capital, L.P
(Andrew Rappaport)....................................................... -- 3,200,000 1,428,572
Entities Affiliated with InveStar Capital
(Herbert Chang).......................................................... -- -- 857,143
David A. Hodges............................................................ -- 15,000 --
Sang-Chul Han.............................................................. 1,777,850 365,975 --
Ronald Schmidt............................................................. -- 46,068 10,000
Intel Corporation.......................................................... -- -- 857,143
</TABLE>
Shares held by all affiliated persons and entities have been aggregated.
RESTRICTED STOCK. The following officers and one principal stockholder
purchased shares of our common stock in exchange for full recourse promissory
notes issued to us. Except as otherwise noted below, we have a right to
repurchase these shares, which right lapses over a four-year period with respect
to 25% of the shares after one year and 2.0833% each month thereafter. The full
principal amount and accrued interest under each promissory note remain
outstanding. The terms of the restricted stock purchases are summarized below:
<TABLE>
<CAPTION>
PRINCIPAL
DATE OF NUMBER OF PRICE PER AMOUNT OF INTEREST
NAME PURCHASE SHARES SHARE NOTE DATE DUE RATE
- ----------------------------------- ------------------- ----------- ----------- ----------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Daniel K. Atler.................... June 1, 1999 60,000 $ 1.00 $ 60,000 June 1, 2004 5.30%
Deog-Kyoon Jeong................... March 29, 1999 150,000 0.35 52,500 March 29, 2004 4.77
Parviz Khodi....................... June 1, 1999 60,000 1.00 60,000 June 1, 2004 5.30
June 1, 1999 20,000* 1.00 20,000 June 1, 2004 5.30
David Lee.......................... January 29, 1999 150,000 0.35 52,500 January 29, 2004 4.64
Scott Macomber..................... January 29, 1999 250,000 0.35 87,500 January 29, 2004 4.64
Jalil Shaikh....................... June 15, 1999 30,000 1.25 37,500 June 15, 2004 5.30
</TABLE>
- ------------------------
* Indicates shares not subject to a right of repurchase on behalf of Silicon
Image.
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TRANSACTIONS WITH INTEL AND ITS SUBSIDIARY, CHIPS AND TECHNOLOGIES. Our
relationship with Intel and its subsidiary, Chips and Technologies, is set forth
in the following agreements:
- In September 1998, we entered into a Business Cooperation Agreement with
Intel. Under this agreement, we worked with Intel to develop and promote
adoption by the personal computer industry of a complete digital display
interface specification based on our existing technology and an advanced
specification based an enhanced version of our technology. The Business
Cooperation Agreement was amended in October 1998 to provide that it would
conform to other agreements that Intel and Silicon Image expected to enter
into with other parties to advance the same goals.
- In January 1999, Silicon Image entered into a Promoter's Agreement with
Intel, Compaq Computer Corporation, Fujitsu Limited, Hewlett-Packard
Company, International Business Machines Corporation, and NEC Corporation.
The parties to this agreement formed the Digital Display Working Group.
They agreed:
- To define, establish and support a digital visual interface
specification for integrating digital display devices in a computer
system environment;
- To encourage broad and open industry adoption of the DVI
specification, in part by creating an implementer's forum that others
may join in order to receive information and support relating to the
DVI specification;
- To invite third parties to enter into a Participant's Agreement in
order to consult on the content, feasibility and other aspects or the
DVI specification;
- To grant to one another, and to any other adopter who agrees in turn
to grant to the promoters and all other adopters, a nonexclusive,
nontransferable, royalty-free, nonsublicenseable, worldwide,
perpetual, irrevocable, reciprocal license under "Necessary Claims"
(as defined below) to make, have made, use, import and directly and
indirectly, offer to sell, lease, sell, promote and otherwise
distribute portions of products that are fully compliant with that
specification. "Necessary Claims" are the claims of all patents filed
prior to January 1, 2003 which are necessarily infringed to comply
with that specification or for which infringement is based on an
implementation of any example included in the body of that
specification.
- In September 1998, Intel acquired the following equity securities of
Silicon Image in addition to the 857,143 shares of our Series D preferred
stock described above under the heading "-- Preferred Stock":
- a warrant to purchase 142,857 shares of our common stock at a purchase
price of $3.50 per share that expires in September 2004;
- a warrant to purchase 142,857 shares of our common stock at a purchase
price of $0.35 per share. This warrant became exercisable on March 31,
1999 and expires in September 2004;
- an agreement that Silicon Image will issue an additional warrant to
purchase 142,857 shares of our common stock at a purchase price of
$0.35 per share when and if Intel ships for revenue a product
supporting an enhanced version of our digital display interface
technology, provided that this takes place by September 2004.
- In September 1998 we entered into a Patent License Agreement with Intel
pursuant to which:
- Silicon Image granted Intel a non-exclusive, nontransferable,
worldwide license, without right to sublicense, to make, have made,
use, import and directly or indirectly sell, offer
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to sell and otherwise dispose of, Intel products with specific
exclusions related to Silicon Image's current products, anticipated
future products, and network devices;
- Intel granted Silicon Image a non-exclusive, nontransferable,
worldwide license, without right to sublicense, to make, have made,
use, import, and directly or indirectly sell, offer to sell and
otherwise dispose of, identified types of Silicon Image products with
specific exclusions related to Intel's current products, anticipated
future products, and network devices.
- In December, 1997, Silicon Image entered into a Transmitter Core License
and Product Distribution Agreement with Chips and Technologies. Intel
subsequently acquired Chips and Technologies. Chips and Technologies has
not exercised its right under this agreement to develop and sell a chip
that integrates our transmitter technology with its graphics
functionality. This agreement terminates in December 2002.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of June 30, 1999 and as adjusted to
reflect the sale of the common stock in this offering, by:
- each stockholder known by us to be the beneficial owner of more than 5% of
our common stock;
- each of our directors;
- each executive officer listed in the Summary Compensation Table; and
- all current executive officers and directors as a group.
The percentage of beneficial ownership for the following table is based on
21,120,274 shares of common stock outstanding as of June 30, 1999, assuming
conversion of all outstanding shares of preferred stock into common stock, and
shares of common stock outstanding after the completion of this offering.
Under the rules of the Securities and Exchange Commission, beneficial
ownership includes voting or investment power with respect to securities and
includes the shares issuable under stock options or warrants that are
exercisable within 60 days of June 30, 1999. Shares issuable under stock options
or warrants are deemed outstanding for computing the percentage held by the
person holding options but are not outstanding for computing the percentage of
any other person. Unless otherwise indicated, the address for each listed
stockholder is: c/o Silicon Image, Inc., 10131 Bubb Road, Cupertino, California
95014. To our knowledge, except as indicated in the footnotes to this table and
under applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of common stock.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES SHARES BENEFICIALLY OWNED
BENEFICIALLY ----------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Directors and Executive Officers:
Andrew Rappaport(1)............................................ 4,776,097 22.6%
Sang-Chul Han(2)............................................... 2,143,825 10.2%
David Lee(3)................................................... 2,108,000 10.0%
Herbert Chang(4)............................................... 1,056,144 5.0%
Brian Underwood(5)............................................. 1,000,000 4.7%
Scott A. Macomber(6)........................................... 900,000 4.3%
Victor M. Da Costa(7).......................................... 260,000 1.2%
Jalil Shaikh(8)................................................ 244,000 1.2%
Scott Slinker.................................................. 108,750 *
David A. Hodges(9)............................................. 95,000 *
Ronald V. Schmidt(10).......................................... 136,068 *
All directors and executive officers as a group (11 12,149,134 57.0%
persons)(11).................................................
Other 5% Stockholders:
Entities affiliated with August Capital, L.P.(1)............... 4,776,097 22.6%
Intel Corporation(12).......................................... 1,142,857 5.3%
Deog-Kyoon Jeong(13)........................................... 1,130,000 5.4%
Entities affiliated with InveStar Capital, Inc.(4)............. 1,056,144 5.0%
</TABLE>
- ------------------------
* Less than 1%.
(1) Andrew Rappaport, a director of Silicon Image, is a member of August
Capital Management LLC, which is a general partner of each of August
Capital, L.P., August Capital Strategic Partners, L.P. and August Capital
Associates, L.P. Mr. Rappaport shares voting power with respect
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<PAGE>
to the shares held by these entities with Mr. David Marquardt and Mr. John
Johnston. Mr. Rappaport disclaims beneficial ownership of shares held by
these entities except to the extent of his pecuniary interest in these
entities. The address of Mr. Rappaport and August Capital is 2480 Sand Hill
Road, Suite 101, Menlo Park, CA 94025.
(2) Mr. Han's address is c/o Young Jin Lee, 1115 Huntington Drive, Unit G,
South Pasadena, CA 91030.
(3) Includes 300,000 shares held by David Lee as custodian for his minor
children. Includes 150,000 shares subject to our repurchase right which
lapses over time. Dr. Lee is our President, Chief Executive Officer and
Chairman of the Board.
(4) Represents 199,001 shares held by InveStar Dayspring Venture Capital, Inc.,
428,572 shares held by InveStar Semiconductor Development Fund, 285,714
shares held by InveStar Excelsus Venture Capital (Int'l), Inc. and 142,857
shares held by Forefront Venture Partners, L.P. Herbert Chang is the
President of InveStar Capital, Inc., which is the investment manager of
each of InveStar Dayspring Venture Capital, Inc., InveStar Semiconductor
Development Fund and InveStar Excelsus Venture Capital (Int'l), Inc. Mr.
Chang is also the managing member of Forefront Associates LLC, which is the
general partner of Forefront Venture Partners, L.P. Mr. Chang disclaims
beneficial ownership of shares held by these entities except to the extent
of his pecuniary interest in these entities. Mr. Chang's address is Room
1201, TWTC Int'l Trade Building 12F, 333 Keelung Road, Section 1, Taipei,
Taiwan.
(5) Includes 50,000 shares subject to our repurchase right which lapses over
time. Mr. Underwood is our former Vice President, Marketing and our current
Director, Strategic Sales.
(6) Excludes 100,000 shares held in trust by George R. Macomber for the benefit
of Scott Macomber's minor children. Includes 438,750 shares subject to our
repurchase right which lapses over time or upon termination of employment
other than for cause. Mr. Macomber is our Vice President, Business
Strategy.
(7) Includes 120,000 shares subject to options exercisable on or before August
29, 1999, of which, as of June 30, 1999, 110,000 shares were subject to our
repurchase right which lapses over time. Includes 26,250 shares subject to
our repurchase right which lapses over time. Mr. Da Costa is our Vice
President, Engineering.
(8) Includes 148,000 shares subject to our repurchase right which lapses over
time. Mr. Shaikh is our Vice President, Operations.
(9) Includes 50,000 shares subject to our repurchase right which lapses over
time. Dr. Hodges is a director of Silicon Image.
(10) Includes 80,000 shares subject to options exercisable on or before August
29, 1999, of which, as of June 30, 1999, 50,000 shares were subject to our
repurchase right which lapses over time. Dr. Schmidt is a director of
Silicon Image.
(11) Includes 200,000 shares subject to options exercisable on or before August
29, 1999, of which, as of June 30, 1999, 160,000 shares were subject to
our repurchase right which lapses over time. Includes 1,355,500 shares
subject to our right of repurchase which lapses over time.
(12) Includes 285,714 shares subject to a warrant exercisable on or before
August 29, 1999. Excludes a warrant for 142,857 shares of common stock
exercisable at $0.35 per share that Silicon Image is obligated to issue to
Intel upon satisfaction of certain milestones. Intel's address is 2200
Mission College Boulevard, Santa Clara, CA 95052.
(13) Includes 150,000 shares subject to our right of repurchase which lapses
over time. Mr. Jeong is our Chief Technical Adviser.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of shares of common stock, $0.001 par value per share,
and shares of preferred stock, $0.001 par value per share. As of June 30,
1999, and assuming the conversion of all outstanding preferred stock into common
stock upon the closing of this offering, there were outstanding 21,120,274
shares of common stock held of record by approximately 117 stockholders, options
to purchase 1,149,000 shares of common stock and warrants to purchase 317,856
shares of common stock. Before the closing of this offering, Silicon Image will
reincorporate in the State of Delaware.
COMMON STOCK
DIVIDEND RIGHTS. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as our board or directors may determine.
VOTING RIGHTS. Each holder of common stock is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation. This means that commencing at the first annual
meeting of stockholders following the date on which we shall have had at least
800 stockholders, the holders of a majority of the shares voted can elect all of
the directors then standing for election.
NO PREEMPTIVE OR SIMILAR RIGHTS. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
RIGHT TO RECEIVE LIQUIDATION DISTRIBUTIONS. Upon a liquidation, dissolution
or winding-up of Silicon Image, the holders of common stock are entitled to
share ratably with holders of any participating preferred stock in all assets
remaining after payment of all liabilities and the liquidation preferences of
any outstanding preferred stock. Each outstanding share of common stock is, and
all shares of common stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred stock
will be converted into shares of common stock. See Note 5 of Notes to Financial
Statements for a description of our preferred stock.
Following the offering, we will be authorized, subject to limitations
imposed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
and to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions. The
board of directors can also increase or decrease the number of shares of any
series, but not below the number of shares of such series then outstanding,
without any further vote or action by the stockholders. The board 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 the common
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, have the effect of delaying, deferring or preventing a change in
control of Silicon Image and may adversely affect the market price of the common
stock and the voting and other rights of the holders of common stock. We have no
current plan to issue any shares of preferred stock.
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WARRANTS
In September 1998, we issued to Intel a warrant to purchase 142,857 shares
of our common stock at an exercise price of $3.50 per share. In September 1998,
we also issued to Intel a warrant to purchase 142,857 shares of our common stock
at an exercise price of $0.35 per share. Each of these warrants will remain
outstanding after the completion of this offering until September 2004 unless
sooner exercised. In addition, we are obligated to issue an additional warrant
to Intel for 142,857 shares of common stock exercisable at $0.35 per share upon
satisfaction of a milestone. This warrant will entitle Intel to purchase 142,857
shares of our common stock at an exercise price of $0.35 per share.
In February 1999, we issued a warrant to an equipment lease financing
company to purchase 32,142 shares of our Series D preferred stock with an
exercise price of $3.50 per share. This warrant is immediately exercisable and
will remain outstanding after the completion of this offering at which time it
will become exercisable for 32,142 shares of our common stock. The warrant
expires in February 2004.
REGISTRATION RIGHTS
As a result of an investors' rights agreement dated July 28, 1998 between
Silicon Image and some of our stockholders, the holders of 11,642,375 shares of
common stock will be entitled to rights with respect to the registration of
these shares under the Securities Act, as described below.
DEMAND REGISTRATION RIGHTS. At any time after 90 days following this
offering, the holders of at least 50% of the shares of common stock issuable
upon conversion of our Series C and D preferred stock can request that we
register all or a portion of their shares, so long as such registration covers
at least 20% of their shares and the total offering price of the shares to the
public is at least $5,000,000. We will only be required to file two registration
statements in response to their demand registration rights. We may postpone the
filing of a registration statement for up to 90 days once in a 12 month period
if we determine that the filing would be seriously detrimental to Silicon Image
and our stockholders.
PIGGYBACK REGISTRATION RIGHTS. If we register any securities for public
sale, the holders of the shares of common stock issuable upon conversion of our
Series A through D preferred stock will have the right to include their shares
in the registration statement. However, this right does not apply to a
registration statement relating to any of our employee benefit plans or a
corporate reorganization. The managing underwriter of any underwritten offering
will have the right to limit the number of shares registered by these holders to
25% of the total shares covered by the registration statement due to marketing
reasons.
FORM S-3 REGISTRATION RIGHTS. The holders of the shares of common stock
issuable upon conversion of our Series A through D preferred stock can request
that we register their shares if we are eligible to file a registration
statement on Form S-3 and if the total price of the shares offered to the public
is at least $500,000. These holders may only require us to file two registration
statements on Form S-3 in any 12 month period. We may postpone the filing of a
registration statement for up to 120 days once in a 12 month period if we
determine that the filing would be seriously detrimental to Silicon Image and
our stockholders.
We will pay all expenses incurred in connection with the registrations
described above, except for underwriters' and brokers' discounts and
commissions, which will be paid by the selling stockholders.
The registration rights described above will expire with respect to a
particular stockholder if it can sell all of its shares in a three month period
under Rule 144 of the Securities Act. In any event, the registration rights
described above will expire seven years after this offering is completed.
65
<PAGE>
Holders of these registration rights have waived the exercise of these
registration rights for 180 days following the date of this prospectus.
ANTI-TAKEOVER PROVISIONS
The provisions of Delaware law, our certificate of incorporation and our
bylaws may have the effect of delaying, deferring or discouraging another person
from acquiring control of our company.
DELAWARE LAW
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents some
Delaware corporations from engaging, under some circumstances, in a "business
combination," which includes a merger or sale of more than 10% of the
corporation's assets with any "interested stockholder," meaning a stockholder
who owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of the stockholder, for three years following the date
that the stockholder became an "interested stockholder" unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder attained that status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- on or subsequent to such date the business combination is approved by the
board and authorized at an annual or special meeting of stockholders by at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
A Delaware corporation may opt out of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not opted out of this provision. The statute could prohibit or
delay mergers or other takeover or change-in-control attempts and, accordingly,
may discourage attempts to acquire us.
CHARTER AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws provide that:
- following the completion of this offering, no action shall be taken by
stockholders except at an annual or special meeting of the stockholders
called in accordance with our bylaws and that stockholders may not act by
written consent;
- following the completion of this offering, the approval of two-thirds of
the stockholders shall be required to adopt, amend or repeal our bylaws;
stockholders may not call special meetings of the stockholders or fill
vacancies on the board;
- commencing at the first annual meeting of stockholders following the date
on which we shall have had at least 800 stockholders, our board of
directors will be divided into three classes, each serving staggered
three-year terms, which means that only one class of directors will be
elected at each annual meeting of stockholders, with the other classes
continuing for the remainder of their respective terms, and directors may
only be removed for cause; and
- we will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their
services to us, which may include services in connection with takeover
defense measures.
66
<PAGE>
These provisions of our certificate of incorporation and bylaws may have the
effect of delaying, deferring or discouraging another person from acquiring
control of our company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
LISTING
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the trading symbol "SIMG."
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
A significant public market for our common stock may not develop or be sustained
after this offering. Future sales of substantial amounts of our common stock in
the public market, or the possibility of these sales occurring, could adversely
affect prevailing market prices for our common stock or our future ability to
raise capital through an offering of equity securities.
Upon completion of this offering, we will have 21,120,274 shares of common
stock outstanding, assuming no exercise of options and warrants outstanding as
of June 30, 1999, and the conversion of all outstanding shares of preferred
stock. Of these shares, shares sold in this offering ( if the
underwriters' over-allotment option is exercised in full) will be freely
tradable in the public market without restriction or registration under the
Securities Act, unless the shares are held by "affiliates" of Silicon Image, as
that term is defined in Rule 144 under the Securities Act.
The remaining 21,120,274 shares of common stock outstanding upon completion
of this offering will be "restricted securities" as defined in Rule 144. We
issued and sold these restricted securities in private transactions in reliance
on exemptions from registration under the Securities Act. Restricted securities
may be sold in the public market only if they are registered or if they qualify
for an exemption from registration under Rule 144 or Rule 701 under the
Securities Act, as summarized below.
Pursuant to "lock-up" agreements, all the executive officers, directors and
stockholders of Silicon Image, who collectively hold an aggregate of 21,120,274
of these restricted securities, have agreed not to offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any of these shares
for a period of 180 days from the date of this prospectus, subject to limited
exceptions. However, Credit Suisse First Boston Corporation may in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to lock-up agreements.
Taking into account the lock-up agreements, and assuming Credit Suisse First
Boston does not release stockholders from these agreements, the following shares
will be eligible for sale in the public market at the following times:
- On the date of this prospectus, the shares sold in the offering will
be immediately available for sale in the public market.
- 180 days after the effective date, approximately 19,236,716 shares will be
eligible for sale, of which 13,934,438 will be subject to volume, manner
of sale and other limitations under Rule 144.
- Of the remaining shares, 20,000 will be eligible for sale under Rule 701
upon the expiration of our repurchase right with respect to those shares,
and 1,863,558 will be eligible for sale under Rule 144 upon the expiration
of various one-year holding periods.
67
<PAGE>
Following the expiration of the lock-up period, shares issued upon exercise
of options we granted prior to the date of this prospectus will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of these shares beginning 90 days after
the date of this prospectus. In general, under Rule 144, after expiration of the
lock-up period, a person who has beneficially owned restricted securities for at
least one year would be entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of:
- 1% of the then-outstanding shares of common stock, or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale and notice
requirements and the availability of current public information about Silicon
Image. Under Rule 144(k), a person who has not been our affiliate at any time
during the three months before a sale and who has beneficially owned the shares
proposed to be sold for at least two years can sell these shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
After the effective date of this offering, we intend to file a registration
statement on Form S-8 to register approximately 4,978,138 shares of common stock
outstanding or reserved for issuance under the 1995 Equity Incentive Plan, the
1999 Equity Incentive Plan, the 1999 Employee Stock Purchase Plan and written
compensation contracts with our officers and key employees. The registration
statement will become effective automatically upon filing. Shares issued under
the foregoing employee benefit plans, after the filing of a registration
statement on Form S-8, may be sold in the open market, subject, in the case of
some holders, to the Rule 144 limitations applicable to affiliates, the lock-up
agreements and repurchase right held by us.
In addition, following this offering, the holders of 11,642,375 shares of
outstanding common stock will, under some circumstances, have right to require
us to register their shares for future sale. See "Description of Capital
Stock--Registration Rights."
68
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens, Inc. and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, are acting as representatives the following respective numbers of
shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Credit Suisse First Boston Corporation............................................
BancBoston Robertson Stephens, Inc................................................
Dain Rauscher Wessels.............................................................
Total.........................................................................
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------ ------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions paid by $ $ $ $
us..............................................
Expenses payable by us............................ $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our executive officers and directors, and existing holders of our
securities which holders own or have the right to acquire more than 1% of our
outstanding shares of common stock have agreed that we will not offer, sell,
contract to sell, announce our intention to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the Securities and Exchange Commission
a registration statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any of our common stock without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus,
except in our case issuances pursuant to the exercise of employee stock options
outstanding on the date hereof.
69
<PAGE>
The underwriters have reserved for sale, at the initial offering price, up
to shares of common stock for employees, directors and other persons
associated with us who have expressed an interest in purchasing common stock in
the offering. The number of shares available for sale to the general public in
this offering will be reduced to the extent these persons purchase the reserved
shares. Any reserved shares not so purchased will be offered by the underwriters
to the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have made application to list the shares of common stock on The Nasdaq
Stock Market's National Market under the symbol "SIMG".
Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives, and may not reflect the market
price for the common stock following this offering. Among the principal factors
considered in determining the initial public offering price of our common stock
will be:
- the information in this prospectus and otherwise available to the
representatives;
- market conditions for initial public offerings;
- the history of and prospects for the industry in which we will compete;
- the ability of our management;
- our prospects for future earnings, the present state of our development
and our current financial condition;
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies;
- the general condition of the securities markets at the time of this
offering and other relevant factors.
We can offer no assurances that the initial public offering price will
correspond to the price at which common stock will trade in the public market
following this offering or that an active trading market for the common stock
will develop and continue after this offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit
bids to purchase shares of the common stock so long as the stabilizing
bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.
70
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where required
by law, that the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U. S. federal securities.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or these persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
71
<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus for
Silicon Image. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California, will pass upon certain legal matters in connection with this
offering for the underwriters. An entity affiliated with Fenwick & West LLP
holds 14,286 shares of our common stock.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and June 30, 1999
and for each of the three years in the period ended December 31, 1998 and six
month period ended June 30, 1999 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.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
Silicon Image and our common stock, we refer you to the registration statement
and the exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus concerning the contents of any contract
or any other document referred to are not necessarily complete; we refer you to
the copy of each contract or document filed as an exhibit to the registration
statement. Each such statement is qualified in all respects by reference to that
exhibit. The registration statement, including exhibits and schedules, may be
inspected without charge at the SEC's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from such office after payment
of fees prescribed by the SEC. The SEC maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the site is
http://www.sec.gov.
72
<PAGE>
SILICON IMAGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999.......................................... F-3
Statements of Operations for the year ended December 31, 1996, 1997 and 1998 and the six months ended June
30, 1998 (unaudited) and 1999............................................................................ F-4
Statements of Stockholders' Equity for the year ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1999...................................................................................... F-5
Statements of Cash Flows for the year ended December 31, 1996, 1997 and 1998 and the six months ended June
30, 1998 (unaudited) and 1999............................................................................ F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Silicon Image, Inc.
The reincorporation described in Note 11 to the financial statements has not
been consummated at June 30, 1999. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying balance sheets and the related
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Silicon Image,
Inc., at December 31, 1997 and 1998, and June 30, 1999 and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998 and the six month period ended June 30, 1999 in
conformity with generally accepted accounting principles. 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 generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Jose, California
July 14, 1999
F-2
<PAGE>
SILICON IMANGE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- ---------
1997 1998 1999
--------- --------- --------- PRO FORMA
STOCKHOLDER'S
EQUITY AT
JUNE 30,
1999
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................... $ 2,773 $ 10,096 $ 10,686
Short-term investments......................................... -- 1,401 1,961
Accounts receivable............................................ 287 1,518 1,581
Inventory...................................................... 129 301 356
Prepaid expenses and other current assets...................... 119 259 245
--------- --------- ---------
Total current assets......................................... 3,308 13,575 14,829
Property and equipment, net...................................... 793 1,125 1,003
Other assets..................................................... 270 74 182
--------- --------- ---------
Total assets................................................. $ 4,371 $ 14,774 $ 16,014
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit................................................. $ 372 $ 757 $ 757
Accounts payable............................................... 626 882 1,272
Accrued liabilities............................................ 181 1,154 1,412
Capital lease obligations, current............................. 17 218 489
Deferred revenue............................................... 582 1,121 155
Deferred margin on sales to distributors....................... -- 490 2,004
--------- --------- ---------
Total current liabilities.................................... 1,778 4,622 6,089
Capital lease obligations, long-term............................. -- 300 773
--------- --------- ---------
Total liabilities................................................ 1,778 4,922 6,862
--------- --------- ---------
Commitments and contingencies (Note 6 and 8)
Stockholders' Equity:
Convertible preferred stock, $0.001 par value; 6,065,000,
10,065,000, and 10,065,000 shares authorized; 5,965,000
9,560,000 and 9,560,000 shares issued and outstanding;
5,000,000 shares authorized, none issued or issued or
outstanding at June 30, 1999 on a pro forma basis
(unaudited).................................................. 6 10 10 $ --
Common stock, par value $0.001; 20,000,000, 21,500,000 and
21,500,000 shares authorized; 5,661,000, 6,786,000, and
9,463,000 shares issued and outstanding; 75,000,000 shares
authorized, 21,120,000 shares issued and outstanding at June
30, 1999 on a pro forma basis (unaudited).................... 6 7 9 21
Additional paid-in capital..................................... 8,739 24,960 34,796 34,794
Notes receivable from stockholders............................. -- (96) (1,461) (1,461)
Unearned compensation.......................................... -- (2,249) (7,513) (7,513)
Accumulated deficit............................................ (6,158) (12,780) (16,689) (16,689)
--------- --------- --------- ------------
Total stockholders' equity................................... 2,593 9,852 9,152 $ 9,152
--------- --------- --------- ------------
------------
Total liabilities and stockholders' equity................... $ 4,371 $ 14,774 $ 16,014
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SILICON IMAGE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ----------------------
1996 1997 1998 1999
--------- --------- --------- 1998 ---------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product revenue................................................ $ 30 $ 1,280 $ 7,703 $ 2,652 $ 7,706
Development and license revenue................................ 1,121 1,582 100 25 575
--------- --------- --------- ----------- ---------
Total revenue................................................ 1,151 2,862 7,803 2,677 8,281
--------- --------- --------- ----------- ---------
Cost and operating expenses:
Cost of product revenue........................................ 5 851 4,314 1,711 3,328
Research and development....................................... 1,307 3,176 4,524 1,956 3,060
Selling, general and administrative............................ 1,811 2,990 4,335 1,906 3,052
Stock compensation and warrant expense......................... -- -- 1,361 184 2,898
--------- --------- --------- ----------- ---------
Total operating expenses..................................... 3,123 7,017 14,534 5,757 12,338
--------- --------- --------- ----------- ---------
Loss from operations............................................. (1,972) (4,155) (6,731) (3,080) (4,057)
Interest income.................................................. 32 171 242 31 210
Interest expense................................................. (4) (52) (133) (54) (62)
--------- --------- --------- ----------- ---------
Net loss......................................................... $ (1,944) $ (4,036) $ (6,622) $ (3,103) $ (3,909)
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Net loss per share:
Basic and diluted.............................................. $ (1.25) $ (1.36) $ (1.40) $ (0.73) $ (0.73)
Weighted average shares........................................ 1,550 2,978 4,744 4,235 5,332
Pro forma net loss per share:
Basic and diluted (unaudited).................................. $ (0.46) $ (0.23)
Weighted average shares (unaudited)............................ 14,448 16,989
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SILICON IMAGE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
------------------------ ------------------------ PAID-IN FROM UNEARNED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS' COMPENSATION
----------- ----------- ----------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ 985 $ 1 5,381 $ 5 $ 1,011 $ -- $ --
Issuance of Series A
Convertible Preferred Stock
in February 1996, net of
issuance costs.............. 580 1 -- -- 577 -- --
Issuance of Series B
Convertible Preferred Stock
in Sept 1996, net of
issuance costs.............. 400 -- -- -- 2,180 -- --
Common Stock issued for cash
and notes, net.............. -- -- 280 1 14 (10) --
Net loss...................... -- -- -- -- -- -- --
----- --- ----- ----------- ----------- ------------- -------
Balance at December 31,
1996........................ 1,965 2 5,661 6 3,782 (10) --
Issuance of Series C
Convertible Preferred Stock
in June 1997, net of
issuance costs.............. 4,000 4 -- -- 4,957 -- --
Repayment of note
receivable.................. -- -- -- -- -- 10 --
Net loss...................... -- -- -- -- -- -- --
----- --- ----- ----------- ----------- ------------- -------
Balance at December 31,
1997........................ 5,965 6 5,661 6 8,739 -- --
Issuance of Series D
Convertible Preferred Stock
in September 1998, net of
issuance costs.............. 3,595 4 -- -- 12,452 -- --
Common stock issued for cash
and notes................... -- -- 1,125 1 159 (96) --
Unearned compensation......... -- -- -- -- 2,972 -- (2,972)
Amortization of unearned
compensation................ -- -- -- -- -- -- 723
Expense on options to
consultants................. -- -- -- -- 292 -- --
Expense on warrants (Note
8).......................... -- -- -- -- 346 -- --
Net loss...................... -- -- -- -- -- -- --
----- --- ----- ----------- ----------- ------------- -------
Balance at December 31,
1998........................ 9,560 10 6,786 7 24,960 (96) (2,249)
Common stock issued for cash
and notes................... -- -- 2,677 2 1,674 (1,365) --
Unearned compensation......... -- -- -- -- 7,303 -- (7,303)
Amortization of unearned
compensation................ -- -- -- -- -- -- 2,039
Expense on options to
consultants................. -- -- -- -- 264 -- --
Expense on warrants (Note
8).......................... -- -- -- -- 595 -- --
Net loss...................... -- -- -- -- -- -- --
----- --- ----- ----------- ----------- ------------- -------
Balance at June 30, 1999...... 9,560 $ 10 9,463 $ 9 $ 34,796 $ (1,461) $ (7,513)
----- --- ----- ----------- ----------- ------------- -------
----- --- ----- ----------- ----------- ------------- -------
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
------------ ---------
<S> <C> <C>
Balance at December 31,
1995........................ $ (178) $ 839
Issuance of Series A
Convertible Preferred Stock
in February 1996, net of
issuance costs.............. -- 578
Issuance of Series B
Convertible Preferred Stock
in Sept 1996, net of
issuance costs.............. -- 2,180
Common Stock issued for cash
and notes, net.............. -- 5
Net loss...................... (1,944) (1,944)
------------ ---------
Balance at December 31,
1996........................ (2,122) 1,658
Issuance of Series C
Convertible Preferred Stock
in June 1997, net of
issuance costs.............. -- 4,961
Repayment of note
receivable.................. -- 10
Net loss...................... (4,036) (4,036)
------------ ---------
Balance at December 31,
1997........................ (6,158) 2,593
Issuance of Series D
Convertible Preferred Stock
in September 1998, net of
issuance costs.............. -- 12,456
Common stock issued for cash
and notes................... -- 64
Unearned compensation......... -- --
Amortization of unearned
compensation................ -- 723
Expense on options to
consultants................. -- 292
Expense on warrants (Note
8).......................... -- 346
Net loss...................... (6,622) (6,622)
------------ ---------
Balance at December 31,
1998........................ (12,780) 9,852
Common stock issued for cash
and notes................... -- 311
Unearned compensation......... -- --
Amortization of unearned
compensation................ -- 2,039
Expense on options to
consultants................. -- 264
Expense on warrants (Note
8).......................... -- 595
Net loss...................... (3,909) (3,909)
------------ ---------
Balance at June 30, 1999...... $ (16,689) $ 9,152
------------ ---------
------------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SILICON IMAGE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------- ----------------------
1996 1997 1998 1999
--------- --------- --------- 1998 ---------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (1,944) $ (4,036) $ (6,622) $ (3,103) $ (3,909)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Depreciation and amortization................................ 148 312 649 306 296
Stock compensation and warrant expense....................... -- -- 1,361 184 2,898
Change in assets and liabilities:
Accounts receivable........................................ -- (287) (1,231) 4 (63)
Inventory.................................................. (26) (103) (172) (398) (55)
Prepaid expenses and other assets.......................... (95) (288) 56 210 (94)
Accounts payable........................................... 385 187 256 920 390
Accrued liabilities........................................ 27 151 973 (55) 258
Deferred revenue........................................... 1,000 (418) 539 43 (966)
Deferred margin on sales to distributors................... -- -- 490 -- 1,514
--------- --------- --------- ----------- ---------
Net cash provided by (used in) operating activities...... (505) (4,482) (3,701) (1,889) 269
--------- --------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments............................. -- -- (1,401) -- (3,935)
Proceeds from sale of short-term investments................... -- -- -- -- 3,375
Purchase of property and equipment............................. (724) (300) (340) (9) (113)
--------- --------- --------- ----------- ---------
Net cash used in investing activities.................... (724) (300) (1,741) (9) (673)
--------- --------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations................ (65) (59) (140) (45) (106)
Proceeds from financing of property and equipment.............. -- -- -- -- 789
Borrowings on line of credit, net.............................. -- 372 385 378 --
Proceeds from issuance of Convertible Preferred Stock, net of
issuance costs............................................... 2,758 4,961 12,456 -- --
Proceeds from issuance of Common Stock......................... 5 -- 64 25 311
Repayment of note receivable................................... -- 10 -- -- --
--------- --------- --------- ----------- ---------
Net cash provided by financing activities................ 2,698 5,284 12,765 358 994
--------- --------- --------- ----------- ---------
Net increase (decrease) in cash and cash equivalents............. 1,469 502 7,323 (1,540) 590
Cash and cash equivalents at the beginning of the period......... 802 2,271 2,773 2,773 10,096
--------- --------- --------- ----------- ---------
Cash and cash equivalents at the end of the period............... $ 2,271 $ 2,773 $ 10,096 $ 1,233 $ 10,686
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Acquisition of software and equipment under capital lease...... $ 83 $ 28 $ 641 $ 566 $ 61
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Issuance of common stock in exchange for notes receivable...... $ -- $ -- $ 96 $ -- $ 1,365
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Cash paid for interest......................................... $ 4 $ 6 $ 128 $ 53 $ 59
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Silicon Image, Inc. (the "Company") was incorporated in California in
January 1995. The Company designs, develops and markets semiconductor solutions
for applications that require cost-effective, high-bandwidth, integrated
solutions for high-speed data communications. The Company is initially focusing
its technology on the local interconnect between host systems, such as PCs,
set-top boxes and DVD players, and digital displays, such as flat panel displays
and CRTs. The Company's first products enable host systems to transmit digital
data and allows displays to receive and manipulate digital video data.
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain items previously reported in specific financial statement captions
have been reclassified to conform with the June 30, 1999 presentation.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information for the six month period ended June 30,
1998 is unaudited and has been prepared on the same basis as the audited
financial statements. In the opinion of management, such unaudited information
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the interim information.
REVENUE RECOGNITION
The Company recognizes revenue from product sales to direct customers upon
shipment. Reserves for sales returns and allowances are recorded at the time of
shipment. The Company's sales to distributors are made under agreements allowing
for returns or credits under certain circumstances and the Company defers
recognition of revenue on sales to distributors until the Company estimates
products are resold by the distributor to the end-user. Development and license
revenues are recognized as milestones are met or as license fees are earned.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid debt instruments having a maturity
of three months or less on the date of purchase to be cash equivalents. At
December 31, 1997 and 1998 and June 30, 1999, approximately $0, $7,546,000 and
$7,197,000 of commercial paper and $2,700,000, $1,319,000 and $3,380,000 of
money market funds are included in cash and cash equivalents, respectively, the
fair value of which approximated cost. Short-term investments are comprised of
commercial paper for all periods presented. Short-term investments are held as
securities available for sale in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" and are reported at amortized cost as of the balance
sheet date which approximates fair market value.
F-7
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of temporary cash investments, short-term
investments and accounts receivable. The Company may place its short-term
investments in a variety of financial instruments and, by policy, limits the
amount of credit exposure through diversification and by restricting its
investments to highly liquid securities.
The Company performs ongoing credit evaluations of its customers' financial
condition and may require collateral such as letters of credit, whenever deemed
necessary. In 1997, two customers accounted for 56% and 19% of product revenue.
Three customers accounted for 36%, 24% and 12% of gross accounts receivable at
December 31, 1997. In 1998, two customers accounted for 54% and 12% of product
revenue. At December 31, 1998, the same two customers accounted for 65% and 12%
of gross accounts receivable, respectively. In the six months ended June 30,
1999, three customers accounted for 13%, 13% and 11% of product revenue. At June
30, 1999, four customers accounted for 13%, 12%, 12% and 11% of gross accounts
receivable.
INVENTORY
Inventory is stated at the lower of cost or market, cost being determined
under the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from two to five years. Assets held
under capital leases are amortized using the straight-line method over the
shorter of the lease term or the estimated useful life, which range from three
to five years.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
STOCK BASED COMPENSATION
The Company accounts for stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Expense associated with stock-based compensation is amortized on
an accelerated basis over the vesting period of the individual award consistent
with the method described in Financial Accounting Standards Board ("FASB")
Interpretation No. 28.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components and is effective for periods beginning after December 15, 1997. The
Company's comprehensive income approximated net income for all periods
presented.
F-8
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of the asset and its eventual
disposition are less than the asset net book value. No such impairment losses
have been identified by the Company.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, Series B, Series C and Series D Convertible
Preferred Stock will automatically convert into approximately 3,130,000,
932,203, 4,000,000 and 3,594,859 shares, respectively, of Common Stock. Also
effective upon the closing of this offering 75,000,000 shares of Common Stock
and 5,000,000 of undesignated Preferred Stock will be authorized. The pro forma
effects of these transactions are unaudited and have been reflected in the
accompanying pro forma stockholders' equity at June 30, 1999.
NET LOSS PER SHARE
The Company reports both basic net loss per share, which is based on the
weighted average number of common shares outstanding excluding contingently
issuable or returnable shares, and diluted net loss per share, which is based on
the weighted average number of common shares outstanding and dilutive potential
common shares outstanding.
The following tables set forth the computation of basic and diluted net loss
per share of common stock:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ----------------------
1996 1997 1998 1999
--------- --------- --------- 1998 ---------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator (in thousands):
Net loss....................................................... $ (1,944) $ (4,036) $ (6,622) $ (3,103) $ (3,909)
--------- --------- --------- ----------- ---------
Denominator (in thousands):
Weighted average shares........................................ 5,111 5,180 6,029 5,795 8,054
Less: unvested common shares subject to repurchase............. (3,561) (2,202) (1,285) (1,560) (2,722)
--------- --------- --------- ----------- ---------
Denominator for basic and diluted calculation.................. 1,550 2,978 4,744 4,235 5,332
--------- --------- --------- ----------- ---------
Net loss per share:
Basic and diluted net loss per share........................... $ (1.25) $ (1.36) $ (1.40) $ (0.73) $ (0.73)
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
As a result of the net losses incurred by the Company during fiscal years
1996, 1997 and 1998 and for the six month periods ended June 30, 1998 and 1999,
all potential common shares were anti-dilutive and have been excluded from the
diluted net loss per share calculation. The following table summarizes
F-9
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
securities outstanding as of each period end, on an as-converted basis, which
were not included in the calculation of diluted net loss per share since their
inclusion would be anti-dilutive.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------- ----------------------
1996 1997 1998 1999
--------- --------- --------- ---------
1998
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Preferred Stock...................... 4,062,000 8,062,000 11,657,000 8,062,000 11,657,000
Unvested common shares subject to
repurchase......................... 3,561,000 2,202,000 1,285,000 1,560,000 2,722,000
Stock options........................ 1,199,000 2,124,000 2,125,000 2,362,000 1,149,000
Common stock warrants................ -- -- 286,000 -- 286,000
Preferred stock warrants............. -- -- -- -- 32,000
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1998 and six
months ended June 30, 1999 is computed using the weighted average number of
common shares outstanding, including the conversion of the Company's Series A,
Series B, Series C and Series D Convertible Preferred Stock outstanding into
shares of the Company's common stock effective upon the closing of the Company's
initial public offering as if such change in conversion rate and conversion
occurred on December 31, 1998 and June 30, 1999, respectively. The calculation
of diluted net loss per share excludes potential common shares as the effect
would be antidilutive.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes a model for
accounting for derivatives and hedging activities and supercedes and amends a
number of existing accounting standards. SFAS No. 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. We do not currently or plan to
enter into forward exchange contracts to hedge exposures denominated in foreign
currencies or any other derivative financial instruments for trading or
speculative purposes.
In March 1999, the FASB issued an exposure draft entitled, "Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25." Although the proposed interpretation becomes effective upon its
issuance, certain transactions occurring after December 15, 1998 are subject to
complicated transition rules. If approved, the proposed interpretation may
result in many changes being made to existing practice and may have a
significant impact on the Company's accounting for stock based compensation.
NOTE 2--RELATED PARTY TRANSACTIONS:
In January 1996, 550,000 shares of Common Stock were issued to an officer
for which the Company received cash of $3,750 and a note receivable of $10,000.
This note receivable and accrued interest was repaid in December 1997. In 1998,
551,000 shares of Common Stock were issued upon the exercise of options to
several officers of the Company in exchange for notes receivable totaling
$95,625.
F-10
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RELATED PARTY TRANSACTIONS: (CONTINUED)
During the six months ended June 30, 1999, an additional 1,483,000 shares were
issued to officers and an employee in exchange for notes receivable totaling
$1,365,000. These notes bear interest at rates ranging from 4.64% to 7.75% per
annum and are due within four to five years. The Company has recorded
compensation expense in connection with option grants and sales of common stock
(Note 8).
NOTE 3--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- ---------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable:
Accounts receivable........................................... $ 317 $ 1,549 $ 1,612
Allowance for doubtful accounts............................... (30) (31) (31)
--------- --------- ---------
$ 287 $ 1,518 $ 1,581
--------- --------- ---------
--------- --------- ---------
Inventory:
Work in process............................................... $ 38 $ 175 $ 295
Finished goods................................................ 91 126 61
--------- --------- ---------
$ 129 $ 301 $ 356
--------- --------- ---------
--------- --------- ---------
Property and equipment:
Furniture and equipment....................................... $ 439 $ 475 $ 522
Computers and software........................................ 818 1,581 1,708
--------- --------- ---------
1,257 2,056 2,230
Less: accumulated depreciation................................ (464) (931) (1,227)
--------- --------- ---------
$ 793 $ 1,125 $ 1,003
--------- --------- ---------
--------- --------- ---------
</TABLE>
Assets acquired under capitalized lease obligations are included in property
and equipment and totaled $145,000, $641,000 and $1,461,000, with related
accumulated depreciation of $50,000, $165,000 and $281,000 at December 31, 1997
and December 31, 1998 and June 30, 1999 respectively.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- ---------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued liabilities:
Accrued payroll and related expenses.......................... $ 79 $ 167 $ 235
Customer rebates and accrued sales returns.................... -- 491 690
Other accrued liabilities..................................... 102 496 487
--------- --------- ---------
$ 181 $ 1,154 $ 1,412
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-11
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--INCOME TAXES:
No provision for federal or state income taxes has been recorded for the
years ended December 31, 1996, 1997 and 1998 and for the six month period ended
June 30, 1999, as the Company has incurred net operating losses since inception
(January 1995).
Deferred tax assets relate to the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- ---------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss carryforwards.............................. $ 1,989 $ 4,996 $ 5,933
Deferred revenue.............................................. 220 690 798
Research and development credit............................... 78 462 651
Other items not currently deductible.......................... 89 197 504
--------- --------- ---------
2,376 6,345 7,886
Less: valuation allowance..................................... (2,376) (6,345) (7,886)
--------- --------- ---------
$ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that a full valuation allowance has been recorded.
These factors include the Company's history of losses, recent increases in
expense levels, the fact that the market in which the Company competes is
characterized by rapidly changing technology, the lack of carryback capacity to
realize deferred tax assets, and the uncertainty regarding continued market
acceptance of the Company's products. The Company will continue to assess the
realizability of the deferred tax assets based on actual and forecasted
operating results.
At June 30, 1999, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $16,073,000 and
$5,358,000, respectively, which expire through 2019 and 2004, respectively.
Under the Tax Reform Act of 1986, the amounts of and benefits from net operating
loss carryforwards may be impaired or limited in certain circumstances. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three year period.
NOTE 5--CONVERTIBLE PREFERRED STOCK:
Convertible Preferred Stock at June 30, 1999 consists of the following:
<TABLE>
<CAPTION>
SHARES
-------------------------
SERIES AUTHORIZED OUTSTANDING
- -------------------------------------------------- ------------ ----------- PROCEEDS
NET OF
ISSUANCE
COSTS
--------------
(IN THOUSANDS)
<S> <C> <C> <C>
A................................................. 1,565,000 1,565,000 $ 1,563
B................................................. 400,000 400,000 2,180
C................................................. 4,100,000 4,000,000 4,961
D................................................. 4,000,000 3,594,859 12,456
------------ ----------- -------
10,065,000 9,559,859 $ 21,160
------------ ----------- -------
------------ ----------- -------
</TABLE>
F-12
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
The holders of the Convertible Preferred Stock have various rights and
preferences as follows:
Each share of Series A, B, C and D Convertible ("Series A, B, C and D")
Preferred Stock outstanding is convertible into two, 2.3305, one and one
share(s) of Common Stock, respectively, at the option of the holder, subject to
certain adjustments, and automatically converts upon the completion of an
underwritten public offering of Common Stock with gross proceeds of at least
$10,000,000 and a public offering price of not less than $6.00 per share. At
June 30, 1999, the outstanding shares of Series A, B, C and D are convertible
into 3,130,000, 932,203, 4,000,000 and 3,594,859 shares of Common Stock,
respectively.
Each share of Series A, B, C and D entitles its holder to one vote for each
Common Share into which such shares would convert. Dividends at the rate of
$0.05, $0.275, $0.0625 and $0.175 per share for Series A, B, C and D Stock,
respectively, if declared by the Board of Directors, are payable to the
preferred stockholders in preference to any dividends for Common Stock declared
by the Board of Directors. Dividends are noncumulative. No dividends have been
declared by the Board of Directors through June 30, 1999.
The holders of Series A, B, C and D are entitled to receive their original
issuance prices of $1.00, $5.50, $1.25 and $3.50 per share, respectively, in
liquidation, plus an amount equal to all declared but unpaid dividends, prior
and in preference to any distribution to the holders of Common Stock. As of June
30, 1999, the aggregate liquidation preference of Series A, B, C and D was
approximately $21,347,000.
NOTE 6--LEASING ARRANGEMENTS AND COMMITMENTS:
The Company leases certain equipment and software under short-term and
long-term lease agreements which are reported as capital leases. The terms of
the leases range from one to three years, with purchase options at the end of
the respective lease terms. The Company intends to exercise such purchase
options, which require minimal payments. The Company's obligation under these
leasing arrangements are secured by the leased equipment.
The Company leases its facility under a noncancelable operating lease which
expires in December 2002. Rent expense is recorded using the straight-line
method and totaled $77,000, $290,000 and $333,000 in 1996, 1997 and 1998,
respectively. Rent expense for the six months ended June 30, 1999 was $225,000.
In February 1999, the Company entered into a $2,500,000 lease line of credit
that allows for the leasing of equipment and software over 33 to 42 month terms.
The stated interest rate under this agreement is 8%. The agreement expires in
October 2000. The Company granted warrants to purchase up to 32,142 shares of
the Company's Series D preferred stock at $3.50 per share to the lessor upon
approval of the lease line of credit (Note 8).
F-13
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LEASING ARRANGEMENTS AND COMMITMENTS: (CONTINUED)
Future minimum lease payments including capitalized purchase options at June
30, 1999 and future minimum sub-lease rental receipts under non cancelable
operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------------------------------------------------------- --------- -----------
(IN THOUSANDS)
<S> <C> <C>
1999..................................................................... $ 285 $ 237
2000..................................................................... 568 479
2001..................................................................... 416 497
2002..................................................................... 141 494
--------- -----------
Total minimum payments, net of sublease income........................... 1,410 $ 1,707
-----------
-----------
Less interest............................................................ (148)
---------
Present value of payments under current capital lease obligations........ 1,262
Less long term portion................................................... (773)
---------
Short term portion....................................................... $ 489
---------
---------
</TABLE>
NOTE 7--LINE OF CREDIT:
In June 1997, the Company entered into a line of credit agreement with a
financial institution. This line of credit provided for borrowings of up to
$750,000 which were secured by the assets of the Company. Borrowings under the
line of credit accrued interest at the bank's prime rate plus 1.5%. Unpaid
principal and accrued interest were due at the maturity of the line of credit.
At December 31, 1997, $372,000 was outstanding under this line of credit.
In December 1998, the line of credit expired and was paid in full using
proceeds from a second or new line of credit. The new line of credit provides
for borrowings of up to $4.0 million based on and secured by eligible accounts
receivable as defined in the credit agreement. Borrowings accrue interest at the
bank's commercial lending rate plus 0.25% (8.25% at June 30, 1999). Accrued
interest is due monthly. The line of credit agreement requires the Company to
meet certain financial covenants including minimum tangible net worth and quick
ratio requirements. At June 30, 1999, the Company was in compliance with such
covenants. The agreement expires in April 2000.
NOTE 8--STOCKHOLDER'S EQUITY:
COMMON STOCK
The Company has authorized 21,500,000 shares of Common Stock. The Company
issued to founders and certain executives restricted common stock subject to
repurchase rights. The Company has the right to repurchase all or any portion of
the unvested shares of restricted stock at the original purchase price, which
right lapses over a four year vesting period. During the six months ended June
30, 1999 the Company sold 1,190,000 shares of Common Stock to founders, certain
executives and an employee for a total of $1,310,000. At June 30, 1999,
1,404,000 shares of restricted Common Stock were subject to the Company's
repurchase option.
F-14
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCKHOLDER'S EQUITY: (CONTINUED)
STOCK WARRANTS
In September 1998, the Company and a third party entered into an agreement
to develop and promote the adoption of a digital display interface
specification, which was amended in April 1999. In connection with this
agreement, the Company granted to the manufacturer a warrant to purchase 142,857
shares of the Company's common stock at $3.50 per share. The warrant is
immediately exercisable. Under the same agreement, the Company granted a warrant
to the manufacturer to purchase 142,857 shares of the Company's common stock at
$0.35 per share. The warrant became exercisable during the quarter ended March
31, 1999 when the manufacturer achieved a milestone. The Company recorded
$346,000 in 1998 and $595,000 in the six months ended June 30, 1999 of expense
for these warrants, which expense is included in stock compensation and warrant
expense. In addition, if a milestone are achieved, the Company will grant to the
manufacturer a warrant to purchase 142,857 shares of the Company's common stock
at $0.35 per share. If the milestones are achieved, the Company will record an
expense related to the issuance of this warrant (the estimated fair value of the
warrant at June 30, 1999 was $642,000). All warrants under this agreement will
expire on September 16, 2004.
In February 1999 and in connection with a lease line of credit, the Company
granted a warrant to purchase up to 32,142 shares of the Company's Series D
preferred stock at $3.50 per share. This warrant is immediately exercisable and
expires on February 17, 2004. The Company did not ascribe any value to the
warrant because the estimated fair market value of the warrant on the date of
grant was insignificant. This warrant will remain outstanding after completion
of the Company's initial public offering and will become exercisable for 32,142
shares of the Company's Common Stock.
STOCK OPTION PLAN
In September 1995, the Board of Directors adopted the 1995 Equity Incentive
Plan (the "Plan") which provides for the granting of incentive stock options
("ISOs") and non-qualified stock options ("NSOs") for shares of common stock to
employees, directors and consultants of the Company. In accordance with the
Plan, the stated exercise price shall not be less than 100% and 85% of the
estimated fair market value of Common Stock on the date of grant for ISOs and
NSOs, respectively, as determined by the Board of Directors. The Plan provides
that the options shall be exercisable over a period not to exceed ten years and
shall vest over a period of four years. In September 1998, the Plan was amended
to allow options to be exercised prior to vesting. The Company has the right to
repurchase such shares at their original purchase price if the optionee is
terminated from service prior to vesting. Such rights expire as the options vest
over a four year period.
F-15
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCKHOLDER'S EQUITY: (CONTINUED)
The following table summarizes the Company's stock option activity and
related weighted average exercise price within each category.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
AVERAGE
EXERCISE
PRICE
PER SHARE
SHARES -----------
AVAILABLE
FOR ISSUANCE NUMBER OF
--------------- SHARES
(IN THOUSANDS) ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1995........................................... 620 850 $ 0.08
Authorized........................................................... 1,500 -- --
Granted.............................................................. (1,009) 1,009 0.13
Canceled............................................................. 70 (70) 0.02
Exercised............................................................ -- (590) 0.02
------ ------ -----
Balance at December 31, 1996........................................... 1,181 1,199 0.09
Granted.............................................................. (925) 925 0.13
Canceled............................................................. -- -- --
Exercised............................................................ -- -- --
------ ------ -----
Balance at December 31, 1997........................................... 256 2,124 0.11
Authorized........................................................... 1,750 -- --
Granted.............................................................. (1,298) 1,298 0.32
Canceled............................................................. 172 (172) 0.30
Exercised............................................................ -- (1,125) 0.14
------ ------ -----
Balance at December 31, 1998........................................... 880 2,125 0.20
Authorized........................................................... 1,000 -- --
Granted.............................................................. (479) 479 1.10
Canceled............................................................. 38 (38) 0.27
Exercised............................................................ -- (1,467) 0.61
------ ------ -----
Balance at June 30, 1999............................................... 1,439 1,099 0.53
------ ------ -----
------ ------ -----
</TABLE>
At June 30, 1999, 278,000 options were vested, and 1,318,000 unvested shares
had been exercised and remain subject to the Company's repurchase rights.
During 1997, the Company granted 50,000 options to purchase Common Stock to
a founder at an exercise price of $0.125. The options were granted outside of
the plan. The options are outstanding as of June 30, 1999.
F-16
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCKHOLDER'S EQUITY: (CONTINUED)
Significant option groups outstanding at June 30, 1999, and related weighted
average exercise price and contractual life information are as follows:
<TABLE>
<CAPTION>
OUTSTANDING AND
EXERCISABLE
-------------------------- REMAINING
RANGE OF EXERCISE PRICES PRICE LIFE (YEARS)
- --------------------------------------------------------- SHARES --------- -------------
---------------
(IN THOUSANDS)
<S> <C> <C> <C>
$0.08-$0.125............................................. 370 $ 0.11 7.82
$0.25-$0.35.............................................. 434 $ 0.32 9.17
$0.50-$0.75.............................................. 158 $ 0.64 9.73
$1.00-$3.00.............................................. 187 $ 1.67 9.93
-----
1,149
-----
-----
</TABLE>
The weighted average fair value at the date of grant for options granted was
$0.13, $0.13 and $2.84 per option during 1996, 1997 and 1998, respectively. The
weighted average fair value at the date of grant for options granted during the
six month period ended June 30, 1999 was $5.02. The fair value of options at the
date of grant was estimated on the date of grant based on the fair value method
using the Black-Scholes pricing model and using the following assumptions:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ---------------
1996 1997 1998 1999
----- ----- ----- ---------------
<S> <C> <C> <C> <C>
Expected life (years).............................. 4 4 4 4
Risk-free Interest rate............................ 6.2% 6.0% 5.6% 5.6%
Dividend yield..................................... -- -- -- --
</TABLE>
PRO FORMA EXPENSE
Had compensation cost for the 1995 Plan been determined based on the fair
value at the grant dates for the awards under a method prescribed by SFAS 123,
the Company's net loss would have been adjusted as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -----------
1996 1997 1998 1999
--------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net loss:
Pro forma...................................... $ (1,949) $ (4,038) $ (7,473) $ (5,762)
Basic and diluted net loss per share:
Pro forma...................................... $ (1.26) $ (1.36) $ (1.58) $ (1.08)
</TABLE>
STOCK COMPENSATION
During the year ended December 31, 1998 and the six months ended June 30,
1999, the Company granted options and sold restricted stock to employees and
recognized unearned stock compensation of $2,972,000 and $7,303,000,
respectively. Such unearned stock compensation will be amortized using an
accelerated method over the vesting period and may decrease due to employees
that terminate service prior to vesting.
F-17
<PAGE>
SILICON IMAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCKHOLDER'S EQUITY: (CONTINUED)
OPTIONS TO CONSULTANTS
During 1998 and the six months ended June 30, 1999, the Company granted
options to purchase 120,000 and 115,000 shares of Common Stock to consultants
with a weighted average exercise price of $0.31 and $1.37 per share,
respectively. The Company is expensing the fair value of these options as the
services are provided, which is included in stock compensation and warrant
expense.
NOTE 9--BENEFIT PLAN:
Effective January 1, 1995, the Company adopted a 401(k) plan which allows
all employees to participate by making salary deferral contributions to the
401(k) plan ranging from 1% to 20% of their eligible earnings. The Company may
make discretionary contributions to the 401(k) Savings Plan upon approval by the
Board of Directors. No Company contributions were made to the 401(k) Savings
Plan from inception through June 30, 1999.
NOTE 10--SEGMENT AND GEOGRAPHIC INFORMATION:
The Company operates in a single industry segment (as defined by SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information")
encompassing the design, development and sale of semiconductor solutions for
applications that require high-bandwidth and integrated system-level
functionality, such as the local interconnect between host systems and digital
displays, including flat panel displays and digital CRTs.
The following is a summary of product revenue by geographic area (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------- JUNE 30,
1996 1997 1998 1999
----- --------- --------- -----------
<S> <C> <C> <C> <C>
Taiwan................................................. $ 30 $ 1 $ 4,391 $ 2,720
Japan.................................................. -- 145 163 1,873
United States.......................................... -- 78 348 724
Canada................................................. -- 14 1,078 516
Korea.................................................. -- 1,021 770 963
Others................................................. -- 21 953 910
--- --------- --------- -----------
$ 30 $ 1,280 $ 7,703 $ 7,706
--- --------- --------- -----------
--- --------- --------- -----------
</TABLE>
All development and license revenues are derived from non-domestic sources.
All sales are denominated in United States dollars. For all periods presented,
substantially all of the Company's assets were located within the United States.
NOTE 11--SUBSEQUENT EVENT:
In July 1999, the Board of Directors authorized the reincorporation of the
Company in Delaware. The Board of Directors also approved a recapitalization
that would increase the total of authorized shares of common stock to 75,000,000
and authorized 5,000,000 shares of undesignated preferred stock. In addition the
Board of Directors approved the adoption of the 1999 Employee Stock Purchase
Plan and the 1999 Stock Plan. Adoption of these plans is subject to stockholder
approval. All of the above items will be effected prior to the date of the
offering.
F-18
<PAGE>
[Description of graphics on inside back cover page]
This graphic is entitled "Key Relationships." In the center of the page is
the Silicon Image logo. A line starts above the logo and ends at a rectangle.
Inside the rectangle is the word "DDWG." Surrounding the upper half of the
rectangle in a semi-circular form are the following names or logos: "Compaq,"
"IBM," "Intel," "NEC," "Fujitsu" and "Hewlett Packard." Below the left side of
the Silicon Image logo in the center of the page is Silicon Image's PanelLink
Technology logo. To the right of the logo is the label "PanelLink Digital."
Below the right side of the Silicon Image logo in the center of the page is
Silicon Image's DVC Architecture logo. Below the PanelLink Technology logo and
the DVC Architecture logo is the phrase "Core Technologies." A line connects the
phrase with a rectangle that is below and to the left of the phrase. Inside the
rectangle is the phrase "Host Systems." Surrounding the left and bottom of the
rectangle is the following set of names or logos in the shape of an arc: "IBM,"
"Compaq," "NEC," "Gateway," "Fujitsu," "Acer" and "Toshiba." A line connects the
phrase "Core Technologies" with a rectangle that is below and to the right of
the phrase "Core Technologies." Inside the rectangle is the word "Displays."
Surrounding the right and bottom of the rectangle is a series of the following
names or logos in the shape of an arc: "Samsung," "LG," "NEC," "Pixelvision,"
"Sharp," "Compaq," "Fujitsu," "Hitachi," "ViewSonic," "IBM" and "Toshiba."
<PAGE>
[SILICONE IMAGE, INC. LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by Silicon
Image in connection with the sale of the shares of common stock being registered
hereby. All amounts are estimates except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $
NASD filing fee...................................................
Nasdaq National Market initial filing fee.........................
Printing and engraving............................................ *
Legal fees and expenses of the Registrant......................... *
Accounting fees and expenses...................................... *
Directors and officers liability insurance........................ *
Blue sky fees and expenses........................................ *
Transfer agent and registrar fees and expenses.................... *
Miscellaneous.....................................................
Total......................................................... $
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers under certain circumstances and subject to certain limitations. The
terms of Section 145 of the Delaware General Corporation Law are sufficiently
broad to permit indemnification under certain circumstances for liabilities,
including reimbursement of expenses incurred, arising under the Securities Act
of 1933.
As permitted by the Delaware General Corporation Law, the Registrant's
certificate of incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability:
- for any breach of the director's duty of loyalty to the Registrant or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
bylaws provide that:
- the Registrant is required to indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions;
- the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions; and
- the rights conferred in the Bylaws are not exclusive.
II-1
<PAGE>
In addition, the Registrant intends to enter into indemnity agreements with
each of our current directors and officers. These agreements provide for the
indemnification of officers and directors for all expenses and liabilities
incurred in connection with any action or proceeding brought against them by
reason of the fact that they are or were agents of the Registrant.
The Registrant intends to obtain directors' and officers' insurance to cover
its directors, officers and some of its employees for certain liabilities,
including public securities matters.
The Underwriting Agreement filed as Exhibit 1.01 to this Registration
Statement provides for indemnification by the underwriters of the Registrant and
its directors and officers for certain liabilities under the Securities Act of
1933, or otherwise.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
- ------------------------------------------------------------------------------------ -----------
<S> <C>
Underwriting Agreement.............................................................. 1.01
Registrant's Certificate of Incorporation........................................... 3.01
Registrant's Bylaws................................................................. 3.02
Form of Indemnity Agreement......................................................... 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years prior to the effective date of this Registration
Statement, we have issued and sold the following unregistered securities:
1. On February 28, 1996, we issued and sold an aggregate of 580,000 shares
of Series A preferred stock to two investors for an aggregate consideration of
$580,000 in cash.
2. On September 20, 1996, we issued and sold 400,000 shares of Series B
preferred stock to a group of 3 investors for an aggregate consideration of
$2,200,000 in cash
3. On June 20, 1997, we issued and sold 4,000,000 shares of Series C
preferred stock to 11 investors for an aggregate consideration of $5,000,000 in
cash.
4 On July 29, 1998, we issued and sold 2,737,716 shares of Series D
preferred stock to eight investors for an aggregate consideration of $9,582,006
in cash.
5. On September 16, 1998, we issued and sold 857,143 shares of Series D
preferred stock to one investor for an aggregate consideration of $3,000,000 in
cash.
6 On September 16, 1998, we issued to Intel Corporation a warrant to
purchase up to 142,857 shares of common stock at an exercise price of $3.50 per
share which expires, if not earlier exercised, on September 16, 2004.
7. On September 16, 1998, we issued to Intel Corporation a warrant, which
we amended on April 16, 1999 to provide (1) that Intel may purchase up to
142,857 shares of common stock at an exercise price of $0.35 per share at any
time on or before September 16, 2004, and (2) that if a milestone is achieve, we
will issue Intel another warrant to purchase up to 142,857 shares of common
stock at an exercise price of $0.35 per share at any time on or before September
16, 2004.
8. In February 1999 and in connection with a lease line of credit, we
issued a warrant to purchase up to 32,142 shares of our Series D preferred stock
at an exercise price of $3.50 per share. This warrant is immediately exercisable
and expires upon the earlier of February 17, 2004 or certain corporate
transactions.
II-2
<PAGE>
9. As of June 30, 1999, 4,538,212 shares of common stock had been issued to
our employees, consultants and other service providers upon exercise of options
or pursuant to restricted stock purchase agreements, 1,098,963 shares of common
stock were issuable upon exercise of outstanding options under our 1995 Equity
Incentive Plan and 50,000 shares of common stock were issuable upon exercise of
an outstanding option outside of any plan.
All of the 580,000 shares of Series A preferred stock will automatically
convert into 1,160,000 shares of common stock upon the consummation of this
offering as a result of a two-for-one common stock split effected on May 6,
1997.
All of the 400,000 shares of Series B preferred stock will automatically
convert into 932,203 shares of common stock upon the consummation of this
offering as a result of a two-for-one common stock split effected on May 6, 1997
and an adjustment to the conversion price of the Series B preferred stock from
$2.75 per share to $2.36 per share as a result of the issuance and sale of
4,000,000 shares of Series C preferred stock on June 20, 1997.
All of the 4,000,000 shares of Series C preferred stock will automatically
convert on a one-to-one basis into 4,000,000 shares of common stock and all of
the 3,594,859 shares of Series D preferred stock will automatically convert on a
one-to-one basis into 3,594,859 shares of common stock upon the consummation of
this offering.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act of
1933 and/or Regulation D promulgated thereunder or Rule 701 promulgated under
Section 3(b) of the Securities Act of 1933 as transactions by an issuer not
involving any public offering or transactions pursuant to compensation benefit
plans and contracts relating to compensation as provided under Rule 701. These
sales were made without general solicitation or advertising. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof. Each purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate the investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Certificate of Incorporation of the Registrant, filed with the Delaware Secretary of State on June
11, 1999.
3.02* Form of Amended and Restated Certificate of Incorporation of the Registrant to be effective upon
the closing of the offering made pursuant to this Registration Statement.
3.03 Bylaws of the Registrant, as amended through June 20, 1997.
3.04* Amended and Restated Bylaws of the Registrant to be effective upon the closing of the offering
made pursuant to this Registration Statement.
4.01* Form of Specimen Certificate for Registrant's common stock.
4.02** Intel Warrant No. 1 to Purchase Common Stock of the Registrant.
4.03** Intel Warrant No. 2 to Purchase Common Stock of the Registrant, as amended April 16, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
4.04 Third Amended and Restated Investors Rights Agreement dated July 29, 1998, as amended October 15,
1998.
5.01* Opinion of Fenwick & West LLP regarding legality of the securities being registered.
10.01 Form of Indemnification Agreement entered into between the Registrant and its directors.
10.02 1995 Equity Incentive Plan, as amended through June 11, 1999.
10.03 1999 Equity Incentive Plan.
10.04 1999 Stock Purchase Plan.
10.05 Employment Agreement with Dan Atler dated June 15, 1998.
10.06 Employment Agreement with Parviz Khodi dated June 10, 1999.
10.07 Amended and Restated Severance Agreement with David Lee dated August 15, 1997.
10.08 Amended and Restated Severance Agreement with Scott Macomber dated August 15, 1997.
10.09 Consulting Agreement with Deog-Kyoon Jeong dated March 1, 1999.
10.10** License Agreement dated March 15, 1995 between Deog-Kyoon Jeong and the Registrant, as amended
through June 18, 1997.
10.11 Lease Agreement dated April 9, 1997 between Elisabeth Griffinger and the Registrant.
10.12** Business Cooperation Agreement dated September 16, 1998 between Intel Corporation and the
Registrant, as amended October 30, 1998.
10.13** Patent License Agreement dated September 16, 1998 between Intel Corporation and the Registrant.
10.14** Digital Visual Interface Specification Revision 1.0 Promoter's Agreement dated January 8, 1999.
10.15 Revolving Credit Loan & Security Agreement dated December 17, 1998 between Comerica
Bank-California and the Registrant.
10.16 Research and Development Contract for Gigabit Links and Multimedia Information Delivery Systems
dated July 1, 1998 between Inter-University Semiconductor Research Center of Seoul National
University and the Registrant.
10.17 Research and Development Contract for 1000BASE-T Gigabit Ethernet PHY Chip dated July 1, 1999
between Inter-University Semiconductor Research Center of Seoul National University and the
Registrant.
10.18 Master Lease Agreement and Addendum with Comdisco, Inc. dated February 17, 1999.
23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Independent Accountants.
24.01 Power of Attorney (included on signature page).
27.01 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
** To be supplied by amendment. Confidential treatment will be requested.
(b) The following financial statement schedule is filed herewith:
Schedule II--Valuation and Qualifying Accounts
II-4
<PAGE>
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
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 provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cupertino,
State of California, on the 23rd day of July, 1999.
SILICON IMAGE, INC.
By: /s/ DAVID D. LEE
-------------------------------------------
David D. Lee
OFFICER CHIEF EXECUTIVE
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints David D. Lee, Daniel K. Atler and Andrew
S. Rappaport, and each of them, his or her true and lawful attorneys-in-fact and
agents with full power of substitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by the
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, as amended, and all post-
effective amendments thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
his, her or their substitute or substitutes, may lawfully do or cause to be done
or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------------------------- ---------------
<C> <S> <C>
/s/ DAVID D. LEE President, Chief Executive Officer and Chairman July 23, 1999
------------------------------------ of the Board (Principal Executive Officer)
DAVID D. LEE
/s/ DANIEL K. ATLER Vice President, Finance and Administration and July 23, 1999
------------------------------------ Chief Financial Officer (Principal Financial
DANIEL K. ATLER Officer and Principal Accounting Officer)
/s/ SANG-CHUL HAN Director July 23, 1999
------------------------------------
SANG-CHUL HAN
/s/ RONALD V. SCHMIDT Director July 23, 1999
------------------------------------
RONALD V. SCHMIDT
/s/ DAVID A. HODGES Director July 23, 1999
------------------------------------
DAVID A. HODGES
/s/ ANDREW S. RAPPAPORT Director July 23, 1999
------------------------------------
ANDREW S. RAPPAPORT
/s/ HERBERT CHANG Director July 23, 1999
------------------------------------
HERBERT CHANG
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Certificate of Incorporation of the Registrant, filed with the Delaware Secretary of State on June 11,
1999.
3.02* Form of Amended and Restated Certificate of Incorporation of the Registrant to be effective upon the
closing of the offering made pursuant to this Registration Statement.
3.03 Bylaws of the Registrant, as amended through June 20, 1997.
3.04* Amended and Restated Bylaws of the Registrant to be effective upon the closing of the offering made
pursuant to this Registration Statement.
4.01* Form of Specimen Certificate for Registrant's common stock.
4.02** Intel Warrant No. 1 to Purchase Common Stock of the Registrant.
4.03** Intel Warrant No. 2 to Purchase Common Stock of the Registrant, as amended April 16, 1999.
4.04 Third Amended and Restated Investors Rights Agreement dated July 29, 1998, as amended October 15, 1998.
5.01* Opinion of Fenwick & West LLP regarding legality of the securities being registered.
10.01 Form of Indemnification Agreement entered into between the Registrant and its directors.
10.02 1995 Equity Incentive Plan, as amended through June 11, 1999.
10.03 1999 Equity Incentive Plan.
10.04 1999 Stock Purchase Plan.
10.05 Employment Agreement with Dan Atler dated June 15, 1998.
10.06 Employment Agreement with Parviz Khodi dated June 10, 1999.
10.07 Amended and Restated Severance Agreement with David Lee dated August 15, 1997.
10.08 Amended and Restated Severance Agreement with Scott Macomber dated August 15, 1997.
10.09 Consulting Agreement with Deog-Kyoon Jeong dated March 1, 1999.
10.10** License Agreement dated March 15, 1995 between Deog-Kyoon Jeong and the Registrant, as amended through
June 18, 1997.
10.11 Lease Agreement dated April 9, 1997 between Elisabeth Griffinger and the Registrant.
10.12** Business Cooperation Agreement dated September 16, 1998 between Intel Corporation and the Registrant,
as amended October 30, 1998.
10.13** Patent License Agreement dated September 16, 1998 between Intel Corporation and the Registrant.
10.14** Digital Visual Interface Specification Revision 1.0 Promoter's Agreement dated January 8, 1999.
10.15 Revolving Credit Loan & Security Agreement dated December 17, 1998 between Comerica Bank-California and
the Registrant.
10.16 Research and Development Contract for Gigabit Links and Multimedia Information Delivery Systems dated
July 1, 1998 between Inter-University Semiconductor Research Center of Seoul National University and
the Registrant.
10.17 Research and Development Contract for 1000BASE-T Gigabit Ethernet PHY Chip dated July 1, 1999 between
Inter-University Semiconductor Research Center of Seoul National University and the Registrant.
10.18 Master Lease Agreement and Addendum with Comdisco, Inc. dated February 17, 1999.
23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Independent Accountants.
24.01 Power of Attorney (included on signature page).
27.01 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
** To be supplied by amendment. Confidential treatment will be requested.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SILICON IMAGE, INC. (DELAWARE)
ARTICLE I
The name of the corporation is Silicon Image, Inc. (Delaware).
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of
its registered agent at that address is Incorporating Services, Ltd.
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 the State of Delaware.
ARTICLE IV
The total number of shares of stock which the corporation has authority
to issue is One Thousand (1,000) shares, all of which shall be Common Stock,
$0.001 par value per share.
ARTICLE V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal the Bylaws of the corporation.
ARTICLE VI
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty
as a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of a director of the corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
<PAGE>
Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of this Certificate of Incorporation inconsistent with this
Article VII, 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 VIII
The name and mailing address of the incorporator is Andrew Luh, c/o
Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306.
The undersigned incorporator hereby acknowledges that the foregoing
certificate is his act and deed and that the facts stated herein are true.
Dated: June 11, 1999
/s/ Andrew Luh
------------------------
Andrew Luh, Incorporator
2
<PAGE>
BYLAWS
OF
SILICON IMAGE, INC.
(A CALIFORNIA CORPORATION)
AS ADOPTED
JANUARY 1, 1995
AS AMENDED THROUGH JUNE 20, 1997
<PAGE>
CERTIFICATION OF BYLAWS
OF
SILICON IMAGE, INC.
(A CALIFORNIA CORPORATION)
KNOW ALL BY THESE PRESENTS:
I, Susan Dunn, certify that I am Secretary of Silicon Image, Inc., a
California corporation (the "COMPANY"), that I am duly authorized to make and
deliver this certification and that the attached Bylaws are a true and
correct copy of the Bylaws of the Company in effect as of the date of this
certificate.
Dated: January 1, 1995
------------------------------
Susan Dunn, Secretary
<PAGE>
BYLAWS
OF
SILICON IMAGE, INC.
(a California corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1: Principal Office . . . . . . . . . . . . . . . . . 1
Section 1.2: Other Offices. . . . . . . . . . . . . . . . . . . 1
ARTICLE II DIRECTORS.. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1: Exercise of Corporate Powers . . . . . . . . . . . 1
Section 2.2: Number . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.3: Need Not Be Shareholders . . . . . . . . . . . . . 2
Section 2.4: Compensation . . . . . . . . . . . . . . . . . . . 2
Section 2.5: Election and Term of Office. . . . . . . . . . . . 2
Section 2.6: Vacancies. . . . . . . . . . . . . . . . . . . . . 2
Section 2.7: Removal. . . . . . . . . . . . . . . . . . . . . . 3
Section 2.8: Powers and Duties. . . . . . . . . . . . . . . . . 3
ARTICLE III MEETINGS OF DIRECTORS. . . . . . . . . . . . . . . . . . 5
Section 3.1: Place of Meetings. . . . . . . . . . . . . . . . . 5
Section 3.2: Regular Meetings . . . . . . . . . . . . . . . . . 6
Section 3.3: Special Meetings . . . . . . . . . . . . . . . . . 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 3.4: Notice of Special Meetings . . . . . . . . . . . . 6
Section 3.5: Quorum . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.6: Conference Telephone . . . . . . . . . . . . . . . 6
Section 3.7: Waiver of Notice and Consent . . . . . . . . . . . 7
Section 3.8: Action Without a Meeting . . . . . . . . . . . . . 7
Section 3.9: Committees . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.1: Appointment and Procedure. . . . . . . . . . . . . 7
Section 4.2: Executive Committee Powers.. . . . . . . . . . . . 7
Section 4.3: Powers of Other Committees . . . . . . . . . . . . 7
Section 4.4: Limitations on Powers of Committees. . . . . . . . 7
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.1: Election and Qualifications. . . . . . . . . . . . 8
Section 5.2: Term of Office and Compensation. . . . . . . . . . 8
Section 5.3: Chief Executive Officer. . . . . . . . . . . . . . 9
Section 5.4: Chairman of the Board. . . . . . . . . . . . . . . 9
Section 5.5: President. . . . . . . . . . . . . . . . . . . . . 9
Section 5.6: President Pro Tem. . . . . . . . . . . . . . . . . 9
Section 5.7: Vice President . . . . . . . . . . . . . . . . . . 10
Section 5.8: Secretary. . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 5.9: Chief Financial Officer. . . . . . . . . . . . . . 11
Section 5.10: Instruments in Writing . . . . . . . . . . . . . . 11
ARTICLE VI INDEMNIFICATION OF AGENTS . . . . . . . . . . . . . . . . 12
Section 6.l: Indemnification of Directors and Officers. . . . . 12
Section 6.2: Advancement of Expenses. . . . . . . . . . . . . . 12
Section 6.3: Non-Exclusivity of Rights. . . . . . . . . . . . . 12
Section 6.4: Indemnification Contracts. . . . . . . . . . . . . 13
Section 6.5: Effect of Amendment. . . . . . . . . . . . . . . . 13
ARTICLE VII MEETINGS OF, AND REPORTS TO, SHAREHOLDERS . . . . . . . 13
Section 7.1: Place of Meetings. . . . . . . . . . . . . . . . . 13
Section 7.2: Annual Meetings. . . . . . . . . . . . . . . . . . 13
Section 7.3: Special Meetings . . . . . . . . . . . . . . . . . 13
Section 7.4: Notice of Meetings . . . . . . . . . . . . . . . . 14
Section 7.5: Consent to Shareholders' Meetings. . . . . . . . . 14
Section 7.6: Quorum.. . . . . . . . . . . . . . . . . . . . . . 15
Section 7.7: Adjourned Meetings . . . . . . . . . . . . . . . . 15
Section 7.8: Voting Rights. . . . . . . . . . . . . . . . . . . 16
Section 7.9: Action by Written Consents . . . . . . . . . . . . 16
Section 7.10: Election of Directors. . . . . . . . . . . . . . . 17
Section 7.11: Proxies. . . . . . . . . . . . . . . . . . . . . . 17
Section 7.12: Inspectors of Election . . . . . . . . . . . . . . 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 7.13: Annual Reports . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII SHARES AND SHARE CERTIFICATES. . . . . . . . . . . . . . 18
Section 8.1: Shares Held by Company . . . . . . . . . . . . . . 18
Section 8.2: Certificates for Shares. . . . . . . . . . . . . . 18
Section 8.3: Lost Certificates. . . . . . . . . . . . . . . . . 19
Section 8.4: Restrictions on Transfer of Shares . . . . . . . . 19
ARTICLE IX CONSTRUCTION OF BYLAWS WITH
REFERENCE TO PROVISIONS OF LAW . . . . . . . . . . . . 20
Section 9.1: Bylaw Provisions Construed as Additional and
Supplemental to Provisions. . . . . . . . . . . . . 20
Section 9.2: Bylaw Provisions Contrary to or Inconsistent
with Provisions of Law. . . . . . . . . . . . . . . 20
ARTICLE X CERTIFICATION, ADOPTION,
AMENDMENT OR REPEAL OF BYLAWS. . . . . . . . . . . . . . 22
Section 10.1: By Shareholders . . . . . . . . . . . . . . . . . . 20
Section 10.2: By the Board of Directors . . . . . . . . . . . . . 20
Section 10.3: Certification and Inspection of Bylaws . . . . . . 20
</TABLE>
<PAGE>
BYLAWS
OF
SILICON IMAGE, INC.
(a California corporation)
As Adopted January 1, 1995
ARTICLE I
OFFICES
SECTION 1.1: PRINCIPAL OFFICE. The principal executive office for the
transaction of the business of this corporation (the "COMPANY") shall be
located at such place as the Board of Directors may from time to time decide.
The Board of Directors is hereby granted full power and authority to change
the location of the principal executive office from one location to another.
SECTION 1.2: OTHER OFFICES. One or more branch or other subordinate
offices may at any time be fixed and located by the Board of Directors at
such place or places within or outside the State of California as it deems
appropriate.
ARTICLE II
DIRECTORS
SECTION 2.1: EXERCISE OF CORPORATE POWERS. Except as otherwise
provided by these Bylaws, by the Articles of Incorporation of the Company or
by the laws of the State of California now or hereafter in force, the
business and affairs of the Company shall be managed and all corporate powers
shall be exercised by or under the ultimate direction of a board of directors
(the "BOARD OF DIRECTORS").
SECTION 2.2: NUMBER. The authorized number of directors of this
Company may be varied from time to time by resolution of the Board of
Directors, provided that the authorized number shall be not fewer than four
(4) nor more than seven (7). The authorized number of directors of the
Company shall be variable by the Board of Directors within such range until
changed by an amendment of this Section approved by the shareholders of the
Company. The authorized number of directors of the Company shall initially
be six (6). No amendment of this Section or an amendment of the Articles of
Incorporation reducing the fixed number or the
<PAGE>
minimum number of authorized directors to a number less than five (5) can be
adopted if the votes cast against its adoption at a meeting, or the shares
not consenting in the case of action by written consent, are equal to more
than 16-2/3% of the outstanding shares entitled to vote.
SECTION 2.3: NEED NOT BE SHAREHOLDERS. The directors of the Company
need not be shareholders of this Company.
SECTION 2.4: COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services as may be fixed or
determined by resolution of the Board of Directors. Nothing herein contained
shall be construed to preclude any director from serving the Company in any
other capacity and receiving compensation therefor.
SECTION 2.5: ELECTION AND TERM OF OFFICE. The directors shall be
elected annually by the shareholders at the annual meeting of the
shareholders. The term of office of the directors shall begin immediately
after their election and shall continue until the next annual meeting of the
shareholders and until their respective successors are elected. A reduction
of the authorized number of directors shall not shorten the term of any
incumbent director or remove any incumbent director prior to the expiration
of such director's term of office.
SECTION 2.6: VACANCIES. A vacancy or vacancies on the Board of
Directors shall exist:
(a) in the case of the death of any director; or
(b) in the case of the resignation or removal of any director; or
(c) if the authorized number of directors is increased; or
(d) if the shareholders fail, at any annual meeting of
shareholders at which any director is elected, to elect the full authorized
number of directors at that meeting.
The Board of Directors may declare vacant the office of a director if he or
she is declared of unsound mind by an order of court or convicted of a felony
or if, within 60 days after notice of his or her election, he or she does not
accept the office. Any vacancy, except for a vacancy created by removal of a
director as provided in Section 2.7 hereof, may be filled by a person
selected by a majority of the remaining directors then in office, whether or
not less than a quorum, or by a sole remaining director. Vacancies occurring
in the Board of Directors by reason of removal of directors shall be filled
only by approval of shareholders. The shareholders may elect a director at
any time to fill any vacancy not filled by the directors. Any such election
by the written consent of shareholders, other than to fill a vacancy created
by removal, requires the consent of shareholders holding a majority of the
outstanding shares entitled to vote. If, after the filling of any vacancy by
the directors, the directors then in office who have been elected by the
shareholders shall constitute less than a majority of the directors then in
office, any holder or holders of an aggregate of 5% or more of the total
number of shares at that time having the right to vote for such directors may
call a special meeting of shareholders to be held to elect the entire Board
of Directors. The term of office of any director then in office shall
terminate upon the
<PAGE>
election of such director's successor. Any director may resign effective
upon giving written notice to the Chairman of the Board, if any, the
President, the Secretary or the Board of Directors, unless the notice
specifies a later time for the effectiveness of such resignation. After the
notice is given and if the resignation is effective at a future time, a
successor may be elected or appointed to take office when the resignation
becomes effective.
SECTION 2.7: REMOVAL. The entire Board of Directors or any individual
director may be removed from office without cause by an affirmative vote of
shareholders holding a majority of the outstanding shares entitled to vote.
If the entire Board of Directors is not removed, however, then no individual
director shall be removed if the votes cast against removal of that director,
plus the votes not consenting in writing to such removal, would be sufficient
to elect that director if voted cumulatively in an election at which the
following were true:
(a) the same total number of votes were cast, or, if such action
is taken by written consent, all shares entitled to vote were voted; and
(b) the entire number of directors authorized at the time of the
director's most recent election were then being elected.
If any or all directors are so removed, new directors may be elected at the
same meeting or at a subsequent meeting. If at any time a class or series of
shares is entitled to elect one or more directors under authority granted by
the Articles of Incorporation, the provisions of this Section 2.7 shall apply
to the vote of that class or series and not to the vote of the outstanding
shares as a whole.
SECTION 2.8: POWERS AND DUTIES. Without limiting the generality or
extent of the general corporate powers to be exercised by the Board of
Directors pursuant to Section 2.1 of these Bylaws, it is hereby provided that
the Board of Directors shall have full power with respect to the following
matters:
(a) To purchase, lease and acquire any and all kinds of property,
real, personal or mixed, and at its discretion to pay therefor in money, in
property and/or in stocks, bonds, debentures or other securities of the
Company.
(b) To enter into any and all contracts and agreements which in
its judgment may be beneficial to the interests and purposes of the Company.
(c) To fix and determine and to vary from time to time the amount
or amounts to be set aside or retained as reserve funds or as working capital
of the Company or for maintenance, repairs, replacements or enlargements of
its properties.
(d) To declare and pay dividends in cash, shares and/or property
out of any funds of the Company at the time legally available for the
declaration and payment of dividends on its shares.
<PAGE>
(e) To adopt such rules and regulations for the conduct of its
meetings and the management of the affairs of the Company as it may deem
proper.
(f) To prescribe the manner in which and the person or persons by
whom any or all of the checks, drafts, notes, bills of exchange, contracts
and other corporate instruments shall be executed.
(g) To accept resignations of directors; to declare vacant the
office of a director as provided in Section 2.6 hereof; and, in case of
vacancy in the office of directors, to fill the same to the extent provided
in Section 2.6 hereof.
(h) To create offices in addition to those for which provision is
made by law or these Bylaws; to elect and remove at pleasure all officers of
the Company, fix their terms of office, prescribe their titles, powers and
duties, limit their authority and fix their salaries in any way it may deem
advisable that is not contrary to law or these Bylaws.
(i) To designate one or more persons to perform the duties and
exercise the powers of any officer of the Company during the temporary
absence or disability of such officer.
(j) To appoint or employ and to remove at pleasure such agents and
employees as it may see fit, to prescribe their titles, powers and duties,
limit their authority and fix their salaries in any way it may deem advisable
that is not contrary to law or these Bylaws.
(k) To fix a time in the future, which shall not be more than 60
days nor less than 10 days prior to the date of the meeting nor more than 60
days prior to any other action for which it is fixed, as a record date for
the determination of the shareholders entitled to notice of and to vote at
any meeting, or entitled to receive any payment of any dividend or other
distribution, or allotment of any rights, or entitled to exercise any rights
in respect of any other lawful action; and in such case only shareholders of
record on the date so fixed shall be entitled to notice of and to vote at the
meeting or to receive the dividend, distribution or allotment of rights or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Company after any record date fixed as aforesaid.
The Board of Directors may close the books of the Company against transfers
of shares during the whole or any part of such period.
(l) To fix and locate from time to time the principal office for
the transaction of the business of the Company and one or more branch or
other subordinate offices of the Company within or without the State of
California; to designate any place within or without the State of California
for the holding of any meeting or meetings of the shareholders or the Board
of Directors, as provided in Sections 3.1 and 7.1 hereof; to adopt, make and
use a corporate seal, and to prescribe the forms of certificates for shares
and to alter the form of such seal and of such certificates from time to time
as in its judgment it may deem best, provided such seal and such certificates
shall at all times comply with the provisions of law now or hereafter in
effect.
<PAGE>
(m) To authorize the issuance of shares of stock of the Company in
accordance with the laws of the State of California and the Articles of
Incorporation.
(n) Subject to the limitation provided in Section 10.2 hereof, to
adopt, amend or repeal from time to time and at any time these Bylaws and any
and all amendments thereof.
(o) To borrow money, make guarantees of indebtedness or other
obligations of third parties and incur indebtedness on behalf of the Company,
including the power and authority to borrow money from any of the
shareholders, directors or officers of the Company; and to cause to be
executed and delivered therefor in the corporate name promissory notes,
bonds, debentures, deeds of trust, mortgages, pledges (or other transfers of
property as security or collateral for a debt), or other evidences of debt
and securities therefor; and the note or other obligation given for any
indebtedness of the Company, signed officially by any officer or officers
thereunto duly authorized by the Board of Directors, shall be binding on the
Company.
(p) To approve a loan of money or property to any officer or
director of the Company or any parent or subsidiary company, guarantee the
obligation of any such officer or director, or approve an employee benefit
plan authorizing such a loan or guaranty to any such officer or director;
provided that, on the date of approval of such loan or guaranty, the Company
has outstanding shares held of record by 100 or more persons. Such approval
shall require a determination by the Board of Directors that the loan or
guaranty may reasonably be expected to benefit the Company and must be by
vote sufficient without counting the vote of any interested director.
(q) Generally to do and perform every act and thing whatsoever
that may pertain to the office of a director or to a board of directors.
ARTICLE III
MEETINGS OF DIRECTORS
SECTION 3.1: PLACE OF MEETINGS. Meetings (whether regular, special or
adjourned) of the Board of Directors of the Company shall be held at the
principal executive office of the Company or at any other place within or
outside the State of California which may be designated from time to time by
resolution of the Board of Directors or which is designated in the notice of
the meeting.
SECTION 3.2: REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held after the adjournment of each annual meeting of the
shareholders (which regular directors' meeting shall be designated the
"REGULAR ANNUAL MEETING") and at such other times as may be designated from
time to time by resolution of the Board of Directors. Notice of the time and
place of all regular meetings shall be given in the same manner as for
special meetings, except that no such notice need be given if (a) the time
and place of such meetings are fixed by the
<PAGE>
Board of Directors or (b) the Regular Annual Meeting is held at the principal
executive office of this Corporation and on the date specified by the Board
of Directors.
SECTION 3.3: SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, if any, or
the President, or any Vice President, or the Secretary or by any two or more
directors.
SECTION 3.4: NOTICE OF SPECIAL MEETINGS. Special meetings of the
Board of Directors shall be held upon no less than 4 days' notice by mail or
48 hours' notice delivered personally or by telephone or telegraph to each
director. Notice need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice
to such director. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting. Any
oral notice given personally or by telephone may be communicated either to
the director or to a person at the home or office of the director who the
person giving the notice has reason to believe will promptly communicate it
to the director. A notice or waiver of notice need not specify the purpose
of any meeting of the Board of Directors. If the address of a director is not
shown on the records of the Company and is not readily ascertainable, notice
shall be addressed to him or her at the city or place in which meetings of
the directors are regularly held. If a meeting is adjourned for more than 24
hours, notice of any adjournment to another time or place shall be given
prior to the time of the adjourned meeting to all directors not present at
the time of adjournment.
SECTION 3.5: QUORUM. A majority of the authorized number of directors
constitutes a quorum of the Board of Directors for the transaction of
business. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present is the act of the
Board of Directors subject to provisions of law relating to interested
directors and indemnification of agents of the Company. A majority of the
directors present, whether or not a quorum is present, may adjourn any
meeting to another time and place. 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 such meeting.
SECTION 3.6: CONFERENCE TELEPHONE. Members of the Board of Directors
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all directors participating in such
meeting can hear one another. Participation in a meeting pursuant to this
Section constitutes presence in person at such meeting.
SECTION 3.7: WAIVER OF NOTICE AND CONSENT. The transactions of any
meeting of the Board of Directors, however called and noticed or wherever
held, shall be as valid as though had at a meeting duly held after regular
call and notice if a quorum is present, and if, either before or after the
meeting, each of the directors not present signs a written waiver of notice,
a consent to holding such meeting or an approval of the minutes thereof. All
such waivers, consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
<PAGE>
SECTION 3.8: ACTION WITHOUT A MEETING. Any action required or
permitted by law to be taken by the Board of Directors may be taken without a
meeting, if all members of the Board of Directors shall individually or
collectively consent in writing to the taking of such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors. Such action by written consent shall have the same force
and effect as a unanimous vote of such directors at a duly held meeting.
SECTION 3.9: COMMITTEES. The provisions of this Article apply also to
committees of the Board of Directors and action by such committees.
ARTICLE IV
COMMITTEES
SECTION 4.1: APPOINTMENT AND PROCEDURE. The Board of Directors may,
by resolution adopted by a majority of the authorized number of directors,
appoint from among its members one or more committees, including without
limitation an executive committee, an audit committee and a compensation
committee, of two or more directors. Each committee may make its own rules
of procedure subject to Section 3.9 hereof, and shall meet as provided by
such rules or by a resolution adopted by the Board of Directors (which
resolution shall take precedence). A majority of the members of the
committee shall constitute a quorum, and in every case the affirmative vote
of a majority of all members of the committee shall be necessary to the
adoption of any resolution.
SECTION 4.2: EXECUTIVE COMMITTEE POWERS. During the intervals between
the meetings of the Board of Directors, the Executive Committee, if any, in
all cases in which specific directions shall not have been given by the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Company in such manner as the Executive Committee may deem best for the
interests of the Company.
SECTION 4.3: POWERS OF OTHER COMMITTEES. Other committees shall have
such powers as are given them in a resolution of the Board of Directors.
SECTION 4.4: LIMITATIONS ON POWERS OF COMMITTEES. No committee shall
have the power to act with respect to:
(a) any action for which the laws of the State of California also
require shareholder approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
<PAGE>
(c) the fixing of compensation of the directors for serving on the
Board of Directors or on any committee;
(d) the amendment or repeal of these Bylaws or the adoption of new
Bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not amendable or repealable;
(f) a distribution to the shareholders of the Company, except at a
rate or in a periodic amount or within a price range as set forth in the
Articles of Incorporation or determined by the Board of Directors; and
(g) the appointment of other committees of the Board of Directors
or the members thereof.
ARTICLE V
OFFICERS
SECTION 5.1: ELECTION AND QUALIFICATIONS. The officers of the Company
shall consist of a President and/or a Chief Executive Officer, a Secretary, a
Chief Financial Officer and such other officers, including, but not limited
to, a Chairman of the Board of Directors, one or more Vice Presidents, a
Treasurer, and Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers, as the Board of Directors shall deem expedient, who shall be
chosen in such manner and hold their offices for such terms as the Board of
Directors may prescribe. Any number of offices may be held by the same
person. Any Vice President, Assistant Treasurer or Assistant Secretary,
respectively, may exercise any of the powers of the President, the Chief
Financial Officer or the Secretary, respectively, as directed by the Board of
Directors, and shall perform such other duties as are imposed upon him or her
by these Bylaws or the Board of Directors.
SECTION 5.2: TERM OF OFFICE AND COMPENSATION. The term of office and
salary of each of said officers and the manner and time of the payment of
such salaries shall be fixed and determined by the Board of Directors and may
be altered by said Board of Directors from time to time at its pleasure,
subject to the rights, if any, of any officer under any contract of
employment. Any officer may resign at any time upon written notice to the
Company, without prejudice to the rights, if any, of the Company under any
contract to which the officer is a party. If any vacancy occurs in any
office of the Company, the Board of Directors may appoint a successor to fill
such vacancy.
SECTION 5.3 CHIEF EXECUTIVE OFFICER. Subject to the control of the
Board of Directors and such supervisory powers, if any, as may be given by
the Board of Directors, the powers and duties of the Chief Executive Officer
of the Company are:
<PAGE>
(a) To act as the general manager and, subject to the control of
the Board of Directors, to have general supervision, direction and control of
the business and affairs of the Company.
(b) To preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board of Directors or if there be no Chairman,
at all meetings of the Board of Directors.
(c) To call meetings of the shareholders and meetings of the Board
of Directors to be held at such times and, subject to the limitations
prescribed by law or by these Bylaws, at such places as he or she shall deem
proper.
(d) To affix the signature of the Company 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 Chief Executive Officer, should be
executed on behalf of the Company; to sign certificates for shares of stock
of the Company; and, subject to the direction of the Board of Directors, to
have general charge of the property of the Company and to supervise and
control all officers, agents and employees of the Company.
The President shall be the Chief Executive Officer of the Company unless the
Board of Directors shall designate the Chairman of the Board or another
officer to be the Chief Executive Officer. If there is no President, then
the Chairman of the Board shall be the Chief Executive Officer.
SECTION 5.4: CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors, if there be one, shall have the power to preside at all meetings
of the Board of Directors and shall have such other powers and shall be
subject to such other duties as the Board of Directors may from time to time
prescribe.
SECTION 5.5 PRESIDENT. Subject to the supervisory powers of the
Chief Executive Officer, if not the President, and to such supervisory powers
as may be given by the Board of Directors to the Chairman of the Board, if
one is elected, or to any other officer, the President shall have the general
powers and duties of management usually vested in the office of president of
a corporation and shall have such other powers and duties as may be
prescribed by the Board of Directors or these Bylaws.
SECTION 5.6: PRESIDENT PRO TEM. If neither the Chairman of the Board
of Directors, the President, nor any Vice President is present at any meeting
of the Board of Directors, a President pro tem may be chosen by the directors
present at the meeting to preside and act at such meeting. If neither the
President nor any Vice President is present at any meeting of the
shareholders, a President pro tem may be chosen by the shareholders present
at the meeting to preside at such meeting.
SECTION 5.7: VICE PRESIDENT. The titles, powers and duties of the
Vice President or Vice Presidents, if any, shall be as prescribed by the
Board of Directors. In case of the resignation,
<PAGE>
disability or death of the President, the Vice President, or one of the Vice
Presidents, shall exercise all powers and duties of the President. If there
is more than one Vice President, the order in which the Vice Presidents shall
succeed to the powers and duties of the President shall be as fixed by the
Board of Directors.
SECTION 5.8: SECRETARY. The powers and duties of the Secretary are:
(a) To keep a book of minutes at the principal executive office of
the Company, or such other place as the Board of Directors may order, of all
meetings of its directors and shareholders with the time and place of holding
of such meeting, whether regular or special, and, if special, how authorized,
the notice thereof given, the names of those present at directors' meetings,
the number of shares present or represented at shareholders' meetings and the
proceedings thereof.
(b) To keep the seal of the Company and to affix the same to all
instruments which may require it.
(c) To keep or cause to be kept at the principal executive office
of the Company, or at the office of the transfer agent or agents, a record of
the shareholders of the Company, giving the names and addresses of all
shareholders and the number and class of shares held by each, the number and
date of certificates issued for shares and the number and date of
cancellation of every certificate surrendered for cancellation.
(d) To keep a supply of certificates for shares of the Company, to
fill in all certificates issued, and to make a proper record of each such
issuance; provided that, so long as the Company shall have one or more duly
appointed and acting transfer agents of the shares, or any class or series of
shares, of the Company, such duties with respect to such shares shall be
performed by such transfer agent or transfer agents.
(e) To transfer upon the share books of the Company any and all
shares of the Company; provided that, so long as the Company shall have one
or more duly appointed and acting transfer agents of the shares, or any class
or series of shares, of the Company, such duties with respect to such shares
shall be performed by such transfer agent or transfer agents, and the method
of transfer of each certificate shall be subject to the reasonable
regulations of the transfer agent to whom the certificate is presented for
transfer and, if the Company then has one or more duly appointed and acting
registrars, subject to the reasonable regulations of the registrar to which a
new certificate is presented for registration; and, provided further, that no
certificate for shares of stock shall be issued or delivered or, if issued or
delivered, shall have any validity whatsoever until and unless it has been
signed or authenticated in the manner provided in Section 8.2 hereof.
(f) To make service and publication of all notices that may be
necessary or proper in connection with meetings of the Board of Directors of
the shareholders of the Company. In case of the absence, disability, refusal
or neglect of the Secretary to make service or publication of any notices,
then such notices may be served and/or published by the President
<PAGE>
or a Vice President, or by any person thereunto authorized by either of them,
or by the Board of Directors, or by the holders of a majority of the
outstanding shares of the Company.
(g) Generally to do and perform all such duties as pertain to such
office and as may be required by the Board of Directors.
SECTION 5.9: CHIEF FINANCIAL OFFICER. The powers and duties of the
Chief Financial Officer are:
(a) To supervise and control the keeping and maintaining of
adequate and correct accounts of the Company's properties and business
transactions, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares. The books of
account shall at all reasonable times be open to inspection by any director.
(b) To have the custody of all funds, securities, evidences of
indebtedness and other valuable documents of the Company and, at his or her
discretion, to cause any or all thereof to be deposited for the account of
the Company with such depository as may be designated from time to time by
the Board of Directors.
(c) To receive or cause to be received, and to give or cause to be
given, receipts and acquittances for monies paid in for the account of the
Company.
(d) To disburse, or cause to be disbursed, all funds of the
Company as may be directed by the President or the Board of Directors, taking
proper vouchers for such disbursements.
(e) To render to the President or to the Board of Directors,
whenever either may require, accounts of all transactions as Chief Financial
Officer and of the financial condition of the Company.
(f) Generally to do and perform all such duties as pertain to such
office and as may be required by the Board of Directors.
SECTION 5.10: INSTRUMENTS IN WRITING. All checks, drafts, demands for
money, notes and written contracts of the Company shall be signed by such
officer or officers, agent or agents, as the Board of Directors may from time
to time designate. No officer, agent, or employee of the Company shall have
the power to bind the Company by contract or otherwise unless authorized to
do so by these Bylaws or by the Board of Directors.
<PAGE>
ARTICLE VI
INDEMNIFICATION
SECTION 6.1: INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company
shall indemnify each person who was or is a party, or is threatened to be
made a party, to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative (a "PROCEEDING") by
reason of the fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director or
officer of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or was a director or officer of a foreign
or domestic corporation which was a predecessor corporation of the Company or
of another enterprise at the request of such predecessor corporation, to the
fullest extent permitted by the California Corporations Code, against all
expenses, including, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
Proceeding, and such indemnification shall continue as to a person who has
ceased to be such a director or officer, and shall inure to the benefit of
the heirs, executors and administrators of such person; PROVIDED, HOWEVER,
that the Company shall indemnify any such person seeking indemnity in
connection with a Proceeding (or part thereof) initiated by such person only
if such Proceeding (or part thereof) was authorized by the Board of Directors
of the Company.
SECTION 6.2: ADVANCEMENT OF EXPENSES. The Company shall pay all
expenses incurred by such a director or officer in defending any Proceeding
as they are incurred in advance of its final disposition; provided, however,
that the payment of such expenses incurred by a director or officer in
advance of the final disposition of a Proceeding shall be made only upon
receipt by the Company of an agreement by or on behalf of such director or
officer to repay such amount if it shall be determined ultimately that such
person is not entitled to be indemnified under this Article VI or otherwise;
and provided further that the Company shall not be required to advance any
expenses to a person against whom the Company brings an action, alleging that
such person committed an act or omission not in good faith or that involved
intentional misconduct or a knowing violation of law, or that was contrary to
the best interest of the Company, or derived an improper personal benefit
from a transaction.
SECTION 6.3: NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person in this Article VI shall not be deemed exclusive of any other rights
that such person may have or hereafter acquire under any statute, by law,
agreement, vote of shareholders or disinterested directors or otherwise, both
as to action in an official capacity and as to action in another capacity
while holding such office. Additionally, nothing in this Article VI shall
limit the ability of the Company, in its discretion, to indemnify or advance
expenses to persons whom the Company is not obligated to indemnify or advance
expenses to pursuant to this Article VI.
<PAGE>
SECTION 6.4: INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to cause the Company to enter into a contract with any director,
officer, employee or agent of the Company, or any person serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, providing
for indemnification rights equivalent to or, if the Board of Directors so
determines, greater than (to the extent permitted by the Company's Articles
of Incorporation and the California Corporations Code) those provided for in
this Article VI.
SECTION 6.5: EFFECT OF AMENDMENT. Any amendment, repeal or
modification of any provision of this Article VI shall be prospective only,
and shall not adversely affect any right or protection conferred on a person
pursuant to this Article VI and existing at the time of such amendment,
repeal or modification.
ARTICLE VII
MEETINGS OF, AND REPORTS TO, SHAREHOLDERS
SECTION 7.1: PLACE OF MEETINGS. Meetings (whether regular, special or
adjourned) of the shareholders of the Company shall be held at the principal
executive office for the transaction of business of the Company, or at any
place within or outside the State of California which may be designated by
written consent of all the shareholders entitled to vote thereat, or which
may be designated by resolution of the Board of Directors. Any meeting shall
be valid wherever held if held by the written consent of all the shareholders
entitled to vote thereat, given either before or after the meeting and filed
with the Secretary of the Company.
SECTION 7.2: ANNUAL MEETINGS. The annual meetings of the shareholders
shall be held at the place provided pursuant to Section 7.1 hereof and at
such time in a particular year as may be designated by written consent of all
the shareholders entitled to vote thereat or which may be designated by
resolution of the Board of Directors of the Company. Said annual meetings
shall be held for the purpose of the election of directors, for the making of
reports of the affairs of the Company and for the transaction of such other
business as may properly come before the meeting.
SECTION 7.3: SPECIAL MEETINGS. Special meetings of the shareholders
for any purpose or purposes whatsoever may be called at any time by the
President, the Chairman of the Board of Directors or by the Board of
Directors, or by two or more members thereof, or by one or more holders of
shares entitled to cast not less than 10% of the votes at the meeting. Upon
request in writing sent by registered mail to the Chairman of the Board of
Directors, President, Vice President or Secretary, or delivered to any such
officer in person, by any person entitled to call a special meeting of
shareholders, it shall be the duty of such officer forthwith to cause notice
to be given to the shareholders entitled to vote that a meeting will be held
at a time requested by the person or persons calling the meeting, which
(except where called by the Board of Directors) shall be not less than 35
days nor more than 60 days after the receipt of such request. If the notice
is not given within 20 days after receipt of the request, the person entitled
to call the
<PAGE>
meeting may give the notice. Notices of meetings called by the Board of
Directors shall be given in accordance with Section 7.4.
SECTION 7.4: NOTICE OF MEETINGS. Notice of any meeting of
shareholders shall be given in writing not less than 10 (or, if sent by
third-class mail, 30) nor more than 60 days before the date of the meeting to
each shareholder entitled to vote thereat by the Secretary or an Assistant
Secretary, or such other person charged with that duty, or if there be no
such officer or person, or in case of his or her neglect or refusal, by any
director or shareholder. The notice shall state the place, date and hour of
the meeting and (a) in the case of a special meeting, the general nature of
the business to be transacted, and no other business may be transacted, or
(b) in the case of the annual meeting, those matters which the Board of
Directors, at the time of the mailing of the notice, intends to present for
action by the shareholders, but any proper matter may be presented at the
meeting for such action, except that notice must be given or waived in
writing of any proposal relating to approval of contracts between the Company
and any director of the Company, amendment of the Articles of Incorporation,
reorganization of the Company or winding up of the affairs of the Company.
The notice of any meeting at which directors are to be elected shall include
the names of nominees intended at the time of the notice to be presented by
the Board of Directors for election. Notice of a shareholders' meeting or
any report shall be given to any shareholder, either (a) personally or (b) by
first-class mail, or, in case the Company has outstanding shares held of
record by 500 or more persons on the record date for the shareholders'
meeting, notice may be sent by third-class mail, or other means of written
communication, charges prepaid, addressed to such shareholder at such
shareholder's address appearing on the books of the Company or given by such
shareholder to the Company for the purpose of notice. If a shareholder gives
no address or no such address appears on the books of the Company, notice
shall be deemed to have been given if sent by mail or other means of written
communication addressed to the place where the principal executive office of
the Company is located, or if published at least once in a newspaper of
general circulation in the county in which such office is located. The
notice or report shall be deemed to have been given at the time when
delivered personally or deposited in the United States mail, postage prepaid,
or sent by other means of written communication and addressed as hereinbefore
provided. An affidavit or declaration of delivery or mailing of any notice
or report in accordance with the provisions of this Section 7.4, executed by
the Secretary, Assistant Secretary or any transfer agent, shall be prima
facie evidence of the giving of the notice or report. If any notice or
report addressed to the shareholder at the address of such shareholder
appearing on the books of the Company is returned to the Company by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice or report to the shareholder at such
address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available for the
shareholder upon written demand of the shareholder at the principal executive
office of the Company for a period of one year from the date of the giving of
the notice or report to all other shareholders.
SECTION 7.5: CONSENT TO SHAREHOLDERS' MEETINGS. The transactions of
any meeting of shareholders, however called and noticed, and wherever held,
are as valid as though they had taken place at a meeting duly held after
regular call and notice, if the following conditions are met:
<PAGE>
(a) a quorum is present, either in person or by proxy, and
(b) either before or after the meeting, each of the shareholders
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of such meeting or an approval
of the minutes thereof. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute both a waiver of notice
of and presence at such meeting, except: (a) when the person objects, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened; or (b) when the person expressly
makes an objection at some time during the meeting to the consideration of
matters required by law to be included in the notice but not so included.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of shareholders need be specified in any written waiver of
notice, consent to the holding of the meeting or approval of the minutes
thereof, except as to approval of contracts between the Company and any of
its directors, amendment of the Articles of Incorporation, reorganization of
the Company or winding up the affairs of the Company.
SECTION 7.6: QUORUM. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting of the
shareholders shall constitute a quorum for the transaction of business.
Shares shall not be counted to make up a quorum for a meeting if voting of
such shares at the meeting has been enjoined or for any reason they cannot be
lawfully voted at the meeting. Shareholders present at a duly called or held
meeting at which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough shareholders to leave
less than a quorum, if any action taken (other than adjournment) is approved
by at least a majority of the shares required to constitute a quorum. Except
as provided herein, the affirmative vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a majority of the
required quorum) shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required.
SECTION 7.7: ADJOURNED MEETINGS. Any shareholders' meeting, whether
or not a quorum is present, may be adjourned from time to time by the vote of
a majority of the shares, the holders of which are either present in person
or represented by proxy thereat, but, except as provided in Section 7.6
hereof, in the absence of a quorum, no other business may be transacted at
such meeting. When a meeting is adjourned for more than 45 days or if after
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled
to vote at a meeting. Except as aforesaid, it shall not be necessary to give
any notice of the time and place of the adjourned meeting or of the business
to be transacted thereat other than by announcement at the meeting at which
such adjournment is taken. At any adjourned meeting the shareholders may
transact any business which might have been transacted at the original
meeting.
<PAGE>
SECTION 7.8: VOTING RIGHTS. Only persons in whose names shares
entitled to vote stand on the stock records of the Company at:
(a) the close of business on the business day immediately
preceding the day on which notice is given; or
(b) if notice is waived, at the close of business on the business
day immediately preceding the day on which the meeting is held; or
(c) if some other day be fixed for the determination of
shareholders of record pursuant to Section 2.8(k) hereof, then on such other
day, shall be entitled to vote at such meeting.
The record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the
Board of Directors has been taken, shall be the day on which the first
written consent is given. In the absence of any contrary provision in the
Articles of Incorporation or in any applicable statute relating to the
election of directors or to other particular matters, each such person shall
be entitled to one vote for each share.
SECTION 7.9: ACTION BY WRITTEN CONSENTS. Any action which may be
taken at any annual or special meeting of shareholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, shall be signed by holders of outstanding shares 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. Unless the consents of all shareholders entitled to
vote have been solicited in writing, the Company shall provide notice of any
shareholder approval obtained without a meeting by less than unanimous
written consent to those shareholders entitled to vote but who have not yet
consented in writing at least 10 days before the consummation of the
following actions authorized by such approval: (a) contracts between the
Company and any of its directors; (b) indemnification of any person; (c)
reorganization of the Company; or (d) distributions to shareholders upon the
winding-up of the affairs of the Company. In addition, the Company shall
provide, to those shareholders entitled to vote who have not consented in
writing, prompt notice of the taking of any other corporate action approved
by the shareholders without a meeting by less than unanimous written consent.
All notices given hereunder shall conform to the requirements of Section 7.4
hereto and applicable law. When written consents are given with respect to
any shares, they shall be given by and accepted from the persons in whose
names such shares stand on the books of the Company at the time such
respective consents are given, or their proxies. Any shareholder giving a
written consent (including any shareholder's proxy holder, or a transferee of
the shares or a personal representative of the shareholder, or their
respective proxy holders) may revoke the consent by a writing. This writing
must be received by the Company prior to the time that written consents of
the number of shares required to authorize the proposed action have been
filed with the Secretary of the Company. Such revocation is effective upon
its receipt by the Secretary of the Company. Notwithstanding anything herein
to the contrary, and subject to Section 305(b) of the California Corporations
Code, directors may not be elected by
<PAGE>
written consent except by unanimous written consent of all shares entitled to
vote for the election of directors.
SECTION 7.10: ELECTION OF DIRECTORS. Every shareholder entitled to
vote at any election of directors of the Company may cumulate such
shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
the shareholder's shares are normally entitled, or distribute the
shareholder's votes on the same principle among as many candidates as such
shareholder thinks fit. No shareholder, however, may cumulate such
shareholder's votes for one or more candidates unless such candidate's or
candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting, prior to voting, of such
shareholder's intention to cumulate such shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes
for candidates in nomination. The candidates receiving the highest number of
affirmative votes of the shares entitled to be voted for them up to the
number of directors to be elected by such shares shall be declared elected.
Votes against the director and votes withheld shall have no legal effect.
Election of directors need not be by ballot except upon demand made by a
shareholder at the meeting and before the voting begins.
SECTION 7.11: PROXIES. Every person entitled to vote or execute
consents shall have the right to do so either in person or by one or more
agents authorized by a written proxy executed by such person or such person's
duly authorized agent and filed with the Secretary of the Company. No proxy
shall be valid (a) after revocation thereof, unless the proxy is specifically
made irrevocable and otherwise conforms to this Section and applicable law,
or (b) after the expiration of eleven months from the date thereof, unless
the person executing it specifies therein the length of time for which such
proxy is to continue in force. Revocation may be effected by a writing
delivered to the Secretary of the Company stating that the proxy is revoked
or by a subsequent proxy executed by the person executing the prior proxy and
presented to the meeting, or as to any meeting by attendance at the meeting
and voting in person by the person executing the proxy. A proxy is not
revoked by the death or incapacity of the maker unless, before the vote is
counted, a written notice of such death or incapacity is received by the
Secretary of the Company. In addition, a proxy may be revoked,
notwithstanding a provision making it irrevocable, by a transferee of shares
without knowledge of the existence of the provision unless the existence of
the proxy and its irrevocability appears on the certificate representing such
shares.
SECTION 7.12: INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Directors may appoint any persons other than
nominees for office as inspectors of election. This appointment shall be
valid at the meeting and at any subsequent meeting that is a continuation of
the meeting at which the persons were originally appointed to be inspectors.
If no inspectors of election are so appointed, the Chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint inspectors of election at the meeting. The number of inspectors
shall be either one or three. If inspectors are appointed at a meeting on the
request of one or more shareholders or proxies, the holders of a majority of
shares or their proxies present at the meeting shall determine whether one or
three inspectors are to be appointed. If any person appointed as inspector
fails to appear or fails or refuses to act, the
<PAGE>
Chairman of the meeting may, and upon the request of any shareholder or a
shareholder's proxy shall, appoint a person to fill that vacancy. These
inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots, or consents;
(c) hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
SECTION 7.13: ANNUAL REPORTS. Provided that the Company has 100 or
fewer shareholders, the making of annual reports to the shareholders is
dispensed with and the requirement that such annual reports be made to
shareholders is expressly waived, except as may be directed from time to time
by the Board of Directors or the President.
ARTICLE VIII
SHARES AND SHARE CERTIFICATES
SECTION 8.1: SHARES HELD BY THE COMPANY. Shares in other companies
standing in the name of the Company may be voted or represented and all
rights incident thereto may be exercised on behalf of the Company by any
officer of the Company authorized to do so by resolution of the Board of
Directors.
SECTION 8.2: CERTIFICATES FOR SHARES. There shall be issued to every
holder of shares in the Company a certificate or certificates signed in the
name of the Company by the Chairman of the Board, if any, or the President or
a Vice President and by the Chief Financial Officer or an Assistant Chief
Financial Officer or the Secretary or any Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificate may be facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it
may be issued by the
<PAGE>
Company with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
SECTION 8.3: LOST CERTIFICATES. Where the owner of any certificate
for shares of the Company claims that the certificate has been lost, stolen
or destroyed, a new certificate shall be issued in place of the original
certificate if the owner (a) so requests before the Company has notice that
the original certificate has been acquired by a bona fide purchaser and (b)
satisfies any reasonable requirements imposed by the Company, including
without limitation the filing with the Company of an indemnity bond or
agreement in such form and in such amount as shall be required by the
President or a Vice President of the Company. The Board of Directors may
adopt such other provisions and restrictions with reference to lost
certificates, not inconsistent with applicable law, as it shall in its
discretion deem appropriate.
SECTION 8.4: RESTRICTIONS ON TRANSFER OF SHARES.
(a) Before any shareholder of the Company may sell, assign, gift,
pledge or otherwise transfer any shares of the Company's capital stock, such
shareholder shall first notify the Company in writing of such transfer and
such transfer may not be effected unless and until legal counsel for the
Company has concluded that such transfer, when effected as proposed by such
shareholder (i) will comply with all applicable provisions of any applicable
state and federal securities laws, including but not limited to the
Securities Act of 1933, as amended, and the California Corporate Securities
Law of 1968, as amended, and (ii) will not jeopardize, terminate or adversely
affect the Company's status as an S Corporation, if applicable, as that term
is defined in the Internal Revenue Code of 1986, as amended. The Company may
require that certificates representing shares of stock of the Company be
endorsed with a legend describing the restrictions set forth in this Section.
(b) If (i) any two or more shareholders of the Company shall enter
into any agreement abridging, limiting or restricting the rights of any one
or more of them to sell, assign, transfer, mortgage, pledge, hypothecate or
transfer on the books of the Company any or all of the shares of the Company
held by them, and if a copy of said agreement shall be filed with the
Company, or if (ii) shareholders entitled to vote shall adopt any Bylaw
provision abridging, limiting or restricting the rights of any shareholders
mentioned above, then, and in either of such events, all certificates of
shares of stock subject to such abridgments, limitations or restrictions
shall have a reference thereto endorsed thereon by an officer of the Company
and such certificates shall not thereafter be transferred on the books of the
Company except in accordance with the terms and provisions of such as the
case may be; however, no restriction shall be binding with respect to shares
issued prior to adoption of the restriction unless the holders of such shares
voted in favor of, or consented in writing to, the restriction.
<PAGE>
ARTICLE IX
CONSTRUCTION OF BYLAWS WITH
REFERENCE TO PROVISIONS OF LAW
SECTION 9.1: BYLAW PROVISIONS CONSTRUED AS ADDITIONAL AND SUPPLEMENTAL
TO PROVISIONS OF LAW. All restrictions, limitations, requirements and other
provisions of these Bylaws shall be construed, insofar as possible, as
supplemental and additional to all provisions of law applicable to the
subject matter thereof and shall be fully complied with in addition to the
said provisions of law unless such compliance shall be illegal.
SECTION 9.2: BYLAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH
PROVISIONS OF LAW. Any article, section, subsection, subdivision, sentence,
clause or phrase of these Bylaws which, upon being construed in the manner
provided in Section 9.1 hereof, shall be contrary to or inconsistent with any
applicable provision of law, shall not apply so long as said provisions of
law shall remain in effect, but such result shall not affect the validity or
applicability of any other portion of these Bylaws, it being hereby declared
that these Bylaws, and each article, section, subsection, subdivision,
sentence, clause or phrase thereof, would have been adopted irrespective of
the fact that any one or more articles, sections, subsections, subdivisions,
sentences, clauses or phrases is or are illegal.
ARTICLE X
CERTIFICATION, ADOPTION, AMENDMENT OR REPEAL OF BYLAWS
SECTION 10.1: BY SHAREHOLDERS. Bylaws may be adopted, amended or
repealed by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote. Bylaws specifying or changing a fixed
number of directors or the maximum or minimum number or changing from a fixed
to a variable board or vice versa may be adopted only by the shareholders.
SECTION 10.2: BY THE BOARD OF DIRECTORS. Subject to the right of
shareholders to adopt, amend or repeal Bylaws, and other than a Bylaw or
amendment thereof specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or
vice versa, these Bylaws may be adopted, amended or repealed by the Board of
Directors. A Bylaw adopted by the shareholders may restrict or eliminate the
power of the Board of Directors to adopt, amend or repeal Bylaws.
SECTION 10.3: CERTIFICATION AND INSPECTION OF BYLAWS. The Company
shall keep at its principal executive office the original or a copy of these
Bylaws as amended or otherwise altered to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours.
<PAGE>
THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
OF
SILICON IMAGE, INC.
This Third Amended and Restated Investors' Rights Agreement (this
"AGREEMENT") is made and entered into as of July 29, 1998 by and among
Silicon Image, Inc., a California corporation (the "COMPANY"), and the
persons and entities listed on Exhibit A attached hereto (the "INVESTORS").
This Agreement supersedes and restates in its entirety that certain Second
Amended and Restated Investors' Rights Agreement made and entered into as of
June 20, 1997 by and among the Company and the "Prior Investors" (as defined
below) (the "INVESTORS' RIGHTS AGREEMENT").
R E C I T A L S
A. The Company has previously sold shares of its Series A
Preferred Stock (the "SERIES A STOCK"), Series B Preferred Stock (the "SERIES
B STOCK") and Series C Preferred Stock (the "SERIES C STOCK") to certain
investors (the "PRIOR INVESTORS") pursuant to a Series A Preferred Stock
Purchase Agreement dated as of October 6, 1995 (the "SERIES A AGREEMENT"), a
Series B Preferred Stock Purchase Agreement dated as of September 20, 1996
(the "SERIES B AGREEMENT") and a Series C Preferred Stock Purchase Agreement
dated as of June 20, 1997 (the "SERIES C AGREEMENT"). In connection with
such sales, the Company granted the Prior Investors certain rights, as set
forth in the Investors' Rights Agreement.
B. Certain investors (the "SERIES D INVESTORS") have
purchased from the Company shares of its Series D Preferred Stock ("SERIES D
STOCK") pursuant to that certain Series D Preferred Stock Purchase Agreement
dated of even date herewith by and among the Company and the Series D
Investors (the "SERIES D AGREEMENT").
C. This Agreement amends and restates the Investors' Rights
Agreement in its entirety. By their execution of this Agreement, the
undersigned Prior Investors agree, on behalf of all of the Prior Investors,
to the amendment and restatement of the Investors' Rights Agreement as
provided herein and agree to be bound by this Agreement.
D. The Prior Investors and Series D Investors will
hereinafter be referred to collectively as the "INVESTORS." The Series A
Stock, Series B Stock, Series C Stock and Series D Stock will hereinafter be
referred to collectively as the "PREFERRED STOCK."
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
<PAGE>
1. INFORMATION RIGHTS.
1.1 FINANCIAL INFORMATION.
(a) The Company covenants and agrees that, commencing
on the date of this Agreement, for so long as any Investor holds at least
100,000 shares of Preferred Stock issued under the Series A Agreement, the
Series B Agreement, the Series C Agreement and/or the Series D Agreement
and/or the equivalent number (on an as-converted basis) of shares of common
stock of the Company ("COMMON STOCK") issued upon the conversion of such
shares of Preferred Stock ("CONVERSION STOCK"), the Company will:
(i) ANNUAL REPORTS. Furnish to such Investor,
as soon as practicable and in any event within 120 days after the end of each
fiscal year of the Company, audited by independent auditors of national
recognition, annual financial statements, including an audited Balance Sheet
as of the end of such fiscal year, an audited Statement of Income and an
audited Statement of Cash Flows, all prepared substantially in accordance
with generally accepted accounting principles and practices by independent
auditors of national recognition; and
(ii) QUARTERLY REPORTS. Furnish to such
Investor as soon as practicable, and in any event within forty-five (45) days
of the end of each fiscal quarter of the Company (except the last quarter of
the Company's fiscal year), quarterly unaudited financial statements,
including an unaudited Balance Sheet as of the end of such fiscal quarter, an
unaudited Statement of Income and an unaudited Statement of Cash Flows, all
prepared substantially in accordance with generally accepted accounting
principles and practices.
(b) The Company further covenants and agrees that,
for so long as any Investor holds at least 2,000,000 shares of Series C Stock
issued under the Series C Agreement and/or 500,000 shares of Series D Stock
issued under the Series D Agreement and/or an equivalent number (on an
as-converted basis) of shares of Common Stock issued upon the conversion of
such shares of Series C Stock ("SERIES C CONVERSION STOCK") and/or Series D
Stock ("SERIES D CONVERSION STOCK"), the Company will, in addition to (a)(i)
and (a)(ii) above:
(i) MONTHLY REPORTS. Furnish to such
Investor, as soon as practicable and in any event within forty-five (45) days
of the end of each calendar month, such financial statements and operating
reports as it prepares for internal use by management;
(ii) ANNUAL BUDGET. Furnish to such Investor
within thirty (30) days prior to the beginning of the fiscal year, an annual
operating plan and budget for the next immediate fiscal year; and
(iii) INSPECTION RIGHTS. Permit such Investor,
at such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers, all at such reasonable
times as may be requested by such Investor.
1.2 CONFIDENTIALITY. Each Investor agrees to hold all
information received pursuant to this Section in confidence, and not to use
or disclose any of such information to any
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<PAGE>
third party, except to the extent such information may be made publicly
available by the Company or otherwise required by law.
2. REGISTRATION RIGHTS.
2.1 DEFINITIONS. For purposes of this Section 2:
(a) REGISTRATION. The terms "REGISTER,"
"REGISTERED," and "REGISTRATION" refer to a registration effected by
preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement.
(b) REGISTRABLE SECURITIES. The term "REGISTRABLE
SECURITIES" means: (1) all the shares of Common Stock of the Company issued
or issuable upon the conversion of any shares of Series A Stock issued under
the Series A Agreement, any shares of Series B Stock issued under the Series
B Agreement, any shares of Series C Stock issued under the Series C
Agreement, or any shares of Series D Stock issued under the Series D
Agreement, as such agreements may hereafter be amended from time to time,
that are now owned or may hereafter be acquired by any Investor or any
permitted successors and assigns of Investor; and (2) any shares of Common
Stock of the Company issued as (or issuable upon the conversion or exercise
of any warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in replacement of,
all such shares of Common Stock described in clause (1) of this subsection
(b); EXCLUDING in all cases, however, any Registrable Securities sold by a
person in a transaction in which rights under this Section 2 are not assigned
in accordance with this Agreement or any Registrable Securities sold to the
public or sold pursuant to Rule 144 promulgated under the Securities Act;
PROVIDED, HOWEVER, that notwithstanding anything herein to the contrary, the
shares of Common Stock of the Company issued or issuable upon the conversion
of any shares of Series A Stock issued under the Series A Agreement and any
shares of Series B Stock issued under the Series B Agreement and any shares
of Common Stock described in clause (2) of this Section 2.1(b) that are
issued in respect to any such shares (which Shares are collectively
hereinafter referred to as the "EXCLUDED SECURITIES"), shall not be
Registrable Securities for purposes of Section 2.2 of this Agreement.
(c) REGISTRABLE SECURITIES THEN OUTSTANDING. The
number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the
number of shares of Common Stock which are Registrable Securities and (1) are
then issued and outstanding or (2) are then issuable pursuant to the exercise
or conversion of then outstanding and then exercisable options, warrants or
convertible securities.
(d) HOLDER. For purposes of this Section 2, the term
"HOLDER" means any person owning of record Registrable Securities that have
not been sold to the public or pursuant to Rule 144 promulgated under the
Securities Act or any assignee of record of such Registrable Securities to
whom rights under this Section 2 have been duly assigned in accordance with
this Agreement; PROVIDED, HOWEVER, that for purposes of this Agreement, a
record holder of shares of Series A Stock, Series B Stock, Series C Stock or
Series D Stock convertible into such Registrable Securities shall be deemed
to be the Holder of such Registrable Securities; PROVIDED, FURTHER, that a
holder of Excluded Securities (as defined in Section 2.1(b)) shall not be a
Holder with respect to such Excluded Securities for purposes of Sections 2.2
of this Agreement; and PROVIDED, FURTHER, that the Company shall in no event
be obligated to register shares of Series A
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<PAGE>
Stock, Series B Stock, Series C Stock or Series D Stock and that Holders of
Registrable Securities will not be required to convert their shares of Series
A Stock, Series B Stock, Series C Stock or Series D Stock into Common Stock
in order to exercise the registration rights granted hereunder, until
immediately before the closing of the offering to which the registration
relates.
(e) FORM S-3. The term "FORM S-3" means such form
under the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC
which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "COMMISSION" means the
U.S. Securities and Exchange Commission.
2.2 DEMAND REGISTRATION.
(a) REQUEST BY HOLDERS. If the Company shall receive
at any time after the earlier of (i) two (2) years after the date of this
Agreement, or (ii) ninety (90) days after the effective date of the Company's
initial public offering of its securities pursuant to a registration filed
under the Securities Act, a written request from the Holders of at least
fifty percent (50%) of the Registrable Securities (other than Excluded
Securities) then outstanding that the Company file a registration statement
under the Securities Act covering the registration of Registrable Securities
pursuant to this Section 2.2, then the Company shall, within ten (10)
business days of the receipt of such written request, give written notice of
such request ("REQUEST NOTICE") to all Holders, and effect, as soon as
practicable, the registration under the Securities Act of all Registrable
Securities (other than Excluded Securities) which Holders request to be
registered and included in such registration by written notice given such
Holders to the Company within twenty (20) days after receipt of the Request
Notice, subject only to the limitations of this Section 2.2; PROVIDED, that
the Registrable Securities (other than Excluded Securities) requested by all
Holders to be registered pursuant to such request must (i) be at least twenty
percent (20%) of all Registrable Securities (other than Excluded Securities)
then outstanding and (ii) have an anticipated aggregate public offering price
(before any underwriting discounts and commissions ) of not less than
$5,000,000, or $10,000,000 if such requested registration is the initial
public offering of the Company's stock registered under the Securities Act.
(b) UNDERWRITING. If the Holders initiating the
registration request under this Section 2.2 ("INITIATING HOLDERS") intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, then they shall so advise the Company as a part of their
request made pursuant to this Section 2.2 and the Company shall include such
information in the written notice referred to in subsection 2.2(a). In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall enter into an underwriting agreement in customary form with the
managing underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 2.2, if the
underwriter(s) advise(s) the Company in writing that marketing factors
require a limitation of the number of securities to be underwritten then the
Company shall so advise all Holders of Registrable
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<PAGE>
Securities which would otherwise be registered and underwritten pursuant
hereto, and the number of Registrable Securities that may be included in the
underwriting shall be reduced as required by the underwriter(s) and allocated
among the Holders of Registrable Securities on a pro rata basis according to
the number of Registrable Securities then outstanding held by each Holder
requesting registration (including the Initiating Holders); PROVIDED,
HOWEVER, that the number of shares of Registrable Securities to be included
in such underwriting and registration shall not be reduced unless all other
securities of the Company are first entirely excluded from the underwriting
and registration. Any Registrable Securities excluded and withdrawn from
such underwriting shall be withdrawn from the registration.
(c) MAXIMUM NUMBER OF DEMAND REGISTRATIONS. The
Company is obligated to effect only two (2) such registrations pursuant to
this Section 2.2.
(d) DEFERRAL. Notwithstanding the foregoing, if the
Company shall furnish to Holders requesting the filing of a registration
statement pursuant to this Section 2.2, a certificate signed by the President
or Chief Executive Officer of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of
such registration statement, then the Company shall have the right to defer
such filing for a period of not more than 90 days after receipt of the
request of the Initiating Holders; PROVIDED, HOWEVER, that the Company may
not utilize this right more than once in any twelve (12) month period. In
addition, the Company will not be obligated to effect a registration if the
Company delivers notice within thirty (30) days of receipt of the Request
Notice to the Holders requesting the filing of a registration statement
pursuant to this Section 2.2, a certificate signed by the President or Chief
Executive Officer of the Company stating the Company's good faith intent to
file a registration statement for an initial public offering within ninety
(90) days.
(e) EXPENSES. All expenses incurred in connection
with a registration pursuant to this Section 2.2, including without
limitation all registration and qualification fees, printers' and accounting
fees, fees and disbursements of counsel for the Company, and the reasonable
fees and disbursements of one counsel for the selling Holders (but excluding
underwriters' discounts and commissions), shall be borne by the Company.
Each Holder participating in a registration pursuant to this Section 2.2
shall bear such Holder's proportionate share (based on the total number of
shares sold in such registration other than for the account of the Company)
of all discounts, commissions or other amounts payable to underwriters or
brokers in connection with such offering. Notwithstanding the foregoing, the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to this Section 2.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered, unless the Holders of a majority of
the Registrable Securities (other than Excluded Securities) then outstanding
agree to forfeit their right to one (1) demand registration pursuant to this
Section 2.2 (in which case such right shall be forfeited by all Holders of
Registrable Securities (other than Excluded Securities)); PROVIDED, FURTHER,
HOWEVER, that if at the time of such withdrawal, the Holders have learned of
a material adverse change in the condition, business, or prospects of the
Company not known to the Holders at the time of their request for such
registration and have withdrawn their request for a registration with
reasonable promptness after learning of such material adverse change, then
the
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<PAGE>
Holders shall not be required to pay any of such expenses and shall retain
their rights pursuant to this Section 2.2.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior
to filing any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but EXCLUDING registration statements relating to
any employee benefit plan or a corporate reorganization) and will afford each
such Holder an opportunity to include in such registration statement all or
any part of the Registrable Securities then held by such Holder. Each Holder
desiring to include in any such registration statement all or any part of the
Registrable Securities held by such Holder shall, within twenty (20) days
after receipt of the above-described notice from the Company, so notify the
Company in writing, and in such notice shall inform the Company of the number
of Registrable Securities such Holder wishes to include in such registration
statement. If a Holder decides not to include all of its Registrable
Securities in any registration statement thereafter filed by the Company,
such Holder shall nevertheless continue to have the right to include any
Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth
herein.
(a) UNDERWRITING. If a registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder's Registrable
Securities to be included in a registration pursuant to this Section 2.3
shall be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the underwriting
to the extent provided herein. All Holders proposing to distribute their
Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriter(s) selected for such underwriting. Notwithstanding any other
provision of this Agreement, if the managing underwriter determine(s) in good
faith that marketing factors require a limitation of the number of shares to
be underwritten, then the managing underwriter(s) may exclude shares
(including Registrable Securities) from the registration and the
underwriting, and the number of shares that may be included in the
registration and the underwriting shall be allocated, FIRST, to the Company,
and SECOND, to each of the Holders requesting inclusion of their Registrable
Securities in such registration statement on a pro rata basis based on the
total number of Registrable Securities then held by each such Holder;
PROVIDED, HOWEVER, that the right of the underwriters to exclude shares
(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that (i) the number of Registrable
Securities included in any such registration is not reduced below twenty-five
(25%) of the shares included in the registration, except for a registration
relating to the Company's intital public offering from which all Registrable
Securities may be excluded, (ii) if the registration and the underwriting are
in connection with the Company's initial public offering, no party shall sell
shares in such initial public offering other than the Company or the
Holder(s), if any, invoking a demand registration under Section 2.2 above and
(iii) no shareholder of the Company shall be granted registration rights
under this Section 2.3 if inclusion of such shares would reduce the number of
shares of Registrable Securities of the Holders to be included in such
registration without the consent of the Holders of fifty-percent (50%) of the
Registrable Securities then held by the Holders. If any Holder disapproves
of the terms of any such underwriting, such Holder may elect to withdraw
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<PAGE>
therefrom by written notice to the Company and the underwriter, delivered at
least ten (10) business days prior to the effective date of the registration
statement. Any Registrable Securities excluded or withdrawn from such
underwriting shall be excluded and withdrawn from the registration. For any
Holder which is a partnership or corporation, the partners, retired partners
and shareholders of such Holder, or the estates and family members of any
such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "Holder", and any pro
rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder", as defined in this sentence.
(b) EXPENSES. All expenses incurred in connection
with a registration pursuant to this Section 2.3 (excluding underwriters' and
brokers' discounts and commissions), including, without limitation all
federal and "blue sky" registration and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and
reasonable fees and disbursements of one counsel for the selling Holders
shall be borne by the Company.
2.4 FORM S-3 REGISTRATION. In case the Company shall
receive from any Holder or Holders of Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 and
any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, then the Company will:
(a) NOTICE. Promptly give written notice of the
proposed registration and the Holder's or Holders' request therefor, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) REGISTRATION. As soon as practicable, effect
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all
or such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such request
as are specified in a written request given within such twenty (20) days
after receive of such written notice from the Company; PROVIDED, HOWEVER,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.4:
(1) if Form S-3 is not available for such
offering by the Holders;
(2) if the Holders, together with the holders
of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public of less than $500,000;
(3) if the Company shall furnish to the
Holders a certificate signed by the President or Chief Executive Officer of
the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement no more than once during any twelve month period
for a period of not more than 120 days after receipt of the request of the
Holder or Holders under this Section 2.4;
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<PAGE>
(4) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected two (2)
registrations on form S-3 for the Holders pursuant to this Section 2.4; or
(5) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) EXPENSES. Subject to the foregoing, the Company
shall file a Form S-3 registration statement covering the Registrable
Securities and other securities so requested to be registered pursuant to
this Section 2.4 as soon as practicable after receipt of the request or
requests of the Holders for such registration. The Company shall pay all
expenses incurred in connection with each registration requested pursuant to
this Section 2.4 (excluding underwriters' or brokers' discounts and
commissions), including without limitation all filing, registration and
qualification, printers' and accounting fees and the reasonable fees and
disbursements of one counsel for the selling Holder of Holders and one
counsel for the Company.
(d) NOT DEMAND REGISTRATION. Form S-3 registrations
shall not be deemed to be demand registrations as described in Section 2.2
above.
2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect
the registration of any Registrable Securities under this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to
ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the
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managing underwriter(s) of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of
the circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering and reasonably satisfactory to a majority
in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a "comfort" letter dated as of such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
2.6 FURNISH INFORMATION. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to Section 2.2,
2.3 or 2.4 that the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them,
and the intended method of disposition of such securities as shall be
required to timely effect the registration of their Registrable Securities.
2.7 DELAY OF REGISTRATION. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 2.
2.8 INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under Section 2.2, 2.3 or
2.4:
(a) BY THE COMPANY. To the extent permitted by law,
the Company will indemnify and hold harmless each Holder, the partners,
officers and directors of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended, (the "1934 ACT"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the l934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "VIOLATION"):
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(i) any untrue statement or alleged untrue
statement of a material fact contained in such registration
statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or
supplements thereto;
(ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act, any federal or
state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any federal or
state securities law in connection with the offering
covered by such registration statement;
and the Company will reimburse each such Holder, partner, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED
HOWEVER, that the indemnity agreement contained in this subsection 2.8(a)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by such Holder, partner, officer, director, underwriter or controlling person
of such Holder.
(b) BY SELLING HOLDERS. To the extent permitted by
law, each selling Holder will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder within
the meaning of the Securities Act or the 1934 Act, against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, underwriter or other such Holder,
partner or director, officer or controlling person of such other Holder may
become subject under the Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or
other Holder, partner, officer, director or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the indemnity agreement
contained in this subsection 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and PROVIDED FURTHER, that the total amounts
payable in indemnity by a Holder under this Section
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2.8(b) in respect of any Violation shall not exceed the net proceeds received
by such Holder in the registered offering out of which such Violation arises.
(c) NOTICE. Promptly after receipt by an indemnified
party under this Section 2.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim
in respect thereof is to be made against any indemnifying party under this
Section 2.8, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER,
that an indemnified party shall have the right to retain its own counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflict
of interests between such indemnified party and any other party represented
by such counsel in such proceeding. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any
such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party
under this Section 2.8, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 2.8.
(d) DEFECT ELIMINATED IN FINAL PROSPECTUS. The
foregoing indemnity agreements of the Company and Holders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with
the SEC at the time the registration statement in question becomes effective
or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the
"FINAL PROSPECTUS), such indemnity agreement shall not inure to the benefit
of any person if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(e) CONTRIBUTION. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any
case in which either (i) any Holder exercising rights under this Agreement,
or any controlling person of any such Holder, makes a claim for
indemnification pursuant to this Section 2.8 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 2.8 provides for indemnification
in such case, or (ii) contribution under the Securities Act may be required
on the part of any such selling Holder or any such controlling person in
circumstances for which indemnification is provided under this Section 2.8;
then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such
Holder is responsible for the portion represented by the percentage that the
public offering price of its Registrable Securities offered by and sold under
the registration statement bears to the public offering price of all
securities offered by and sold under such registration statement, and the
Company and other selling Holders are responsible for the remaining portion;
PROVIDED, HOWEVER, that, in any such case, (A) no such Holder will be
required to contribute any amount in excess of the public offering price of
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all such Registrable Securities offered and sold by such Holder pursuant to
such registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
(f) SURVIVAL. The obligations of the Company and
Holders under this Section 2.8 shall survive the completion of any offering
of Registrable Securities in a registration statement, and otherwise.
2.9 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission that may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock
of the Company, the Company agrees to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act,
at all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Use its best efforts to file with the Commission
in a timely manner all reports and other documents required of the Company
under the Securities Act and the 1934 Act (at any time after it has become
subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable
Securities, to furnish to the Holder forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements
of said Rule 144 (at any time after 90 days after the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the 1934 Act
(at any time after it has become subject to the reporting requirements of the
1934 Act), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration
(at any time after the Company has become subject to the reporting
requirements of the 1934 Act).
2.10 TERMINATION OF THE COMPANY'S OBLIGATIONS. The Company
shall have no obligations pursuant to Sections 2.2, 2.3 or 2.4 with respect
to: (i) any request or requests for registration made by any Holder on a date
more than seven (7) years after the closing date of the Company's initial
public offering at a price per share of at least $6.00 per share and for a
total offering of at least $10,000,000 (before deduction of underwriters'
commissions and expenses); or (ii) any Registrable Securities proposed to be
sold by a Holder in a registration pursuant to Section 2.2, 2.3 or 2.4 if,
in the opinion of counsel to the Company, all such Registrable Securities
proposed to be sold by a Holder may be sold in a three-month period without
registration under the Securities Act pursuant to Rule 144 under the
Securities Act.
2.11 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Registrable Securities
then outstanding, enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder (a) to include such securities in any registration filed
under Section 2.3 hereof,
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unless under the terms of such agreement, such holder or prospective holder
may include such securities in any such registration only to the extent that
the inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included.
3. MARKET STAND-OFF AGREEMENT. Each Investor hereby agrees in
connection with any registration of the Company's securities under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, such Investor will not sell or
otherwise dispose of any Preferred Stock or Conversion Stock (or any shares
of the Company's Common Stock issued or issuable as a dividend or other
distribution with respect to, or in replacement of, such Preferred Stock or
Common Stock) without the prior written consent of the Company or such
managing underwriters, as the case may be, for a period of time after the
effective date of such registration requested by such managing underwriters,
but not to exceed 180 days (the "LOCK-UP PERIOD"), and subject to all
restrictions as the Company or the managing underwriters may specify for all
executive officers and directors of the Company, provided that the Lock up
Period applicable to each Investor shall not exceed the Lock up Period for
all executive officers and directors of the Company. In order to enforce the
foregoing covenant, the Company shall have the right to place restrictive
legends on the certificates representing the shares subject to this Section
and to impose stop transfer instructions with respect to such shares (and the
shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
4. RIGHT OF FIRST REFUSAL.
4.1 GENERAL. Each Investor has the right of first refusal
to purchase such Investor's Pro Rata Share (as defined below), of all (or any
part) of any "New Securities" (as defined in Section 4.2) that the Company
may from time to time issue after the date of this Agreement. An Investor's
"PRO RATA SHARE" for purposes of this right of first refusal is the ratio of
(a) the number of shares of Preferred Stock and Conversion Stock held by such
Investor, to (b) a number of shares of Common Stock of the Company equal to
the sum of (i) the total number of shares of Common Stock of the Company then
outstanding, plus (ii) the total number of shares of Common Stock of the
Company into which all then outstanding shares of Preferred Stock of the
Company are then convertible, plus (iii) the number of shares of Common Stock
of the Company (A) reserved for issuance under stock purchase and stock
option plans of the Company , (B) subject to outstanding rights, options or
warrants (other than shares included in Subsection (A) above), and (C)
issuable upon the conversion or exchange of preferred stock or other
securities that are subject to outstanding rights, options or warrants.
4.2 NEW SECURITIES. "NEW SECURITIES" shall mean any Common
Stock or Preferred Stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock or Preferred Stock,
and securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; PROVIDED, HOWEVER,
that the term "New Securities" DOES NOT INCLUDE:
(i) shares of the Company's Common Stock (and/or
options or warrants therefor) issued to employees, officers, or directors,
contractors, advisors or consultants of the Company pursuant to incentive
agreements or plans approved by the Board of Directors of the Company;
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(ii) up to 3,428,572 shares of Series D Preferred
Stock issued under the Series D Agreement, as such agreement may be amended;
(iii) any securities issuable upon conversion of or
with respect to any then outstanding shares of Preferred Stock of the Company
or Common Stock or other securities issuable upon conversion thereof;
(iv) any securities issuable upon exercise of any
options, warrants or rights to purchase any securities of the Company
outstanding on the date of this Agreement ("WARRANT SECURITIES"), including
up to 50,000 shares of the Company's Common Stock subject to an option issued
to Ignatius Tjandrasuwita outside of any plan, and any securities issuable
upon the conversion of any Warrant Securities;
(v) shares of the Company's Common Stock or Preferred
Stock issued in connection with any stock split or stock dividend;
(vi) any shares of the Company's Common Stock or
Preferred Stock (and/or options or warrants therefor) issued or issuable to
parties providing the Company with equipment leases, real property leases,
loans, credit lines, guaranties of indebtedness, cash price reductions or
similar financing provided such issuances are for other than equity financing
purposes; or
(vii) securities issued pursuant to the acquisition of
another corporation or entity by the Company by consolidation, merger,
purchase of all or substantially all of the assets, or other reorganization
in which the Company acquires, in a single transaction or series of related
transactions, all or substantially all of the assets of such other
corporation or entity or fifty percent (50%) or more of the voting power of
such other corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity.
4.3 PROCEDURES. In the event that the Company proposes to
undertake an issuance of New Securities, it shall give to each Investor
written notice of its intention to issue New Securities (the "NOTICE"),
describing the type of New Securities and the price and the general terms
upon which the Company proposes to issue such New Securities. Each Investor
shall have ten (10) days from the date of mailing of any such Notice to agree
in writing to purchase such Investor's Pro Rata Share of such New Securities
for the price and upon the general terms specified in the Notice by giving
written notice to the Company and stating therein the quantity of New
Securities to be purchased (not to exceed such Investor's Pro Rata Share). A
written notice to the Company indicating an Investor's intention to exercise
its right of first refusal shall not be binding upon such Investor unless and
until the Company obtains binding commitments to purchase all of the New
Securities specified in the Notice on the terms stated in the Notice. If any
Investor fails to so agree in writing within such ten (10) day period to
purchase such Investor's full Pro Rata Share of an offering of New Securities
(a "NONPURCHASING INVESTOR"), then such Nonpurchasing Investor shall forfeit
the right hereunder to purchase that part of its Pro Rata Share of such New
Securities that he did not so agree to purchase and the Company shall
promptly give each Investor who has timely agreed to purchase his full Pro
Rata Share of such offering of New Securities (a "PURCHASING INVESTOR")
written notice of the failure of
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any Nonpurchasing Investor to purchase such Nonpurchasing Investor's full Pro
Rata Share of such offering of New Securities (the "OVERALLOTMENT NOTICE").
Each Purchasing Investor shall have a right of overallotment such that such
Purchasing Investor may agree to purchase a portion of the Nonpurchasing
Investors' unpurchased Pro Rata Shares of such offering on a pro rata basis
according to the relative Pro Rata Shares of the Purchasing Investors, at any
time within five (5) days after receiving the Overallotment Notice.
4.4 FAILURE TO EXERCISE. In the event that the Investors
fail to exercise in full the right of first refusal within such ten (10) plus
five (5) day period, then the Company shall have 60 days thereafter to sell
the New Securities with respect to which the Investors' rights of first
refusal hereunder were not exercised, at a price and upon general terms not
materially more favorable to the purchasers thereof than specified in the
Company's Notice to the Investors. In the event that the Company has not
issued and sold the New Securities within such 60 day period, then the
Company shall not thereafter issue or sell any New Securities without again
first offering such New Securities to the Investors pursuant to this Section 4.
5. ASSIGNMENT, AMENDMENT AND TERMINATION.
5.1 ASSIGNMENT. Notwithstanding anything herein to the
contrary:
(a) INFORMATION RIGHTS. The rights of an Investor
under Section 1.1(a) hereof may be assigned only to a party who acquires from
an Investor (or an Investor's permitted assigns) at least 100,000 shares of
Preferred Stock and/or an equivalent number (on an as-converted basis) of
shares of Conversion Stock. The rights of an Investor under Section 1.1(b)
hereof may be assigned only to a party who acquires from an Investor (or an
Investor's permitted assigns) at least 2,000,000 shares of Series C Stock
and/or an equivalent number (on an as-converted basis) of shares of Series C
Conversion Stock and/or at least 500,000 shares of Series D Stock and/or an
equivalent number (on an as-converted basis) of shares of Series D Conversion
stock.
(b) REGISTRATION RIGHTS; REFUSAL RIGHTS.
(1) Registration rights under Section 2 above
may be assigned by a Holder that is a partnership to a partner or retired
partner, and by a Holder that is an individual to such individual's estate
or, by gift, will or intestate succession, to a spouse or lineal descendant
or ancestors or any trust for any of the foregoing.
(2) Except as set forth in the preceding
clause (1), the registration rights of a Holder under Sections 2.3 and 2.4
hereof and the rights of first refusal of an Investor under Section 4 hereof
may be assigned only to a party who acquires at least 10,000 shares of Series
A Stock issued under the Series A Agreement and/or 10,000 shares of Series B
Stock issued under the Series B Agreement and/or 10,000 shares of Series C
Stock issued under the Series C Agreement and/or 10,000 shares of Series D
Stock issued under the Series D Agreement and/or an equivalent number (on an
as-converted basis) of shares of Conversion Stock issued upon conversion
thereof.
(3) Except as set forth in the preceding
clause (1), the registration rights of a Holder under Section 2.2 hereof may
be assigned only to a party who
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acquires at least 500,000 shares of Series C Stock issued under the Series C
Agreement or at least 500,000 shares of Series D Stock issued under the
Series D Agreement and/or an equivalent number (on an as-converted basis) of
shares of Conversion Stock issued upon conversion thereof.
(4) In each case, no party may be assigned any
of the foregoing rights unless the Company is given written notice by the
assigning party at the time of such assignment stating the name and address
of the assignee and identifying the securities of the Company as to which the
rights in question are being assigned, and any such assignee shall receive
such assigned rights subject to all the terms and conditions of this
Agreement, including without limitation the provisions of this Section 5.
5.2 AMENDMENT OF RIGHTS. Any provision of this Agreement
applying solely to Holders of Series C Stock and/or Series C Conversion Stock
and Series D Stock and/or Series D Conversion Stock (including without
limitation Section 1.1(b), Section 2.2 and so much of Section 5.1 as applies
to the transfer of such rights) may be amended and the observance thereof may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Holders holding shares of Series C Stock and/or Series C Conversion Stock
representing and/or convertible into a majority of shares of Series C Stock
and Series C Conversion Stock then outstanding, and the written consent of
the Company and holders holding shares of Series D Stock and/or Series D
Conversion Stock representing and/or convertible into a majority of shares of
Series D Stock and Series D Conversion Stock then outstanding. Any other
provision of this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and Holders
holding shares of Series A Stock, Series B Stock, Series C Stock, Series D
Stock and/or Conversion Stock representing and/or convertible into a majority
of all the Investors' Shares (as defined below). As used herein, the term
"INVESTORS' SHARES" shall mean the shares of Common Stock then issuable upon
conversion of all then outstanding shares of Series A Stock issued under the
Series A Agreement and all then outstanding shares of Series B Stock issued
under the Series B Agreement and all then outstanding shares of Series C
Stock issued under the Series C Agreement and all then outstanding shares of
Series D Stock issued under the Series D Agreement plus all then outstanding
shares of Conversion Stock that were issued upon the conversion of any shares
of Series A Stock issued under the Series A Agreement, shares of Series B
Stock issued under the Series B Agreement, shares of Series C Stock issued
under the Series C Agreement and shares of Series D issued under the Series D
Agreement. Any amendment or waiver effected in accordance with this Section
5.2 shall be binding upon each Investor, each permitted successor or assignee
of such Investor and the Company.
5.3 TERMINATION OF RIGHTS. The Company's obligations under
Section 1 (other than Section 1.1(a)) and Section 4 of this Agreement will
terminate immediately before the closing of the Company's initial public
offering of Common Stock pursuant to an effective registration statement
filed under the Securities Act. Alternatively, the Company's obligations
under Section 1 of this Agreement will terminate immediately before the
closing of an acquisition of the Company by another corporation or entity by
consolidation, merger, acquisition of all or substantially all the assets of
the Company, or other reorganization, where the corporation or other entity
surviving the transaction has a class of stock registered under the
Securities Exchange Act of 1934, as amended.
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5.4 NEW INVESTORS. Notwithstanding anything herein to the
contrary, if pursuant to Section 2.2 of the Series D Agreement, additional
parties may purchase shares of Series D Stock as "New Investors" thereunder,
then each such New Investor shall become a party to this Agreement as an
"Investor" hereunder, without the need any consent, approval or signature of
any Investor when such New Investor has both; (i) purchased shares of Series
D Stock under the Series D Agreement and paid the Company all consideration
payable for such shares and (ii) executed one or more counterpart signature
pages to this Agreement as an "Investor", with the Company's consent.
6. GENERAL PROVISIONS.
6.1 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 (1) personally delivered or (2) if deposited in the
U.S. mail by registered or certified mail, return receipt requested, postage
prepaid, or (3) if deposited with a return receipt express courier, as
follows:
(a) if to an Investor, at such Investor's respective
address as set forth on Exhibit A hereto.
(b) if to the Company, at 10131 Bubb Road, Cupertino,
California.
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively
be deemed to have been given when personally delivered or when deposited in
the mail in the manner set forth above.
6.2 ENTIRE AGREEMENT. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings, duties or obligations between the parties respecting the
subject matter hereof.
6.3 GOVERNING LAW. This Agreement shall be governed by and
construed exclusively in accordance with the internal laws of the State of
California as applied to agreements among California residents entered into
and to be performed entirely within California, excluding that body of law
relating to conflict of laws and choice of law.
6.4 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, then such
provision(s) shall be excluded from this Agreement and the balance of this
Agreement shall be interpreted as if such provision(s) were so excluded and
shall be enforceable in accordance with its terms.
6.5 THIRD PARTIES. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason
of this Agreement.
6.6 SUCCESSORS AND ASSIGNS. Subject to the provisions of
Section 5.1, the provisions of this Agreement shall inure to the benefit of,
and shall be binding upon, the successors and permitted assigns of the
parties hereto.
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6.7 CAPTIONS. The captions to sections of this Agreement
have been inserted for identification and reference purposes only and shall
not be used to construe or interpret this Agreement.
6.8 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.9 COSTS AND ATTORNEYS' FEES. In the event that any
action, suit or other proceeding is instituted concerning or arising out of
this Agreement or any transaction contemplated hereunder, the prevailing
party shall recover all of such party's costs and attorneys' fees incurred in
each such action, suit or other proceeding, including any and all appeals or
petitions therefrom.
6.10 ADJUSTMENTS FOR STOCK SPLITS, ETC. Wherever in this
Agreement there is a reference to a specific number of shares of Common Stock
or Preferred Stock of the Company of any class or series, then, upon the
occurrence of any subdivision, combination or stock dividend of such class or
series of stock, the specific number of shares so referenced in this
Agreement shall automatically be proportionally adjusted to reflect the
effect on the outstanding shares of such class or series of stock by such
subdivision, combination or stock dividend.
6.11 AGGREGATION OF STOCK. All shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
THE COMPANY: INVESTORS:
Silicon Image, Inc. Investar:
By: /s/ David D. Lee By: /s/ Kandie Hsieh
------------------------- --------------------------
David D. Lee Name: Kandie Hsieh
-------------------------
Title: Chief Executive Officer Title: Controller
------------------------
Intel Corporation
By: /s/ Arvind Sodhani
--------------------------
Name: Arvind Sodhani
-------------------------
Title: VP & Treasurer
------------------------
August Capital, L.P.
By: /s/ Mark G. Wilson
--------------------------
Mark G. Wilson
Title: General Partner of August
Capital Management
[SIGNATURE PAGE TO SILICON IMAGE, INC. THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
-19-
<PAGE>
Fenwick & West Investments 1998
By: /s/ Laird H. Simons III
---------------------------
Name: Laird H. Simons III
-------------------------
Title: Partner
------------------------
[SIGNATURE PAGE TO SILCON IMAGE, INC. THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
-20-
<PAGE>
/s/ Ronald V. Schmidt
------------------------------
Ron Schmidt
/s/ William Wheeler
------------------------------
William Wheeler
[SIGNATURE PAGE TO SILICON IMAGE, INC. THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
-21-
<PAGE>
Velocity Capital
By: /s/ Andrew Kessler
---------------------------
Name: Andrew Kessler
-------------------------
Title: Investment Advisor
------------------------
[SIGNATURE PAGE TO SILICON IMAGE, INC. THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
-22-
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
INVESTOR NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
- -------- OF SERIES A OF SERIES B OF SERIES C OF SERIES D
STOCK HELD STOCK HELD STOCK HELD STOCK HELD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investar 857,143
August Capital 3,200,000 1,428,572
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
William R. Wheeler 350,000 142,494 142,858
19976 Merribrook Dr.
Saratoga, CA 95070
Tel.: (408) 867-9597
Ron Schmidt 46,068
272 Golden Hills Drive
Portola Valley, CA 94028
Fenwick & West Investments 1998 14,286
Two Palo Alto Square
Palo Alto, CA 94306
Velocity Capital 285,715
</TABLE>
1
<PAGE>
AMENDMENT NO. 1 TO THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Amendment No. 1 to the Third Amended and Restated Investors' Rights
Agreement (the "FIRST AMENDMENT") is dated as of October 15, 1998 and is
entered into by and between Silicon Image, Inc., a California corporation
(the "COMPANY") and the investors listed on Exhibit 1 hereto (the "AMENDING
INVESTORS").
R E C I T A L S:
A. WHEREAS, the Company and certain investors (the "INVESTORS") entered
into a Third Amended and Restated Investors' Rights Agreement (the
"ORIGINAL AGREEMENT") dated as of July 29, 1998 (the "CLOSING DATE)
whereby the Company granted the Investors certain registration rights
for securities defined as "Registrable Securities" under the Original
Agreement.
B. WHEREAS, the Company and Intel Corporation entered into a certain
Warrant No. 1 (the "WARRANT") on September 16, 1998 to purchase
142,857 shares of Common Stock of the Company. The Warrant provided
that all Common Stock issuable upon exercise of the Warrant (the
"WARRANT SHARES") would be Registrable Securities under the Original
Agreement.
C. WHEREAS, the Company and the Amending Investors wish to amend the
definition of Registrable Securities under Section 2.1(b) of the
Original Agreement to include the Warrant Shares.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AMENDMENT TO SECTION 2.1(b). Section 2.1(b) of the Original Agreement
is hereby amended and restated in its entirety as follows:
(b) REGISTRABLE SECURITIES. The term "REGISTRABLE SECURITIES"
means: (1) all the shares of Common Stock of the Company issued or issuable
upon the conversion of any shares of Series A Stock issued under the Series A
Agreement, any shares of Series B Stock issued under the Series B Agreement,
any shares of Series C Stock issued under the Series C Agreement, or any
shares of Series D Stock issued under the Series D Agreement, as such
agreements may hereafter be amended from time to time, that are now owned or
may hereafter be acquired by any Investor or any permitted successors and
assigns of Investor; (2) all shares of Common Stock of the Company issuable
upon exercise of that certain Warrant No. 1 to purchase 142,857 shares of
Common Stock of the Company between the Company and Intel Corporation dated
September 16, 1998; and (3) any shares of Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, all such shares of
Common Stock described in clauses (1) and (2) of this subsection (b);
EXCLUDING
<PAGE>
in all cases, however, any Registrable Securities sold by a person in a
transaction in which rights under this Section 2 are not assigned in
accordance with this Agreement or any Registrable Securities sold to the
public or sold pursuant to Rule 144 promulgated under the Securities Act;
PROVIDED, HOWEVER, that notwithstanding anything herein to the contrary, the
shares of Common Stock of the Company issued or issuable upon the conversion
of any shares of Series A Stock issued under the Series A Agreement and any
shares of Series B Stock issued under the Series B Agreement and any shares
of Common Stock described in clause (3) of this Section 2.1(b) that are
issued in respect to any such shares (which Shares are collectively
hereinafter referred to as the "EXCLUDED SECURITIES"), shall not be
Registrable Securities for purposes of Section 2.2 of this Agreement.
2. NO OTHER CHANGES. Except as amended as set forth in this First
Amendment, all other provisions of the Original Agreement shall continue in
full force and effect.
3. COUNTERPARTS. This First Amendment may be executed in one or more
counterparts, each of which shall be deemed and original, but which together
will constitute one and the same instrument.
4. GOVERNING LAW. This First Amendment will be governed by and
construed under the internal laws of the state of California as applied to
agreements among California residents entered into and performed entirely
within California, without reference to principles of conflict of laws or
choice of laws.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment
as of the date first written above.
THE COMPANY: AMENDING INVESTORS:
Silicon Image, Inc. August Capital, L.P. for itself and as
nominee for August Capital Strategic
Partners, L.P. and August Capital
Associates, L.P.
By: /s/ David D. Lee
-------------------------
David D. Lee
Title: Chief Executive Officer By: August Capital Management LLC,
general partner
By: /s/ Mark G. Wilson
---------------------------
Mark G. Wilson, Member
InveStar Semiconductor Development
Fund, Inc.
By: /s/ Kandie Hsieh
---------------------------
Title: Controller
------------------------
InveStar Excelsus Venture Capital
(Int'l) Inc., LDC
By: /s/ Kandie Hsieh
---------------------------
Title: Controller
------------------------
Forefront Venture Partners L.P.
By: /s/ Herbert Chang
---------------------------
Title: Partner
------------------------
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO SILICON IMAGE, INC.
THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment as of the
date first written above.
AMENDING INVESTORS:
/s/ Ronald V. Schmidt
-----------------------------------
Ron Schmidt
/s/ William Wheeler
-----------------------------------
William Wheeler
INTEL CORPORATION
By: /s/ Arvind Sodhani
--------------------------------
Name: Arvind Sodhani
------------------------------
Title: Vice President and Treasurer
-----------------------------
F & W INVESTMENTS 1998
By: /s/ Laird Simons
--------------------------------
Name: Laird Simons
------------------------------
Title: Partner
-----------------------------
VELOCITY TECHNOLOGY AND
COMMUNICATIONS TRUST B
By: /s/ Andrew Kessler
--------------------------------
Name: Andrew Kessler
------------------------------
Title: Investment Advisor
-----------------------------
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO SILICON IMAGE, INC.
THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
EXHIBIT 1
Amending Investors
August Capital, L.P.
InveStar Semiconductor Development Fund, Inc.
InveStar Excelsus Venture Capital (Int'l) Inc., LDC
Forefront Venture Partners L.P.
William Wheeler
Intel Corporation
Velocity Technology and Communications Trust B
Ron Schmidt
F&W Investments 1998
<PAGE>
EXHIBIT 10.01
SILICON IMAGE, INC.
INDEMNITY AGREEMENT
This Indemnity Agreement (this "AGREEMENT"), dated as of _________, is
made by and between Silicon Image, Inc., a California corporation (the
"COMPANY"), and _________, a director and/or officer of the Company (the
"INDEMNITEE").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations
unless they are protected by comprehensive liability insurance and/or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that
the exposure frequently bears no reasonable relationship to the compensation
of such directors and officers;
B. Based upon their experience as business managers, the Board of
Directors of the Company (the "BOARD") has concluded that, to retain and
attract talented and experienced individuals to serve as officers and
directors of the Company, and to encourage such individuals to take the
business risks necessary for the success of the Company, it is necessary for
the Company contractually to indemnify officers and directors and to assume
for itself maximum liability for expenses and damages in connection with
claims against such officers and directors in connection with their service
to the Company;
C. Section 317 of the General Corporation Law of California, under
which the Company is organized ("SECTION 317"), empowers the Company to
indemnify by agreement its officers, directors, employees and agents, and
persons who serve, at the request of the Company, as directors, officers,
employees or agents of other corporations or enterprises, and expressly
provides that the indemnification provided by Section 317 is not exclusive;
and
D. The Company desires and has requested the Indemnitee to serve
or continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to
the Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
1.1 AGENT. For the purposes of this Agreement, "AGENT" of
the Company means any person who is or was a director or officer of the
Company or a subsidiary of the Company; or is or was serving at the request
of, for the convenience of, or to represent the interest of the Company or a
subsidiary of the Company as a director or officer of another foreign
<PAGE>
Silicon Image, Inc.
Indemnity Agreement
or domestic corporation, partnership, joint venture, trust or other
enterprise or an affiliate of the Company; or was a director or officer of a
foreign or domestic corporation which was a predecessor corporation of the
Company, or was a director or officer of another enterprise or affiliate of
the Company at the request of, for the convenience of, or to represent the
interests of such predecessor corporation. The term "ENTERPRISE" includes any
employee benefit plan of the Company, its subsidiaries, affiliates and
predecessor corporations.
1.2 EXPENSES. For purposes of this Agreement, "EXPENSES"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements
and other out-of-pocket costs) actually and reasonably incurred by the
Indemnitee in connection with the investigation, defense or appeal of a
proceeding or establishing or enforcing a right to indemnification or
advancement of expenses under this Agreement, Section 317 or otherwise;
PROVIDED, HOWEVER, that expenses shall not include any judgments, fines,
ERISA excise taxes or penalties or amounts paid in settlement of a proceeding.
1.3 PROCEEDING. For the purposes of this Agreement,
"PROCEEDING" means any threatened, pending or completed action, suit or other
proceeding, whether civil, criminal, administrative, investigative or any
other type whatsoever.
1.4 SUBSIDIARY. For purposes of this Agreement,
"SUBSIDIARY" means any corporation of which more than 50% of the outstanding
voting securities is owned directly or indirectly by the Company, by the
Company and one or more of its subsidiaries or by one or more of the
Company's subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or
continue to serve as an agent of the Company, at the will of the Company (or
under separate agreement, if such agreement exists), in the capacity the
Indemnitee currently serves as an agent of the Company, faithfully and to the
best of his ability, so long as he is duly appointed or elected and qualified
in accordance with the applicable provisions of the charter documents of the
Company or any subsidiary of the Company; PROVIDED, HOWEVER, that the
Indemnitee may at any time and for any reason resign from such position
(subject to any contractual obligation that the Indemnitee may have assumed
apart from this Agreement), and the Company or any subsidiary shall have no
obligation under this Agreement to continue the Indemnitee in any such
position.
3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the
extent that the Board determines it to be economically reasonable, maintain a
policy of directors' and officers' liability insurance ("D&O INSURANCE"), on
such terms and conditions as may be approved by the Board.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the
Company shall indemnify the Indemnitee:
4.1 THIRD PARTY ACTIONS. If the Indemnitee is a person who
was or is a party or is threatened to be made a party to any proceeding
(other than an action by or in the right of the Company) by reason of the
fact that he is or was an agent of the Company, or by reason of
2
<PAGE>
Silicon Image, Inc.
Indemnity Agreement
anything done or not done by him in any such capacity, against any and all
expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such 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 Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful; and
4.2 DERIVATIVE ACTIONS. If the Indemnitee is a person who
was or is a party or is threatened to be made a party to any proceeding by or
in the right of the Company to procure a judgment in its favor by reason of
the fact that he is or was an agent of the Company, or by reason of anything
done or not done by him in any such capacity, against any amounts paid in
settlement of any such proceeding and all expenses actually and reasonably
incurred by him in connection with the investigation, defense, settlement or
appeal of such 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
Company; EXCEPT that no indemnification under this subsection shall be made
in respect of any claim, issue or matter as to which such person shall have
been finally adjudged to be liable to the Company by a court of competent
jurisdiction due to willful misconduct of a culpable nature in the
performance of his duty to the Company, unless and only to the extent that
the court in which such proceeding 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 amounts which such court shall deem proper; and
4.3 EXCEPTION FOR AMOUNTS COVERED BY INSURANCE.
Notwithstanding the foregoing, the Company shall not be obligated to
indemnify the 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 have been paid
directly to the Indemnitee by D&O Insurance.
5. PARTIAL INDEMNIFICATION AND CONTRIBUTION.
5.1 PARTIAL INDEMNIFICATION. If the Indemnitee is entitled
under any provision of this Agreement to indemnification by the Company for
some or a portion of any expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) incurred by him in the
investigation, defense, settlement or appeal of a proceeding but is not
entitled, however, to indemnification for all of the total amount thereof,
then the Company shall nevertheless indemnify the Indemnitee for such total
amount except as to the portion thereof to which the Indemnitee is not
entitled to indemnification.
5.2 CONTRIBUTION. If the Indemnitee is not entitled to the
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the California General Corporation Law, then in
respect of any threatened, pending or completed proceeding in which the
Company is jointly liable with the Indemnitee (or would be if joined in such
3
<PAGE>
Silicon Image, Inc.
Indemnity Agreement
proceeding), the Company shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by the Indemnitee in
such proportion as is appropriate to reflect (i) the relative benefits
received by the Company on the one hand and the Indemnitee on the other hand
from the transaction from which such proceeding arose and (ii) the relative
fault of the Company on the one hand and of the Indemnitee on the other hand
in connection with the events which resulted in such expenses, judgments,
fines or settlement amounts, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
Indemnitee on the other hand shall be determined by reference to, among other
things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such
expenses, judgments, fines or settlement amounts. The Company agrees that it
would not be just and equitable if contribution pursuant to this Section 5
were determined by pro rata allocation or any other method of allocation
which does not take account of the foregoing equitable considerations.
6. MANDATORY ADVANCEMENT OF EXPENSES.
6.1 ADVANCEMENT. Subject to Section 9 below, the Company
shall advance all expenses incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an agent of the Company or by reason of
anything done or not done by him in any such capacity. The Indemnitee hereby
undertakes to promptly repay such amounts advanced only if, and to the extent
that, it shall ultimately be determined that the Indemnitee is not entitled
to be indemnified by the Company under the provisions of this Agreement, the
Articles of Incorporation or Bylaws of the Company, the General Corporation
Law of California or otherwise. The advances to be made hereunder shall be
paid by the Company to the Indemnitee within thirty (30) days following
delivery of a written request therefor by the Indemnitee to the Company.
6.2 EXCEPTION. Notwithstanding the foregoing provisions of
this Section 6, the Company shall not be obligated to advance any expenses to
the Indemnitee arising from a lawsuit filed directly by the Company against
the Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee's request
to be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the
Indemnitee acted in bad faith. If such a determination is made, the
Indemnitee may have such decision reviewed by another forum, in the manner
set forth in Sections 8.3, 8.4 and 8.5 hereof, with all references therein to
"indemnification" being deemed to refer to "advancement of expenses," and the
burden of proof shall be on the Company to demonstrate clearly and
convincingly that, based on the facts known at the time, the Indemnitee acted
in bad faith. The Company may not avail itself of this Section 6.2 as to a
given lawsuit if, at any time after the occurrence of the activities or
omissions that are the primary focus of the lawsuit, the Company has
undergone a change in control. For this purpose, a change in control shall
mean a given person or group of affiliated
4
<PAGE>
Silicon Image, Inc.
Indemnity Agreement
persons or groups increasing their beneficial ownership interest in the
Company by at least twenty (20) percentage points without advance Board
approval.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
7.1 Promptly after receipt by the Indemnitee of notice of
the commencement of or the threat of commencement of any proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with
respect thereto may be sought from the Company under this Agreement, notify
the Company of the commencement or threat of commencement thereof.
7.2 If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7.1 hereof, the Company has
D&O 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, on behalf of the Indemnitee, all amounts payable as a result of such
proceeding in accordance with the terms of such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance
the expenses for any proceeding against the Indemnitee, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding, with
counsel approved by the Indemnitee (which approval shall not be unreasonably
withheld), upon the delivery to the Indemnitee of written notice of its
election to do so. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, PROVIDED that: (a) the Indemnitee shall have the right to employ
his own counsel in any such proceeding at the Indemnitee's expense; (b) the
Indemnitee shall have the right to employ his own counsel in connection with
any such proceeding, at the expense of the Company, if such counsel serves in
a review, observer, advice and counseling capacity and does not otherwise
materially control or participate in the defense of such proceeding; and (c)
if (i) the employment of counsel by the Indemnitee has been previously
authorized by the Company, (ii) the Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
the 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,
then the fees and expenses of the Indemnitee's counsel shall be at the
expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
8.1 To the extent the Indemnitee has been successful on the
merits or otherwise in defense of any proceeding referred to in Section 4.1
or 4.2 of this Agreement or in the defense of any claim, issue or matter
described therein, the Company shall indemnify the Indemnitee against
expenses actually and reasonably incurred by him in connection with the
investigation, defense or appeal of such proceeding, or such claim, issue or
matter, as the case may be.
5
<PAGE>
Silicon Image, Inc.
Indemnity Agreement
8.2 In the event that Section 8.1 is inapplicable, or does
not apply to the entire proceeding, the Company shall nonetheless indemnify
the Indemnitee unless the Company shall prove by clear and convincing
evidence to a forum listed in Section 8.3 below that the Indemnitee has not
met the applicable standard of conduct required to entitle the Indemnitee to
such indemnification.
8.3 The Indemnitee shall be entitled to select the forum in
which the validity of the Company's claim under Section 8.2 hereof that the
Indemnitee is not entitled to indemnification will be heard from among the
following, EXCEPT that the Indemnitee can select a forum consisting of the
stockholders of the Company only with the approval of the Company:
(a) A quorum of the Board consisting of directors who
are not parties to the proceeding for which indemnification is being sought;
(b) The stockholders of the Company;
(c) Legal counsel mutually agreed upon by the
Indemnitee and the Board, which counsel shall make such determination in a
written opinion;
(d) A panel of three arbitrators, one of whom is
selected by the Company, another of whom is selected by the Indemnitee and
the last of whom is selected by the first two arbitrators so selected; or
(e) A court having jurisdiction of subject matter and
the parties.
8.4 As soon as practicable, and in no event later than
thirty (30) days after the forum has been selected pursuant to Section 8.3
above, the Company shall, at its own expense, submit to the selected forum
its claim that the Indemnitee is not entitled to indemnification, and the
Company shall act in the utmost good faith to assure the Indemnitee a
complete opportunity to defend against such claim.
8.5 If the forum selected in accordance with Section 8.3
hereof is not a court, then after the final decision of such forum is
rendered, the Company or the Indemnitee shall have the right to apply to the
court in which the proceeding giving rise to the Indemnitee's claim for
indemnification is or was pending or any other court of competent
jurisdiction, for the purpose of appealing the decision of such forum,
PROVIDED that such right is executed within sixty (60) days after the final
decision of such forum is rendered. If the forum selected in accordance with
Section 8.3 hereof is a court, then the rights of the Company or the
Indemnitee to appeal any decision of such court shall be governed by the
applicable laws and rules governing appeals of the decision of such court.
8.6 Notwithstanding any other provision in this Agreement to
the contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by
the Indemnitee in connection with any other proceeding between
6
<PAGE>
Silicon Image, Inc.
Indemnity Agreement
the Company and the Indemnitee involving the interpretation or enforcement of
the rights of the Indemnitee under this Agreement unless a court of competent
jurisdiction finds that each of the material claims and/or defenses of the
Indemnitee in any such proceeding was frivolous or not made in good faith.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
9.1 CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, EXCEPT with
respect to proceedings specifically authorized by the Board or brought to
establish or enforce a right to indemnification and/or advancement of
expenses arising under this Agreement, the charter documents of the Company
or any subsidiary or any statute or law or otherwise, but such
indemnification or advancement of expenses may be provided by the Company in
specific cases if the Board finds it to be appropriate; or
9.2 UNAUTHORIZED SETTLEMENTS. To indemnify the Indemnitee
hereunder for any amounts paid in settlement of a proceeding unless the
Company consents in advance in writing to such settlement, which consent
shall not be unreasonably withheld; or
9.3 SECURITIES LAW ACTIONS. To indemnify the Indemnitee on
account of any suit in which judgment is rendered against the Indemnitee for
an accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company pursuant to the provisions of Section l6(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions
of any federal, state or local statutory law; or
9.4 UNLAWFUL INDEMNIFICATION. To indemnify the Indemnitee
if a final decision by a court having jurisdiction in the matter shall
determine that such indemnification is not lawful. In this respect, the
Company and the Indemnitee have been advised that the Securities and Exchange
Commission takes the position that indemnification for liabilities arising
under the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication.
10. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any
provision of law, the Company's Articles of Incorporation or Bylaws, the vote
of the Company's stockholders or disinterested directors, other agreements or
otherwise, both as to action in the Indemnitee's official capacity and to
action in another capacity while occupying his position as an agent of the
Company, and the Indemnitee's rights hereunder shall continue after the
Indemnitee has ceased acting as an agent of the Company and shall inure to
the benefit of the heirs, executors and administrators of the Indemnitee.
7
<PAGE>
Silicon Image, Inc.
Indemnity Agreement
11. GENERAL PROVISIONS
11.1 INTERPRETATION OF AGREEMENT. It is understood that the
parties hereto intend this Agreement to be interpreted and enforced so as to
provide indemnification and advancement of expenses to the Indemnitee to the
fullest extent now or hereafter permitted by law, except as expressly limited
herein.
11.2 SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever, then: (a) the validity, legality and enforceability of
the remaining provisions of this Agreement (including, without limitation,
all portions of any paragraphs of this Agreement containing any such
provision held to be invalid, illegal or unenforceable that are not
themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby; and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of
any paragraphs of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal
or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to
give effect to Section 11.1 hereof.
11.3 MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
11.4 SUBROGATION. In the event of full payment under this
Agreement, the Company shall be subrogated to the extent of such payment to
all of the rights of recovery of the Indemnitee, who shall execute all
documents required and shall do all acts that may be necessary or desirable
to secure such rights and to enable the Company effectively to bring suit to
enforce such rights.
11.5 COUNTERPARTS. This Agreement may be executed in one or
more counter-parts, which shall together constitute one agreement.
11.6 SUCCESSORS AND ASSIGNS. The terms of this Agreement
shall bind, and shall inure to the benefit of, the successors and assigns of
the parties hereto.
11.7 NOTICE. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
duly given: (a) if delivered by hand and receipted for by the party
addressee; or (b) if mailed by certified or registered mail, with postage
prepaid, on the third business day after the mailing date. Addresses for
notice to either party are as shown on the signature page of this Agreement
or as subsequently modified by written notice.
8
<PAGE>
Silicon Image, Inc.
Indemnity Agreement
11.8 GOVERNING LAW. This Agreement shall be governed
exclusively by and construed according to the laws of the State of
California, as applied to contracts between California residents entered into
and to be performed entirely within .
11.9 CONSENT TO JURISDICTION. The Company and the Indemnitee
each hereby irrevocably consent to the jurisdiction of the courts of the
State of California for all purposes in connection with any action or
proceeding which arises out of or relates to this Agreement.
11.10 ATTORNEYS' FEES. In the event Indemnitee is required to
bring any action to enforce rights under this Agreement (including, without
limitation, the expenses of any Proceeding described in Section 3), the
Indemnitee shall be entitled to all reasonable fees and expenses in bringing
and pursuing such action, unless a court of competent jurisdiction finds each
of the material claims of the Indemnitee in any such action was frivolous and
not made in good faith.
IN WITNESS WHEREOF, the parties hereto have entered into this
Indemnity Agreement effective as of the date first written above.
SILICON IMAGE, INC. INDEMNITEE:
By: By:
--------------------------------- ---------------------------------
Title: Chief Executive Officer
------------------------------
Address: 10131 Bubb Road Address:
---------------------------- ----------------------------
Cupertino, CA 95014
------------------------------ ------------------------------------
9
<PAGE>
EXHIBIT 10.02
SILICON IMAGE, INC.
1995 EQUITY INCENTIVE PLAN
AS ADOPTED AND AMENDED THROUGH
JUNE 11, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options and Restricted Stock.
Capitalized terms not defined in the text are defined in Section 22 hereof.
This Plan is intended to be a written compensatory benefit plan within the
meaning of Rule 701 promulgated under the Securities Act.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and
17 hereof, the total number of Shares reserved and available for grant and
issuance pursuant to this Plan will be 5,866,000 Shares or such lesser number
of Shares as permitted under Section 260.140.45 of Title 10 of the California
Code of Regulations. Subject to Sections 2.2 and 17 hereof, Shares will
again be available for grant and issuance in connection with future Awards
under this Plan that: (a) are subject to issuance upon exercise of an Option
but cease to be subject to such Option for any reason other than exercise of
such Option or (b) are subject to a Restricted Stock Award that otherwise
terminates without Shares being issued. At all times the Company will
reserve and keep available a sufficient number of Shares as will be required
to satisfy the requirements of all Awards granted under this Plan.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding shares of the Company's Common Stock is changed by a stock
dividend, recapitalization, stock split, reverse stock split, subdivision,
combination, reclassification or similar change in the capital structure of
the Company without consideration, then (a) the number of Shares reserved for
issuance under this Plan, (b) the Exercise Prices of and number of Shares
subject to outstanding Options and (c) the Purchase Prices of and number of
Shares subject to other outstanding Awards will be proportionately adjusted,
subject to any required action by the Board or the shareholders of the
Company and compliance with applicable securities laws; provided, however,
that fractions of a Share will not be issued but will either be paid in cash
at Fair Market Value of such fraction of a Share or will be rounded down to
the nearest whole Share, as determined by the Committee
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be
granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs
(as defined in Section 5 hereto) and Restricted
<PAGE>
Stock Awards may be granted to employees, officers, directors and consultants
of the Company or any Parent or Subsidiary of the Company; provided such
consultants render bona fide services not in connection with the offer and
sale of securities in a capital-raising transaction. A person may be granted
more than one Award under this Plan.
4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. This Plan will be administered by
the Committee or the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the
Board, the Committee will have full power to implement and carry out this
Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and
any other agreement or document executed pursuant to this
Plan;
(b) prescribe, amend and rescind rules and regulations relating
to this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or awards
under any other incentive or compensation plan of the
Company or any Parent or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Award, any Award Agreement,
any Exercise Agreement or any Restricted Stock Purchase
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for
the administration of this Plan.
4.2 COMMITTEE DISCRETION. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at
the time of grant of the Award or, unless in contravention of any express
term of this Plan or Award, and subject to Section 5.9 hereof, at any later
time, and such determination will be final and binding on the Company and on
all persons having an interest in any Award under this Plan. The Committee
may delegate to one or more officers of the Company the authority to grant an
Award under this Plan, provided such officer or officers are members of the
Board.
<PAGE>
5. OPTIONS. The Committee may grant Options to eligible persons
and will determine whether such Options will be Incentive Stock Options
within the meaning of the Code ("ISOS") or Nonqualified Stock Options
("NQSOS"), the number of Shares subject to the Option, the Exercise Price of
the Option, the period during which the Option may be exercised, and all
other terms and conditions of the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under this
Plan will be evidenced by an Award Agreement which will expressly identify
the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in
such form and contain such provisions (which need not be the same for each
Participant) as the Committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of this Plan.
5.2 DATE OF GRANT. The date of grant of an Option will be
the date on which the Committee makes the determination to grant such Option,
unless otherwise specified by the Committee. The Stock Option Agreement and
a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 EXERCISE PERIOD. Options may be exercisable immediately
(subject to repurchase pursuant to Section 11 hereof) or may be exercisable
within the times or upon the events determined by the Committee as set forth
in the Stock Option Agreement governing such Option; provided, however, that
no Option will be exercisable after the expiration of ten (10) years from the
date the Option is granted; and provided further that no ISO granted to a
person who directly or by attribution owns more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any
Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be
exercisable after the expiration of five (5) years from the date the ISO is
granted. The Committee also may provide for Options to become exercisable at
one time or from time to time, periodically or otherwise, in such number of
Shares or percentage of Shares as the Committee determines. Subject to
earlier termination of the Option as provided herein, each Participant who is
not an officer, director or consultant of the Company or of a Parent or
Subsidiary of the Company shall have the right to exercise an Option granted
hereunder at the rate of at least twenty percent (20%) per year over five (5)
years from the date such Option is granted.
5.4 EXERCISE PRICE. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may not be less
than eighty-five percent (85%) of the Fair Market Value of the Shares on the
date of grant; provided that (a) the Exercise Price of an ISO will not be
less than one hundred percent (100%) of the Fair Market Value of the Shares
on the date of grant and (b) the Exercise Price of any Option granted to a
Ten Percent Shareholder will not be less than one hundred ten percent (110%)
of the Fair Market Value of the Shares on the date of grant. Payment for the
Shares purchased must be made in accordance with Section 7 hereof.
5.5 METHOD OF EXERCISE. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be
the same for each Participant), stating the number of Shares being purchased,
the restrictions imposed on the Shares purchased under such Exercise
Agreement, if any, and such representations and agreements regarding
Participant's
<PAGE>
investment intent and access to information and other matters, if any, as may
be required or desirable by the Company to comply with applicable securities
laws, together with payment in full of the Exercise Price, and any applicable
taxes, for the number of Shares being purchased.
5.6 TERMINATION. Subject to earlier termination pursuant to
Sections 17 and 18 hereof and notwithstanding the exercise periods set forth
in the Stock Option Agreement, exercise of an Option will always be subject
to the following:
(a) If the Participant is Terminated for any reason except
death, Disability or for Cause, then the Participant may
exercise such Participant's Options only to the extent that
such Options are exercisable upon the Termination Date and
such Options must be exercised by the Participant, if at
all, as to all or some of the Vested Shares calculated as
of the Termination Date, within three (3) months after the
Termination Date (or within such shorter time period, not
less than thirty (30) days, or within such longer time
period, not exceeding five (5) years, after the Termination
Date as may be determined by the Committee, with any
exercise beyond three (3) months after the Termination Date
deemed to be an NQSO) but in any event, non later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than for Cause), then
Participant's Options may be exercised only to the extent
that such Options are exercisable by Participant on the
Termination Date and must be exercised by Participant (or
Participant's legal representative or authorized assignee),
if at all, as to all or some of the Vested Shares
calculated as of the Termination Date, within twelve (12)
months after the Termination Date (or within such shorter
time period, not less than six (6) months, or within such
longer time period, not exceeding five (5) years, after the
Termination Date as may be determined by the Committee,
with any exercise beyond (i) three (3) months after the
Termination Date when the Termination is for any reason
other than the Participant's death or disability, within
the meaning of Section 22(e)(3) of the Code, or (ii) twelve
(12) months after the Termination Date when the Termination
is for Participant's disability, within the meaning of
Section 22(e)(3) of the Code, deemed to be an NQSO) but in
any event no later than the expiration date of the Options.
(c) If the Participant is terminated for Cause, then
Participant's Options shall expire on such Participant's
Termination Date, or at such later time and on such
conditions as are determined by the Committee.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of
an Option, provided that such minimum number will not prevent Participant
from exercising the Option for the full number of Shares for which it is then
exercisable.
<PAGE>
5.8 LIMITATIONS ON ISOS. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year
(under this Plan or under any other incentive stock option plan of the
Company or any Parent or Subsidiary of the Company) will not exceed $100,000.
If the Fair Market Value of Shares on the date of grant with respect to
which ISOs are exercisable for the first time by a Participant during any
calendar year exceeds $100,000, then the Options for the first $100,000 worth
of Shares to become exercisable in such calendar year will be ISOs and the
Options for the amount in excess of $100,000 that become exercisable in that
calendar year will be NQSOs. In the event that the Code or the regulations
promulgated thereunder are amended after the Effective Date (as defined in
Section 18 hereof) to provide for a different limit on the Fair Market Value
of Shares permitted to be subject to ISOs, then such different limit will be
automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR REMOVAL. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not,
without the written consent of a Participant, impair any of such
Participant's rights under any Option previously granted. Any outstanding
ISO that is modified, extended, renewed or otherwise altered will be treated
in accordance with Section 424(h) of the Code. Subject to Section 5.10
hereof, the Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the
minimum Exercise Price that would be permitted under Section 5.4 hereof for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other
provision in this Plan, no term of this Plan relating to ISOs will be
interpreted, amended or altered, nor will any discretion or authority granted
under this Plan be exercised, so as to disqualify this Plan under Section 422
of the Code or, without the consent of the Participant affected, to
disqualify any ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to
restrictions. The Committee will determine to whom an offer will be made, the
number of Shares the person may purchase, the Purchase Price, the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 FORM OF RESTRICTED STOCK AWARD. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an
Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such
form (which need not be the same for each Participant) as the Committee will
from time to time approve, and will comply with and be subject to the terms
and conditions of this Plan. The Restricted Stock Award will be accepted by
the Participant's execution and delivery of the Restricted Stock Purchase
Agreement and full payment for the Shares to the Company within thirty (30)
days from the date the Restricted Stock Purchase Agreement is delivered to
the person. If such person does not execute and deliver the Restricted Stock
Purchase Agreement along with full payment for the Shares to the Company
<PAGE>
within such thirty (30) days , then the offer will terminate, unless
otherwise determined by the Committee.
6.2 PURCHASE PRICE. The Purchase Price of Shares sold
pursuant to a Restricted Stock Award will be determined by the Committee and
will be at least eighty-five percent (85%) of the Fair Market Value of the
Shares on the date the Restricted Stock Award is granted or at the time the
purchase is consummated, except in the case of a sale to a Ten Percent
Shareholder, in which case the Purchase Price will be one hundred percent
(100%) of the Fair Market Value on the date the Restricted Stock Award is
granted or at the time the purchase is consummated. Payment of the Purchase
Price must be made in accordance with Section 7 hereof.
6.3 RESTRICTIONS. Restricted Stock Awards may be subject
tot he restrictions set forth in Section 11 hereof or such other restrictions
not inconsistent with Section 25102(o) of the California Corporations Code.
7. PAYMENT FOR SHARE PURCHASES.
7.1 PAYMENT. Payment for Shares purchased pursuant to this
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that: (i) either (A) have been
owned by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and, if
such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect
to such shares) or (B) were obtained by Participant in the
public market and (ii) are clear of all liens, claims,
encumbrances or security interests.
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's stock
exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of
the National Association of Securities Dealers (an
"NASD DEALER") whereby the Participant irrevocably
elects to exercise the Option and to sell a portion
of the
<PAGE>
Shares so purchased to pay for the Exercise Price,
and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant
and an NASD Dealer whereby the Participant
irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the
NASD Dealer in the amount of the Exercise Price, and
whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise Price
directly to the Company; or
(f) by any combination of the foregoing.
7.2 LOAN GUARANTEES. The Committee may help the Participant
pay for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.
8. WITHHOLDING TAXES.
8.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued
in satisfaction of Awards granted under this Plan, the Company may require
the Participant to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery
of any certificate or certificates for such Shares. Whenever, under this
Plan, payments in satisfaction of Awards are to be made in cash, such payment
will be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
8.2 STOCK WITHHOLDING. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting
of any Award that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the
Committee may in its sole discretion allow the Participant to satisfy the
minimum withholding tax obligation by electing to have the Company withhold
from the Shares to be issued that number of Shares having a Fair Market Value
equal to the minimum amount required to be withheld, determined on the date
that the amount of tax to be withheld is to be determined. All elections by
a Participant to have Shares withheld for this purpose will be made in
accordance with the requirements established by the Committee for such
elections and be in writing in a form acceptable to the Committee.
9. PRIVILEGES OF STOCK OWNERSHIP.
9.1 VOTING AND DIVIDENDS. No Participant will have any of
the rights of a shareholder with respect to any Shares until the Shares are
issued to the Participant. After Shares are issued to the Participant, the
Participant will be a shareholder and have all the rights of a shareholder
with respect to such Shares, including the right to vote and receive all
dividends or other distributions made or paid with respect to such Shares;
provided, that if such Shares are Restricted Stock, then any new, additional
or different securities the Participant may become entitled to receive with
respect to such Shares by virtue of a stock dividend, stock split or any
other change in the corporate or capital structure of the Company will be
subject to the same
<PAGE>
restrictions as the Restricted Stock; provided, further, that the Participant
will have no right to retain such stock dividends or stock distributions with
respect to Unvested Shares that are repurchased pursuant to Section 11
hereof. The Company will comply with Section 260.140.1 of Title 10 of the
California Code of Regulations with respect to the voting rights of Common
Stock.
9.2 FINANCIAL STATEMENTS. The company will provide
financial statements to each Participant prior to such Participant's purchase
of Shares under this Plan, and to each Participant annually during the period
such Participant has Awards outstanding, or as otherwise required under
Section 260.140.46 of Title 10 of the California Code of Regulations.
Notwithstanding the foregoing, the Company will not be required to provide
such financial statements to Participants when issuance is limited to key
employees whose services in connection with the Company assure them access to
equivalent information.
10. TRANSFERABILITY. Awards granted under this Plan, and any
interest therein, will not be transferable or assignable by Participant, and
may not be made subject to execution, attachment or similar process,
otherwise than by will or by the laws of descent and distribution. During
the lifetime of the Participant an Award will be exercisable only by the
Participant or Participant's legal representative and any elections with
respect to an Award, may be made only by the Participant or Participant's
legal representative.
11. RESTRICTIONS OF SHARES.
11.1 RIGHT OF FIRST REFUSAL. At the discretion of the
Committee, the Company may reserve to itself and/or its assignee(s) in the
Award Agreement a right of first refusal to purchase all Shares that a
Participant (or a subsequent transferee) may propose to transfer to a third
party, unless otherwise not permitted by Section 25102(o) of the California
Corporations Code, provided, that such right of first refusal terminates upon
the Company's initial public offering of Common Stock pursuant to an
effective registration statement filed under the Securities Act.
11.2 RIGHT OF REPURCHASE. At the discretion of the
Committee, the Company reserve to itself and/or its assignee(s) in the Award
Agreement a right to repurchase Unvested Shares held by a Participant for
cash and/or cancellation of purchase money indebtedness following such
Participant's Termination at any time within the later of ninety (90) days
after the Participant's Termination Date and the date the Participant
purchases Shares under the Plan at the Participant's Exercise Price or
Purchase Price, as the case may be, provided, that unless the Participant is
an officer, director or consultant of the Company or of a Parent or
Subsidiary of the Company, such right of repurchase lapses at the rate of at
least twenty percent (20%) per year over five (5) years from: (a) the date
of grant of the Option or (b) in the case of Restricted Stock, the date the
Participant purchases the Shares.
12. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders,
legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or
foreign securities law, or any rules,, regulations and other requirements of
the SEC or
<PAGE>
any stock exchange or automated quotation system upon which the Shares may be
listed or quoted.
13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit
all certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee
may cause a legend or legends referencing such restrictions to be placed on
the certificates. Any Participant who is permitted to execute a promissory
note as partial or full consideration for the purchase of Shares under this
Plan will be required to pledge and deposit with the Company all or part of
the Shares so purchased as collateral to secure the payment of Participant's
obligation to the Company under the promissory note; provided, however, that
the Committee may require or accept other or additional forms of collateral
to secure the payment of such obligation and, in any event, the Company will
have full recourse against the Participant under the promissory note
notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be required to
execute and deliver a written pledge agreement in such form as the Committee
will from time to time approve. The Shares purchased with the promissory
note may be released from the pledge on a pro rata basis as the promissory
note is paid.
14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time
or from time to time, authorize the Company, with the consent of the
respective Participants, to issue new Awards in exchange for the surrender
and cancellation of any or all outstanding Awards. The Committee may at any
time buy from a Participant an Award previously granted with payment in cash,
shares of Common Stock of the Company (including Restricted Stock) or other
consideration, based on such terms and conditions as the Committee and the
Participant may agree.
15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is
intended to comply with Section 25102(o) of the California Corporations Code.
Any provision of this Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o). An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and
the requirements of any stock exchange or automated quotation system upon
which the Shares may then be listed or quoted, as they are in effect on the
date of grant of the Award and also on the date of exercise or other
issuance. Notwithstanding any other provision in this Plan, the Company will
have no obligation to issue or deliver certificates for Shares under this
Plan prior to (a) obtaining any approvals from governmental agencies that the
Company determines are necessary or advisable, and/or (b) compliance with any
exemption, completion of any registration or other qualification of such
Shares under any state or federal law or ruling of any governmental body that
the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect
compliance with the exemption, registration, qualification or listing
requirements of any state securities laws, stock
<PAGE>
exchange or automated quotation system, and the Company will have no
liability for any inability or failure to do so.
16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any
way the right of the Company or any Parent or Subsidiary of the Company to
terminate Participant's employment or other relationship at any time, with or
without Cause.
17. CORPORATE TRANSACTIONS.
17.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR OR
ACQUIRING CORPORATION. In the event of (a) a dissolution or liquidation of
the Company, (b) a merger or consolidation in which the Company is not the
surviving corporation (c) a merger in which the Company is the surviving
corporation but after which the shareholders of the Company immediately prior
to such merger (other than any shareholder which merges with the Company in
such merger, or which owns or controls another corporation which merges, with
the Company in such merger) cease to own their shares or other equity
interests in the Company, or (d) the sale of all or substantially all of the
assets of the Company, any or all outstanding Awards may be assumed,
converted or replaced by the successor or acquiring corporation (if any),
which assumption, conversion or replacement will be binding on all
Participants. In the alternative, the successor or acquiring corporation may
substitute equivalent Awards or provide substantially similar consideration
to Participants as was provided to shareholders (after taking into account
the existing provisions of the Awards). The successor or acquiring
corporation may also issue, in place of outstanding Shares of the Company
held by the Participant, substantially similar shares or other property
subject to repurchase restrictions and other provisions no less favorable to
the Participant than those which applied to such outstanding Shares
immediately prior to such transaction described in this Section 17.1. In the
event such successor or acquiring corporation (if any) refuses to assume or
substitute Awards, as provided above, pursuant to a transaction described in
this Section 17.1, then notwithstanding any other provision in this Plan to
the contrary, the vesting of such Awards will expire on such transaction at
such time and on such conditions as the Board will determine.
17.2 OTHER TREATMENT OF AWARDS. Subject to any greater
rights granted to Participants under the foregoing provisions of this Section
17, in the event of the occurrence of any transaction described in Section
17.1 hereof, any outstanding Awards will be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution,
liquidation or sale of assets.
17.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other
company or otherwise, by either (a) granting an Award under this Plan in
substitution of such other company's award or (b) assuming such award as if
it had been granted under this Plan if the terms of such assumed award could
be applied to an Award granted under this Plan. Such substitution or
assumption will be permissible if the holder of the substituted or assumed
award would have been eligible to be granted an Award
<PAGE>
under this Plan if the other company had applied the rules of this Plan to
such grant. In the event the Company assumes an award granted by another
company, the terms and conditions of such award will remain unchanged (except
that the exercise price and the number and nature of shares issuable upon
exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be
granted with a similarly adjusted Exercise Price.
18. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become
effective on the date that it is adopted by the Board (the "EFFECTIVE DATE").
This Plan will be approved by the shareholders of the Company (excluding
Shares issued pursuant to this Plan), consistent with applicable laws, within
twelve (12) months before or after the Effective Date. Upon the effective
Date, the Board may grant Awards pursuant to this Plan; provided, however,
that: (a) no Option may be exercised prior to initial shareholder approval
of this Plan; (b) no Option granted pursuant to an increase in the number of
Shares approved by the Board shall be exercised prior to the time such
increase has been approved by the shareholders of the Company; (c) in the
event that initial shareholder approval is not obtained within the time
period provided herein, all Awards granted hereunder shall be canceled, any
Shares issued pursuant to any Award shall be canceled and any purchase of
Shares issued hereunder shall be rescinded; and (d) Awards granted pursuant
to an increase in the number of Shares approved by the Board which increase
is not timely approved by shareholders shall be canceled, any Shares issued
pursuant to any such Awards shall be canceled, and any purchase of Shares
subject to any such Award shall be rescinded. In the event that initial
shareholder approval is not obtained within twelve (12) months before or
after the date this Plan is adopted by the Board, all Awards granted
hereunder will be canceled, any Shares issued pursuant to any Award will be
canceled and any purchase of Shares hereunder will be rescinded.
19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as
provided herein, this Plan will terminate ten (10) years from the Effective
Date or, if earlier, the date of shareholder approval. This Plan and all
agreements hereunder shall be governed by and construed in accordance with
the laws of the State of California.
20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9
hereof, the Board may at any time terminate or amend this Plan in any
respect, including without limitation amendment of any form of Award
Agreement or instrument to be executed pursuant to this Plan; provided,
however, that the Board will not, without the approval of the shareholders of
the Company, amend this Plan in any manner that requires such shareholder
approval pursuant to Section 25102(o) of the California Corporations Code or
the Code or the regulations promulgated thereunder as such provisions apply
to ISO plans.
21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan
by the Board, the submission of this Plan to the shareholders of the Company
for approval, nor any provision of this Plan will be construed as creating
any limitations on the power of the Board to adopt such additional
compensation arrangements as it may deem desirable, including, without
limitation, the granting of stock options and other equity awards otherwise
than under this Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.
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22. DEFINITIONS. As used in this Plan, the following terms will
have the following meanings:
"AWARD" means any award under this Plan, including any Option
or Restricted Stock Award.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful material
violation by the Participant of any law or regulation applicable to the
business of the Company or a Parent or Subsidiary of the Company, the
Participant's conviction for, or guilty plea to, a felony or a crime
involving moral turpitude, any willful perpetration by the Participant of a
common law fraud, (ii) the Participant's commission of an act of personal
dishonesty which involves personal profit in connection with the Company or
any other entity having a business relationship with the Company, (iii) any
material breach by the Participant of any provision of any agreement or
understanding between the Company or any Parent or Subsidiary of the Company
and the Participant regarding the terms of the Participant's service as an
employee, director or consultant to the Company or a Parent or Subsidiary of
the Company, including without limitation, the willful and continued failure
or refusal of the Participant to perform the material duties required of such
Participant as an employee, director or consultant of the Company or a Parent
or Subsidiary of the Company, other than as a result of having a Disability,
or a breach of any applicable invention assignment and confidentiality
agreement or similar agreement between the Company and the Participant, (iv)
Participant's disregard of the policies of the Company or any Parent or
Subsidiary of the Company so as to cause loss, damage or injury to the
property, reputation or employees of the Company or a Parent or Subsidiary of
the Company, or (v) any other misconduct by the Participant which is
materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary
of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no committee is appointed, the Board.
"COMPANY" means Silicon Image, Inc., or any successor
corporation.
"DISABILITY" means a disability, whether temporary or
permanent, partial or total, as determined by the Committee.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
<PAGE>
(a) if such Common Stock is then quoted on the NASDAQ National
Market System, its last reported sale price on the NASDAQ
National Market System or, if no such reported sale takes
place on such date, the average of the closing bid and
asked prices;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, the last reported sale
price or, if no such reported sale takes place on such
date, the average of the closing bid and asked prices on
the principal national securities exchange on which the
Common Stock is listed or admitted to trading;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market System nor listed or admitted
to trading on a national securities exchange, the average
of the closing bid and asked prices on such date, as
reported by The Wall Street Journal, for the
over-the-counter market; or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"OPTION" means an award of an option to purchase Shares
pursuant to Section 5 hereof.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain
"PARTICIPANT" means a person who receives an Award under this
Plan
"PLAN" means this Silicon Image, Inc. 1995 Equity Incentive
Plan, as amended from time to time.
"PURCHASE PRICE" means the price at which a Participant may
purchase Restricted Stock
"RESTRICTED STOCK" means Shares purchased pursuant to a
Restricted Stock Award.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6 hereof.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved
for issuance under this Plan, as adjusted pursuant to Sections 2 and 17
hereof, and any successor security.
"SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last
<PAGE>
corporation in the unbroken chain owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased
to provide services as an employee, officer, director or consultant to the
Company or a Parent or Subsidiary of the Company. A Participant will not be
deemed to have ceased to provide services in the case of (i) sick leave, (ii)
military leave, or (iii) any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than ninety
(90) days unless reinstatement (or, in the case of an employee with an ISO,
reemployment) upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to formal policy adopted from
time to time by the Company and issued and promulgated in writing. In the
case of any Participant on (i) sick leave, (ii) military leave or (iii) an
approved leave of absence, the Committee may make such provisions respecting
suspension of vesting of the Award while on leave from the Company or a
Parent or Subsidiary of the Company as it may deem appropriate, except that
in no event may an Option be exercised after the expiration of the term set
forth in the Stock Option Agreement. The Committee will have sole discretion
to determine whether a Participant has ceased to provide services and the
effective date on which the Participant ceased to provide services (the
"TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the
Award Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
<PAGE>
EXHIBIT 10.3
SILICON IMAGE, INC.
1999 EQUITY INCENTIVE PLAN
As Adopted July 20, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to
Sections 2.2 and 18, the total number of Shares reserved and available for grant
and issuance pursuant to this Plan will be 1,000,000 Shares plus Shares that are
subject to: (a) issuance upon exercise of an Option but cease to be subject to
such Option for any reason other than exercise of such Option; (b) an Award
granted hereunder but are forfeited or are repurchased by the Company at the
original issue price; and (c) an Award that otherwise terminates without Shares
being issued. In addition, any authorized shares not issued or subject to
outstanding grants under the Silicon Image, Inc. 1995 Equity Incentive Plan (the
"PRIOR PLAN") on the Effective Date (as defined below) and any shares issued
under the Prior Plan that are forfeited or repurchased by the Company or that
are issuable upon exercise of options granted pursuant to the Prior Plan that
expire or become unexercisable for any reason without having been exercised in
full, will no longer be available for grant and issuance under the Prior Plan,
but will be available for grant and issuance under this Plan. In addition, on
the first business day of each calendar year of the Company during the term of
the Plan, the aggregate number of Shares reserved and available for grant and
issuance pursuant to this Plan will be increased automatically by a number of
Shares equal to 5% of the total outstanding shares of the Company, PROVIDED,
that the Board or the Committee may in its sole discretion reduce the amount of
the increase in any particular year; and, PROVIDED FURTHER, that no more than
10,000,000 shares shall qualify as ISOs (as defined in Section 5 below). At all
times the Company shall reserve and keep available a sufficient number of Shares
as shall be required to satisfy the requirements of all outstanding Options
granted under this Plan and all other outstanding but unvested Awards granted
under this Plan.
2.2 ADJUSTMENT OF SHARES. In the event that the
number of outstanding shares is changed by a stock dividend, recapitalization,
stock split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
number of Shares subject to each Annual Grant described in Section 9 below, (c)
the Exercise Prices of and number of Shares subject to outstanding Options, and
(d) the number of Shares subject to other outstanding Awards will be
proportionately adjusted, subject to any required action by the Board or the
stockholders of the Company and compliance with applicable securities laws;
PROVIDED, HOWEVER, that fractions of a Share will not be issued but will either
be replaced by a cash payment equal to the Fair Market Value of such fraction of
a Share or will be rounded up to the nearest whole Share, as determined by the
Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be
granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. All other
Awards may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any Parent or Subsidiary
of the Company; PROVIDED such consultants, contractors and advisors render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction. No person will be eligible to receive more than
500,000 Shares in any calendar year under this Plan pursuant to the grant of
Awards hereunder, other than new employees of the Company or of a Parent or
Subsidiary of the Company (including new employees who are also officers and
directors of the Company or any Parent or Subsidiary of the Company), who are
eligible to receive up to a maximum of 750,000 Shares in the calendar year in
which they commence their employment. A person may be granted more than one
Award under this Plan.
<PAGE>
4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. This Plan will be
administered by the Committee or by the Board acting as the Committee. Except
for automatic grants to Eligible Directors pursuant to Section 9 hereof, and
subject to the general purposes, terms and conditions of this Plan, and to the
direction of the Board, the Committee will have full power to implement and
carry out this Plan. Except for automatic grants to Eligible Directors pursuant
to Section 9 hereof, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement
and any other agreement or document executed pursuant
to this Plan;
(b) prescribe, amend and rescind rules and regulations
relating to this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or
as alternatives to, other Awards under this Plan or any
other incentive or compensation plan of the Company or
any Parent or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission or reconcile
any inconsistency in this Plan, any Award or any Award
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 COMMITTEE DISCRETION. Except for automatic
grants to Eligible Directors pursuant to Section 9 hereof, any determination
made by the Committee with respect to any Award will be made in its sole
discretion at the time of grant of the Award or, unless in contravention of any
express term of this Plan or Award, at any later time, and such determination
will be final and binding on the Company and on all persons having an interest
in any Award under this Plan. The Committee may delegate to one or more officers
of the Company the authority to grant an Award under this Plan to Participants
who are not Insiders of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons
and will determine whether such Options will be Incentive Stock Options within
the meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the
number of Shares subject to the Option, the Exercise Price of the Option, the
period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under
this Plan will be evidenced by an Award Agreement which will expressly identify
the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as
otherwise required by the terms of Section 9 hereof, will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
2
<PAGE>
5.2 DATE OF GRANT. The date of grant of an Option
will be the date on which the Committee makes the determination to grant such
Option, unless otherwise specified by the Committee. The Stock Option Agreement
and a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 EXERCISE PERIOD. Except for automatic grants to
Eligible Directors pursuant to Section 9 hereof, Options may be exercisable
within the times or upon the events determined by the Committee as set forth in
the Stock Option Agreement governing such Option; PROVIDED, HOWEVER, that no
Option will be exercisable after the expiration of ten (10) years from the date
the Option is granted; and PROVIDED FURTHER that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The Committee
also may provide for Options to become exercisable at one time or from time to
time, periodically or otherwise, in such number of Shares or percentage of
Shares as the Committee determines.
5.4 EXERCISE PRICE. The Exercise Price of an
Option will be determined by the Committee when the Option is granted and may be
not less than 85% of the Fair Market Value of the Shares on the date of grant;
provided that: (i) the Exercise Price of an ISO will be not less than 100% of
the Fair Market Value of the Shares on the date of grant; and (ii) the Exercise
Price of any ISO granted to a Ten Percent Stockholder will not be less than 110%
of the Fair Market Value of the Shares on the date of grant. Payment for the
Shares purchased may be made in accordance with Section 8 of this Plan.
5.5 METHOD OF EXERCISE. Options may be exercised
only by delivery to the Company of a written stock option exercise agreement
(the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not
be the same for each Participant), stating the number of Shares being purchased,
the restrictions imposed on the Shares purchased under such Exercise Agreement,
if any, and such representations and agreements regarding Participant's
investment intent and access to information and other matters, if any, as may be
required or desirable by the Company to comply with applicable securities laws,
together with payment in full of the Exercise Price for the number of Shares
being purchased.
5.6 TERMINATION. Notwithstanding the exercise
periods set forth in the Stock Option Agreement, exercise of an Option will
always be subject to the following:
(a) If the Participant is Terminated for any reason except
death or Disability, then the Participant may exercise
such Participant's Options only to the extent that such
Options would have been exercisable upon the
Termination Date no later than three (3) months after
the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be
determined by the Committee, with any exercise beyond
three (3) months after the Termination Date deemed to
be an NQSO), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of
Participant's death or Disability (or the Participant
dies within three (3) months after a Termination other
than for Cause or because of Participant's
Disability), then Participant's Options may be
exercised only to the extent that such Options would
have been exercisable by Participant on the
Termination Date and must be exercised by Participant
(or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the
Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be
determined by the Committee, with any such exercise
beyond (a) three (3) months after the Termination Date
when the Termination is for any reason other than the
Participant's death or Disability, or (b) twelve (12)
months after the Termination Date when the Termination
is for Participant's death or Disability, deemed to be
an NQSO), but in any event no later than the
expiration date of the Options.
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<PAGE>
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 LIMITATIONS ON ISO. The aggregate Fair Market
Value (determined as of the date of grant) of Shares with respect to which ISO
are exercisable for the first time by a Participant during any calendar year
(under this Plan or under any other incentive stock option plan of the Company,
Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which ISO are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, then the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year will be ISO and the Options for the amount in
excess of $100,000 that become exercisable in that calendar year will be NQSOs.
In the event that the Code or the regulations promulgated thereunder are amended
after the Effective Date of this Plan to provide for a different limit on the
Fair Market Value of Shares permitted to be subject to ISO, such different limit
will be automatically incorporated herein and will apply to any Options granted
after the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee
may modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; PROVIDED, HOWEVER, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other
provision in this Plan, no term of this Plan relating to ISO will be
interpreted, amended or altered, nor will any discretion or authority granted
under this Plan be exercised, so as to disqualify this Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any
ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 FORM OF RESTRICTED STOCK AWARD. All purchases
under a Restricted Stock Award made pursuant to this Plan will be evidenced by
an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such
form (which need not be the same for each Participant) as the Committee will
from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.
6.2 PURCHASE PRICE. The Purchase Price of Shares
sold pursuant to a Restricted Stock Award will be determined by the Committee on
the date the Restricted Stock Award is granted, except in the case of a sale to
a Ten Percent Stockholder, in which case the Purchase Price will be 100% of the
Fair Market Value. Payment of the Purchase Price may be made in accordance with
Section 8 of this Plan.
6.3 TERMS OF RESTRICTED STOCK AWARDS. Restricted
Stock Awards shall be subject to such restrictions as the Committee may impose.
These restrictions may be based upon completion of a specified number of years
of service with the Company or upon completion of the performance goals as set
out in advance in
4
<PAGE>
the Participant's individual Restricted Stock Purchase Agreement. Restricted
Stock Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine
the number of Shares that may be awarded to the Participant. Prior to the
payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance
Periods may overlap and Participants may participate simultaneously with
respect to Restricted Stock Awards that are subject to different Performance
Periods and having different performance goals and other criteria.
6.4 TERMINATION DURING PERFORMANCE PERIOD. If a
Participant is Terminated during a Performance Period for any reason, then such
Participant will be entitled to payment (whether in Shares, cash or otherwise)
with respect to the Restricted Stock Award only to the extent earned as of the
date of Termination in accordance with the Restricted Stock Purchase Agreement,
unless the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an
award of Shares (which may consist of Restricted Stock) for services rendered to
the Company or any Parent or Subsidiary of the Company. A Stock Bonus may be
awarded for past services already rendered to the Company, or any Parent or
Subsidiary of the Company pursuant to an Award Agreement (the "STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. A Stock Bonus may
be awarded upon satisfaction of such performance goals as are set out in advance
in the Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 TERMS OF STOCK BONUSES. The Committee will
determine the number of Shares to be awarded to the Participant. If the Stock
Bonus is being earned upon the satisfaction of performance goals pursuant to a
Performance Stock Bonus Agreement, then the Committee will: (a) determine the
nature, length and starting date of any Performance Period for each Stock Bonus;
(b) select from among the Performance Factors to be used to measure the
performance, if any; and (c) determine the number of Shares that may be awarded
to the Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events or
circumstances to avoid windfalls or hardships.
7.3 FORM OF PAYMENT. The earned portion of a Stock
Bonus may be paid currently or on a deferred basis with such interest or
dividend equivalent, if any, as the Committee may determine. Payment may be made
in the form of cash or whole Shares or a combination thereof, either in a lump
sum payment or in installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
8.1 PAYMENT. Payment for Shares purchased pursuant to
this Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
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(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned
by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and,
if such shares were purchased from the Company by use
of a promissory note, such note has been fully paid
with respect to such shares); or (2) were obtained by
Participant in the public market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and
bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the
Code; PROVIDED, HOWEVER, that Participants who are not
employees or directors of the Company will not be
entitled to purchase Shares with a promissory note
unless the note is adequately secured by collateral
other than the Shares;
(d) by waiver of compensation due or accrued to the
Participant for services rendered;
(e) with respect only to purchases upon exercise of an
Option, and provided that a public market for the
Company's stock exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a
member of the National Association of
Securities Dealers (an "NASD DEALER") whereby
the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price,
and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward
the Exercise Price directly to the Company; or
(2) through a "margin" commitment from the
Participant and a NASD Dealer whereby the
Participant irrevocably elects to exercise the
Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in
the amount of the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise
Price directly to the Company; or
(f) by any combination of the foregoing.
8.2 LOAN GUARANTEES. The Committee may help the
Participant pay for Shares purchased under this Plan by authorizing a guarantee
by the Company of a third-party loan to the Participant.
9. AUTOMATIC GRANTS TO ELIGIBLE DIRECTORS.
9.1 TYPES OF OPTIONS AND SHARES. Options granted under
this Plan and subject to this Section 9 shall be NQSOs.
9.2 ELIGIBILITY. Options subject to this Section 9
shall be granted only to Eligible Directors.
9.3 ANNUAL GRANTS. Immediately following each annual
meeting of stockholders, (a) each Eligible Director will automatically be
granted an Option for 10,000 Shares, provided the Eligible Director is a member
of the Board on such date and has served continuously as a member of the Board
of Directors of the Company (or the Company's California predecessor) for a
period of at least one year since the date when such Eligible Director first
became a member of the Board; and (b) each Eligible Director who is a member of
the Committee or the Company's Audit Committee will automatically be granted an
option for an additional 5,000 Shares for each such committee on which such
Eligible Director serves, provided such Eligible Director is a
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member of such committee on such date and has served continuously as a member
of such committee of the Company (or the Company's California predecessor)
for a period of at least one year since the date when such Eligible Director
first joined such committee. The Options described in this Section 9.3 are
referred to as the "ANNUAL GRANTS."
9.4 EXERCISE PRICE; EXERCISE PERIOD. The exercise
price of an Annual Grant shall be the Fair Market Value of the Shares at the
time of grant. The Exercise Period of an Annual Grant shall end two (2) years
after the date of grant.
10. WITHHOLDING TAXES.
10.1 WITHHOLDING GENERALLY. Whenever Shares are to be
issued in satisfaction of Awards granted under this Plan, the Company may
require the Participant to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
10.2 STOCK WITHHOLDING. When, under applicable tax
laws, a Participant incurs tax liability in connection with the exercise or
vesting of any Award that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the Committee
may in its sole discretion allow the Participant to satisfy the minimum
withholding tax obligation by electing to have the Company withhold from the
Shares to be issued that number of Shares having a Fair Market Value equal to
the minimum amount required to be withheld, determined on the date that the
amount of tax to be withheld is to be determined. All elections by a Participant
to have Shares withheld for this purpose will be made in accordance with the
requirements established by the Committee and be in writing in a form acceptable
to the Committee
11. TRANSFERABILITY.
11.1 Except as otherwise provided in this
Section 11, Awards granted under this Plan, and any interest therein, will
not be transferable or assignable by Participant, and may not be made subject
to execution, attachment or similar process, otherwise than by will or by the
laws of descent and distribution or as determined by the Committee and set
forth in the Award Agreement with respect to Awards that are not ISOs.
11.2 ALL AWARDS OTHER THAN NQSO'S. All Awards
other than NQSO's shall be exercisable: (i) during the Participant's lifetime,
only by (A) the Participant, or (B) the Participant's guardian or legal
representative; and (ii) after Participant's death, by the legal representative
of the Participant's heirs or legatees.
11.3 NQSOS. Unless otherwise restricted by the
Committee, an NQSO shall be exercisable: (i) during the Participant's lifetime
only by (A) the Participant, (B) the Participant's guardian or legal
representative, (C) a Family Member of the Participant who has acquired the NQSO
by "permitted transfer;" and (ii) after Participant's death, by the legal
representative of the Participant's heirs or legatees. "Permitted transfer"
means, as authorized by this Plan and the Committee in an NQSO, any transfer
effected by the Participant during the Participant's lifetime of an interest in
such NQSO but only such transfers which are by gift or domestic relations order.
A permitted transfer does not include any transfer for value and neither of the
following are transfers for value: (a) a transfer of under a domestic relations
order in settlement of marital property rights or (b) a transfer to an entity in
which more than fifty percent of the voting interests are owned by Family
Members or the Participant in exchange for an interest in that entity.
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12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES..
12.1 VOTING AND DIVIDENDS. No Participant will
have any of the rights of a stockholder with respect to any Shares until the
Shares are issued to the Participant. After Shares are issued to the
Participant, the Participant will be a stockholder and have all the rights of a
stockholder with respect to such Shares, including the right to vote and receive
all dividends or other distributions made or paid with respect to such Shares;
PROVIDED, that if such Shares are Restricted Stock, then any new, additional or
different securities the Participant may become entitled to receive with respect
to such Shares by virtue of a stock dividend, stock split or any other change in
the corporate or capital structure of the Company will be subject to the same
restrictions as the Restricted Stock; PROVIDED, FURTHER, that the Participant
will have no right to retain such stock dividends or stock distributions with
respect to Shares that are repurchased at the Participant's Purchase Price or
Exercise Price pursuant to Section 12.
12.2 FINANCIAL STATEMENTS. The Company will
provide financial statements to each Participant prior to such Participant's
purchase of Shares under this Plan, and to each Participant annually during the
period such Participant has Awards outstanding; PROVIDED, HOWEVER, the Company
will not be required to provide such financial statements to Participants whose
services in connection with the Company assure them access to equivalent
information.
12.3 RESTRICTIONS ON SHARES. At the discretion
of the Committee, the Company may reserve to itself and/or its assignee(s) in
the Award Agreement a right to repurchase a portion of or all Unvested Shares
held by a Participant following such Participant's Termination at any time
within ninety (90) days after the later of Participant's Termination Date and
the date Participant purchases Shares under this Plan, for cash and/or
cancellation of purchase money indebtedness, at the Participant's Exercise Price
or Purchase Price, as the case may be.
13. CERTIFICATES. All certificates for Shares or other
securities delivered under this Plan will be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; PROVIDED, HOWEVER, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any
time or from time to time, authorize the Company, with the consent of the
respective Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time buy
from a Participant an Award previously granted with payment in cash, Shares
(including Restricted Stock) or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.
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16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award
will not be effective unless such Award is in compliance with all applicable
federal and state securities laws, rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation system
upon which the Shares may then be listed or quoted, as they are in effect on the
date of grant of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any way
the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY
SUCCESSOR. In the event of (a) a dissolution or liquidation of the Company, (b)
a merger or consolidation in which the Company is not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary, a
reincorporation of the Company in a different jurisdiction, or other transaction
in which there is no substantial change in the stockholders of the Company or
their relative stock holdings and the Awards granted under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all Participants), (c) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (d)
the sale of substantially all of the assets of the Company, or (e) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, any or all outstanding Awards
(including without limitation Annual Grants under Section 9) may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Awards (including without limitation Annual Grants under
Section 9) will expire on such transaction at such time and on such conditions
as the Committee will determine. Notwithstanding anything in this Plan to the
contrary, the Committee may, in its sole discretion, provide that the vesting of
any or all Awards granted pursuant to this Plan will accelerate upon a
transaction described in this Section 18. If the Committee exercises such
discretion with respect to Options, such Options will become exercisable in full
prior to the consummation of such event at such time and on such conditions as
the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.
18.2 OTHER TREATMENT OF AWARDS. Subject to any
greater rights granted to Participants under the foregoing provisions of this
Section 18, in the event of the occurrence of any transaction described in
Section 18.1, any outstanding Awards (including without limitation Annual Grants
under Section 9) will be treated as provided in the applicable agreement or plan
of merger, consolidation, dissolution, liquidation, or sale of assets.
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18.3 ASSUMPTION OF AWARDS BY THE COMPANY. The
Company, from time to time, also may substitute or assume outstanding awards
granted by another company, whether in connection with an acquisition of such
other company or otherwise, by either; (a) granting an Award under this Plan in
substitution of such other company's award; or (b) assuming such award as if it
had been granted under this Plan if the terms of such assumed award could be
applied to an Award granted under this Plan. Such substitution or assumption
will be permissible if the holder of the substituted or assumed award would have
been eligible to be granted an Award under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an award granted by another company, the terms and conditions of such award will
remain unchanged (EXCEPT that the exercise price and the number and nature of
Shares issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE
DATE"). This Plan shall be approved by the stockholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted by
the Board. Upon the Effective Date, the Committee may grant Awards pursuant to
this Plan; PROVIDED, HOWEVER, that: (a) no Option may be exercised prior to
initial stockholder approval of this Plan; (b) no Option granted pursuant to an
increase in the number of Shares subject to this Plan approved by the Board will
be exercised prior to the time such increase has been approved by the
stockholders of the Company; (c) in the event that initial stockholder approval
is not obtained within the time period provided herein, all Awards granted
hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be
cancelled and any purchase of Shares issued hereunder shall be rescinded; and
(d) in the event that stockholder approval of such increase is not obtained
within the time period provided herein, all Awards granted pursuant to such
increase will be cancelled, any Shares issued pursuant to any Award granted
pursuant to such increase will be cancelled, and any purchase of Shares pursuant
to such increase will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as
provided herein, this Plan will terminate ten (10) years from the date this Plan
is adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; PROVIDED, HOWEVER, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this
Plan by the Board, the submission of this Plan to the stockholders of the
Company for approval, nor any provision of this Plan will be construed as
creating any limitations on the power of the Board to adopt such additional
compensation arrangements as it may deem desirable, including, without
limitation, the granting of stock options and bonuses otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
23. DEFINITIONS. As used in this Plan, the following terms will
have the following meanings:
"AWARD" means any award under this Plan, including any
Option, Restricted Stock or Stock Bonus.
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"AWARD AGREEMENT" means, with respect to each Award,
the signed written agreement between the Company and the Participant setting
forth the terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft,
embezzlement, fraud, dishonesty or a breach of fiduciary duty to the Company or
a Parent or Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as
amended.
"COMMITTEE" means the Compensation Committee of the
Board.
"COMPANY" means Silicon Image, Inc. or any successor
corporation.
"DISABILITY" means a disability, whether temporary or
permanent, partial or total, as determined by the Committee. For ISO purposes,
"Disability" means a disability within the meaning of Code Section 22(e)(3).
"ELIGIBLE DIRECTOR" means a member of the Board (1)
who is not an employee of the Company or any Parent, Subsidiary or Affiliate of
the Company, and (2) whose direct pecuniary interest (as defined by the SEC in
Rule 16a-1 promulgated under the Exchange Act) in the Company's Common Stock is
less than five percent (5%) of total shares of Common Stock outstanding.
"EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
"EXERCISE PRICE" means the price at which a holder of
an Option may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value
of a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its closing price on the Nasdaq
National Market on the date of determination as
reported in THE WALL STREET JOURNAL;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its closing
price on the date of determination on the principal
national securities exchange on which the Common Stock
is listed or admitted to trading as reported in THE
WALL STREET JOURNAL;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on the
date of determination as reported in THE WALL STREET
JOURNAL;
(d) in the case of an Award made on the Effective Date, the
price per share at which shares of the Company's Common
Stock are initially offered for sale to the public by
the Company's underwriters in the initial public
offering of the Company's Common Stock pursuant to a
registration statement filed with the SEC under the
Securities Act; or
(e) if none of the foregoing is applicable, by the
Committee in good faith.
"FAMILY MEMBER" includes any of the following:
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(a) child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece,
nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law of
the Participant, including any such person with such
relationship to the Participant by adoption;
(b) any person (other than a tenant or employee) sharing
the Participant's household;
(c) a trust in which the persons in (a) and (b) have more
than fifty percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or
the Participant control the
management of assets; or
(e) any other entity in which the persons in (a) and (b) or
the Participant own more than fifty percent of the
voting interest.
"INSIDER" means an officer or director of the Company
or any other person whose transactions in the Company's Common Stock are subject
to Section 16 of the Exchange Act.
"OPTION" means an award of an option to purchase
Shares pursuant to Section 5.
"PARENT" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if each of
such corporations other than the Company owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award
under this Plan.
"PERFORMANCE FACTORS" means the factors selected by
the Committee from among the following measures to determine whether the
performance goals established by the Committee and applicable to Awards have
been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and
amortization and/or earnings before income
taxes and amortization growth;
(c) Operating income and/or operating income
growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share
growth;
(f) Total stockholder return and/or total
stockholder return growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on
income;
(j) Economic value added; and
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(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service
determined by the Committee, not to exceed five years, during which years of
service or performance is to be measured for Restricted Stock Awards or Stock
Bonuses.
"PLAN" means this Silicon Image, Inc. 1999 Equity
Incentive Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares
pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SHARES" means shares of the Company's Common Stock
reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and
18, and any successor security.
"STOCK BONUS" means an award of Shares, or cash in
lieu of Shares, pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of
this Plan with respect to a Participant, that the Participant has for any reason
ceased to provide services as an employee, officer, director, consultant,
independent contractor, or advisor to the Company or a Parent or Subsidiary of
the Company. An employee will not be deemed to have ceased to provide services
in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of
absence approved by the Committee, provided, that such leave is for a period of
not more than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined
in the Award Agreement.
"VESTED SHARES" means "Vested Shares" as defined in
the Award Agreement.
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EXHIBIT 10.4
SILICON IMAGE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
As Adopted July 20, 1999
1. ESTABLISHMENT OF PLAN. Silicon Image, Inc. (the "COMPANY") proposes
to grant options for purchase of the Company's Common Stock to eligible
employees of the Company and its Participating Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For
purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall have the same
meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e)
and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"CODE"). "PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries
that the Board of Directors of the Company (the "BOARD") designates from time to
time as corporations that shall participate in this Plan. The Company intends
this Plan to qualify as an "employee stock purchase plan" under Section 423 of
the Code (including any amendments to or replacements of such Section), and this
Plan shall be so construed. Any term not expressly defined in this Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. A total of 250,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. In addition, on each January 1, the aggregate number
of shares of the Company's Common Stock reserved for issuance under the Plan
shall be increased automatically by a number of shares equal to 1% of the total
number of outstanding shares of the Company Common Stock on the immediately
preceding December 31; PROVIDED, that the Board or the Committee may in its sole
discretion reduce the amount of the increase in any particular year; and,
PROVIDED FURTHER, that the aggregate number of shares issued over the term of
this Plan shall not exceed 4,000,000 shares. Such number shall be subject to
adjustments effected in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees
of the Company and Participating Subsidiaries with a convenient means of
acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan
and the limitations of Section 423 of the Code or any successor provision in the
Code, all questions of interpretation or application of this Plan shall be
determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a
Participating Subsidiary (10) days before the beginning of such Offering Period,
except that employees who are employed on the Effective Date of the Registration
Statement filed by the Company with the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT")
registering the initial public offering of the Company's Common Stock shall be
eligible to participate in the first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or
less in a calendar year;
(d) employees who, together with any other person whose stock would
be attributed to such employee pursuant to Section 424(d) of the Code, own stock
or hold options to purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any of its Participating Subsidiaries or who, as a result of being granted an
option under this Plan with respect to such Offering Period,
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would own stock or hold options to purchase stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of
stock of the Company or any of its Participating Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason EXCEPT FOR federal income and employment tax
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an
"OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on
February 1 and August 1 of each year and ending on January 31 and July 31 of
each year; PROVIDED, HOWEVER, that notwithstanding the foregoing, the first such
Offering Period shall commence on the first business day on which price
quotations for the Company's Common Stock are available on the Nasdaq National
Market (the "FIRST OFFERING DATE") and shall end on July 31, 2001. Except for
the first Offering Period, each Offering Period shall consist of four (4) six
month purchase periods (individually, a "PURCHASE PERIOD") during which payroll
deductions of the participants are accumulated under this Plan. The first
Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "OFFERING DATE". The last business day of each Purchase
Period is referred to as the "PURCHASE DATE". The Committee shall have the power
to change the duration of Offering Periods with respect to offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company not later than five (5) days before such Offering Date.
Notwithstanding the foregoing, the Committee may set a later time for filing the
subscription agreement authorizing payroll deductions for all eligible employees
with respect to a given Offering Period. An eligible employee who does not
deliver a subscription agreement to the Company by such date after becoming
eligible to participate in such Offering Period shall not participate in that
Offering Period or any subsequent Offering Period unless such employee enrolls
in this Plan by filing a subscription agreement with the Company not later than
five (5) days preceding a subsequent Offering Date. Once an employee becomes a
participant in an Offering Period, such employee will automatically participate
in the Offering Period commencing immediately following the last day of the
prior Offering Period unless the employee withdraws or is deemed to withdraw
from this Plan or terminates further participation in the Offering Period as set
forth in Section 11 below. Such participant is not required to file any
additional subscription agreement in order to continue participation in this
Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date (but in no event less than the par value of a
share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Purchase Date
(but in no event less than the par value of a share of the Company's Common
Stock), PROVIDED, HOWEVER, that the number of shares of the Company's Common
Stock subject to any option granted pursuant to this Plan shall not exceed the
lesser of (x) the maximum number of shares set by the Committee pursuant to
Section 10(c) below with respect to the applicable Purchase Date, or (y) the
maximum number of shares which may be purchased pursuant to Section 10(b) below
with respect to the applicable Purchase Date. The fair market value of a share
of the Company's Common Stock shall be determined as provided in Section 8
below.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
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(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as
of any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its closing price on the Nasdaq
National Market on the date of determination as
reported in THE WALL STREET JOURNAL;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its closing
price on the date of determination on the principal
national securities exchange on which the Common Stock
is listed or admitted to trading as reported in THE
WALL STREET JOURNAL;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on the
date of determination as reported in THE WALL STREET
JOURNAL; or
(d) if none of the foregoing is applicable, by the Board in
good faith, which in the case of the First Offering
Date will be the price per share at which shares of the
Company's Common Stock are initially offered for sale
to the public by the Company's underwriters in the
initial public offering of the Company's Common Stock
pursuant to a registration statement filed with the SEC
under the Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE
OF SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than one percent (1%), nor greater than fifteen percent (15%) or such
lower limit set by the Committee. Compensation shall mean all W-2 cash
compensation, including, but not limited to, base salary, wages, commissions,
overtime, shift premiums and bonuses, plus draws against commissions, PROVIDED,
HOWEVER, that for purposes of determining a participant's compensation, any
election by such participant to reduce his or her regular cash remuneration
under Sections 125 or 401(k) of the Code shall be treated as if the participant
did not make such election. Payroll deductions shall commence on the first
payday of the Offering Period and shall continue to the end of the Offering
Period unless sooner altered or terminated as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Company a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than fifteen (15) days
after the Company's receipt of the authorization and shall continue for the
remainder of the Offering Period unless changed as described below. Such change
in the rate of payroll deductions may be made at any time during an Offering
Period, but not more than one (1) change may be made effective during any
Purchase Period. A participant may increase or decrease the rate of payroll
deductions for any subsequent Offering Period by filing with the Company a new
authorization for payroll deductions not later than fifteen (15) days before the
beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction
percentage to zero during an Offering Period by filing with the Company a
request for cessation of payroll deductions. Such reduction shall be effective
beginning with the next payroll period commencing more than fifteen (15) days
after the Company's receipt of the request and no further payroll deductions
will be made for the duration of the Offering Period. Payroll deductions
credited to the participant's account prior to the effective date of the request
shall be used to purchase shares of Common Stock of the Company in accordance
with Section (e) below. A participant may not resume making payroll deductions
during the Offering Period in which he or she reduced his or her payroll
deductions to zero.
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(d) All payroll deductions made for a participant are credited to
his or her account under this Plan and are deposited with the general funds of
the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(e) On each Purchase Date, so long as this Plan remains in effect
and provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of
shares determined by using eighty-five percent (85%) of the fair market value of
a share of the Company's Common Stock on the Offering Date as the denominator
may be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than thirty (30) days prior to the commencement of any Offering Period, the
Committee may, in its sole discretion, set a maximum number of shares which may
be purchased by any employee at any single Purchase Date (hereinafter the
"MAXIMUM SHARE AMOUNT"). Until otherwise determined by the Committee, there
shall be no Maximum Share Amount. In no event shall the Maximum Share Amount
exceed the amounts permitted under Section 10(b) above. If a new Maximum Share
Amount is set, then all participants must be notified of such Maximum Share
Amount prior to the commencement of the next Offering Period. The Maximum Share
Amount shall continue to apply with respect to all succeeding Purchase Dates and
Offering Periods unless revised by the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by
all employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the
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Committee shall determine to be equitable. In such event, the Company shall
give written notice of such reduction of the number of shares to be purchased
under a participant's option to each participant affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under
this Plan by signing and delivering to the Company a written notice to that
effect on a form provided for such purpose. Such withdrawal may be elected at
any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current
Offering Period in which a participant is enrolled is higher than the Fair
Market Value on the first day of any subsequent Offering Period, the Company
will automatically enroll such participant in the subsequent Offering Period.
Any funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee of the Company or of a Participating
Subsidiary, immediately terminates his or her participation in this Plan. In
such event, the payroll deductions credited to the participant's account will be
returned to him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
PROVIDED that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; PROVIDED, HOWEVER, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except as
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
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<PAGE>
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that this Plan
shall terminate as of a date fixed by the Committee and give each participant
the right to purchase shares under this Plan prior to such termination. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of all or substantially all of the assets of the Company or (iv) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, the Plan will continue with
regard to Offering Periods that commenced prior to the closing of the proposed
transaction and shares will be purchased based on the Fair Market Value of the
surviving corporation's stock on each Purchase Date, unless otherwise provided
by the Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each
participant in this Plan. Each participant shall receive promptly after the end
of each Purchase Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have
equal rights and privileges with respect to this Plan so that this Plan
qualifies as an "employee stock purchase plan" within the meaning of Section 423
or any successor provision of the Code and the related regulations. Any
provision of this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company,
the Committee or the Board, be reformed to comply with the requirements of
Section 423. This Section 19 shall take precedence over all other provisions in
this Plan.
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20. NOTICES. All notices or other communications by a participant to
the Company under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board, this Plan will become effective on the First Offering Date (as defined
above). This Plan shall be approved by the stockholders of the Company, in any
manner permitted by applicable corporate law, within twelve (12) months before
or after the date this Plan is adopted by the Board. No purchase of shares
pursuant to this Plan shall occur prior to such stockholder approval. This Plan
shall continue until the earlier to occur of (a) termination of this Plan by the
Board (which termination may be effected by the Board at any time), (b) issuance
of all of the shares of Common Stock reserved for issuance under this Plan, or
(c) ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under this Plan in the event of such participant's death
subsequent to the end of an Purchase Period but prior to delivery to him of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under this
Plan in the event of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this
Plan; or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to
the Plan as the Board determines to be advisable, if the continuation of the
Plan or any Offering Period would result in financial accounting treatment
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for the Plan that is different from the financial accounting treatment in
effect on the date this Plan is adopted by the Board.
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EXHIBIT 10.05
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is entered into as of June
15, 1998 (the "EFFECTIVE DATE") by and between Silicon Image, Inc., a
California corporation (the "COMPANY"), and Daniel Atler ("EXECUTIVE"). This
Agreement supersedes and replaces a certain offer letter dated May 21, 1998
by and between the Company and Executive.
In consideration of the promises and the terms and conditions set forth
in this Agreement, the parties agree as follows:
1. POSITION. The Company hereby appoints Executive to the position
of Chief Financial Officer, Vice President Finance and Administration,
reporting to the Company's President, who currently is Scott Macomber.
2. SALARY. Executive's salary will be $145,000 per year, subject to
annual review.
3. BENEFITS. Executive shall be eligible to participate in the
employee benefit plans and executive compensation programs maintained by the
Company applicable to other employees and key executives of the Company,
including, without limitation, retirement plans, savings or profit-sharing
plans, deferred compensation plans, supplemental retirement or excess-benefit
plans, stock option, stock purchase, incentive or other bonus plans, life,
disability, health, accident and other insurance programs, paid vacations,
and similar plans or programs.
4. EQUITY COMPENSATION. Simultaneously with the approval of this
Agreement, the Company's Board of Directors is granting Executive under the
Company's 1995 Equity Incentive Plan an incentive stock option to purchase
170,000 shares of the Company's Common Stock at $0.25 per share. The options
will be immediately exercisable in full, subject to the Company's right to
repurchase all of the shares at cost upon termination of Executive's
employment, which repurchase right shall expire with respect to 25% of the
shares on June 15, 1999 and with respect to an additional 6.25% of the shares
each quarter thereafter, subject to paragraphs 5(c) and 5(d) below.
5. SEVERANCE.
(a) DEFINITIONS. As used in this Agreement:
"CAUSE" shall mean willful gross misconduct, conviction of a felony or
an act of material personal dishonesty.
"CHANGE IN CONTROL" shall mean the occurrence of any of the following
events:
(i) any "person" (as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) becoming the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
total voting power represented by the Company's then outstanding voting
<PAGE>
securities, other than in a private financing where securities are acquired
directly from the Company; or
(ii) the closing of any transaction or series of related transactions,
including the acquisition of the Company by another entity and any
reorganization, merger or consolidation, which results in the holders of the
Company's capital stock prior to the transaction or transactions holding less
than fifty percent (50%) of the outstanding voting power of the Company after
the transaction or transactions, or which results in the sale of all or
substantially all of the assets of the Company.
"DISABILITY" shall mean a physical or mental illness or injury which, as
determined by the Company, has continuously prevented Executive from
performing his duties with the Company for a period of six months prior to
termination.
(b) SEVERANCE. If Executive's employment terminates for any reason
other than a termination by the Company for Cause, then for six (6) months
following Executive's termination, (i) the Company shall continue to pay to
Executive his then-current salary, less applicable withholding taxes, on the
Company's normal payroll dates during that period, and (ii) the Company will
continue Executive's benefits as described in Section 3 above to the extent
permitted by the terms of the Company's plans then in effect.
(c) CONDITIONS OF ACCELERATION OF VESTING. The provisions of
paragraph 5(d) below shall apply if there is a Change in Control and either
(i) Executive is employed by the Company on the date of the Change in Control
and continues his employment after the Change in Control to aid in an orderly
transition, if the Company so requests (provided that Executive shall not be
required to continue his employment for more than three (3) months after the
Change in Control in order to satisfy such obligation), or (ii) Company
terminates Executive's employment other than for Cause, death or Disability
after the Company begins negotiations with a third party that culminate in a
Change of Control and not more than 150 days prior to the Change in Control
(in which case, for the purpose of interpreting the vesting and
exercisability provisions of Executive's stock option and/or restricted stock
grants, Executive's termination shall be deemed to occur on the date of the
Change in Control); PROVIDED, however, that notwithstanding the foregoing,
if, on or before December 15, 1998, the Company begins negotiations with a
third party regarding a Change in Control which culminate in a Change in
Control, the provisions of paragraph (d) below shall apply only if either
condition (ii) above is met or Executive's employment terminates for any
reason, other than termination for Cause by the Company, within the period
beginning on the date of the Change of Control and ending one (1) year
thereafter, provided that Executive continues his employment after the Change
in Control to aid in an orderly transition, if the Company so requests
(provided that Executive shall not be required to continue his employment for
more than three (3) months after the Change in Control in order to satisfy
such obligation).
(d) TERMS OF ACCELERATION OF VESTING. All Executive's stock option
and/or restricted stock grants made prior to the Change in Control shall have
a vesting rate of twice the vesting rate set forth in the grant, PROVIDED,
that in no event shall the minimum aggregate number of
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shares vested be less than at least one-half of the aggregate number of
shares granted. For example, if immediately prior to a Change of Control,
Executive's stock options and restricted stock grants would have otherwise
vested as to forty percent (40%) of the shares subject to the grants, then
upon such Change in Control such grants shall instead be vested as to eighty
percent (80%) of the shares subject to such grants. For example, if
immediately prior to a Change of Control, Executive's stock options and
restricted stock grants would have otherwise vested as to none of the shares
subject to the grants, then upon such Change in Control such grants shall
instead be vested as to fifty percent (50%) of the shares subject to such
grants. In addition, should Executive's employment continue following a
Change in Control, all Executive's stock option and/or restricted stock
grants made prior to the Change in Control shall continue to vest at twice
the vesting rate set forth in the original grant.
(e) LIMITATION ON PAYMENTS. In the event that the severance and
other benefits provided for in this Agreement or otherwise payable to
Executive (i) constitute "parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") and (ii)
but for this Section 5(e), would be subject to the excise tax imposed by
Section 4999 of the Code, then Executive's severance benefits under this
Agreement shall be payable either:
(1) in full, or
(2) as to such lesser amount which would result in no portion
of such severance benefits being subject to excise tax under Section 4999 of
the Code;
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by Executive on an after-tax basis, of the
greater amount of severance benefits. Unless the Company and Executive
otherwise agree in writing, any determination required under this Section
5(e) shall be made in writing by the Company's independent public accountants
(the "ACCOUNTANTS"), whose determination shall be conclusive and binding upon
Executive and the Company for all purposes.
For purposes of making the calculations required by this Section 5(e),
the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Section 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents
as the Accountants may reasonably request in order to make a determination
under this Section 5(e). The Company shall bear all costs the Accountants
may reasonably incur in connection with any calculations contemplated by this
Section 5(e).
(f) The provisions of paragraphs 5(c), (d) and (e) will be added to
each of Executive's stock option and/or restricted stock grants.
6. PROPRIETARY RIGHTS. Simultaneously with the execution of this
Agreement, Executive and Company are entering into the Company's form of
Employee Invention Assignment and Confidential Information Agreement,
attached hereto as EXHIBIT A. Executive
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agrees not to bring to the Company any confidential or proprietary material
of any former employer and not to violate any other obligations Executive
might have to any former employer.
7. AT-WILL EMPLOYMENT. Executive's employment by the Company is "at
will," which means that either Executive or the Company can terminate the
employment at any time, with or without reason.
8. ARBITRATION. Executive and the Company shall submit to mandatory
binding arbitration in any controversy or claim arising out of, or relating
to, this Agreement or any breach hereof. Such arbitration shall be conducted
in accordance with the commercial arbitration rules of the American
Arbitration Association in effect at that time, and judgment upon the
determination or award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
9. ATTORNEYS' FEES. If any dispute under this Agreement is finally
determined in Executive's or Company's favor, the other party shall pay all
reasonable fees and expenses, including attorneys' and consultants' fees,
incurred by the prevailing party in good faith in connection therewith.
10. TERM OF AGREEMENT. This Agreement shall continue in effect until
the date of termination of Executive's employment with the Company, PROVIDED,
that if at the time of such termination Company is making payments to
Executive pursuant to Section 5(b), Company shall continue to make payments
for so long as required by that section and, PROVIDED FURTHER, that if under
Section 5(c), Executive's employment is deemed to terminate on the date of a
Change in Control, then this Agreement shall continue in effect until such
Change in Control.
11. SUCCESSORS. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business or assets of the Company, to expressly
assume and agree to perform the obligations under this Agreement in the same
manner and to the same extent that the Company would be required to perform
if no such succession had taken place. As used in this Agreement, "Company"
includes any successor to its business or assets which executes and delivers
this Agreement or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law. This Agreement shall inure
to the benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
12. NOTICE. Notices and all other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly
given when delivered by United States registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth
on the last page of this Agreement, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
13. AMENDMENT OR WAIVER. No provision of this Agreement may be
amended, modified, waived or discharged unless such amendment, waiver,
modification or discharge is
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agreed to in a writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
14. VALIDITY. This invalidity or unenforceabiltiy of any provision
of this Agreement shall not affect the validity or enforceability of any
other provisions of this Agreement, which shall remain in full force and
effect.
15. APPLICABLE LAW. This Agreement shall be interpreted and enforced
in accordance with the internal laws of the State of California.
16. CONFIDENTIALITY. Executive will not disclose the terms of this
Agreement to anyone except as follows: (1) to accountants, attorneys, or
other advisors for the purpose of consulting with them, (2) as required by
law.
17. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the Company and the Executive with respect to the matters set forth
herein.
IN WITNESS WHEREOF, this Agreement is executed as of the Effective Date.
Silicon Image, Inc. Executive
By: /s/ Scott Macomber /s/ Daniel Atler
---------------------------- ----------------------------------
Scott Macomber, President Daniel Atler
10131 Bubb Road 300 Sunkist Lane
Cupertino, CA 95014-4976 Los Altos, CA 94022
5
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EXHIBIT 10.06
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is entered into as of June
10, 1999 (the "EFFECTIVE DATE") by and between Silicon Image, Inc., a
California corporation (the "COMPANY"), and Parviz Khodi ("EXECUTIVE").
In consideration of the promises and the terms and conditions set forth
in this Agreement, the parties agree as follows:
1. POSITION. Executive's position Vice President, Worldwide Sales.
2. SALARY. Executive's salary is $143,838 per year for 1999.
Executive's salary will be subject to annual review.
3. COMMISSION. Executive will be paid a quarterly commission, as
set forth in a separate commission plan.
4. BENEFITS. Executive shall be eligible to participate in the
employee benefit plans and executive compensation programs maintained by the
Company applicable to other employees and key executives of the Company,
other than the Company's cash bonus plan for executive officers. The plans
in which Executive may participate include retirement plans, savings or
profit-sharing plans, deferred compensation plans, supplemental retirement or
excess-benefit plans, stock option, stock purchase or other incentive plans,
life, disability, health, accident and other insurance programs, paid
vacations, and similar plans or programs.
5. EQUITY COMPENSATION. Executive shall be eligible for stock
option grants and other awards under the Company's 1995 Equity Incentive Plan
from time to time in the discretion of the Company's Board of Directors. In
addition, as of the Effective Date, Executive will be eligible to purchase
shares of the Company's common stock having an aggregate purchase price of
$20,000 at the price of $1.00 per share, which the Company's Board of
Directors determined to be the fair market value of common stock as
determined by the Board of Directors at its meeting on May 20, 1999. With
respect each of the next six following fiscal quarters (i.e., the quarters
ending June 30, 1999, September 30, 1999, December 31, 1999, March 31, 2000,
June 30, 2000 and September 30, 2000), Executive will be eligible to purchase
shares of the Company's common stock having an aggregate purchase price of
$10,000 at the fair market value of the Company's common stock as determined
by the Board of Directors at its first meeting following the close of each
such quarter. Each purchase opportunity will be represented by the grant of
an option under the Company's 1995 Equity Incentive Plan that is fully vested
and immediately exercisable by delivery of a full recourse promissory note in
the Company's customary form. This paragraph 5 shall expire and be of no
further force or effect upon the earlier of (i) termination of Executive's
employment, (ii) the closing of the initial public offering of the Company's
common stock, or (iii) a Change of Control (as defined in Section 6 below)
that results in the Company's common stock, or securities issued in exchange
for the Company's common stock, becoming publicly traded.
<PAGE>
6. SEVERANCE.
(a) DEFINITIONS. As used in this Agreement:
"CAUSE" shall mean willful gross misconduct, conviction of a felony or
an act of material dishonesty.
"CHANGE IN CONTROL" shall mean the occurrence of any of the following
events:
(i) any "person" (as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) becoming the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
total voting power represented by the Company's then outstanding voting
securities, other than in a private financing where securities are acquired
directly from the Company; or
(ii) the closing of any transaction or series of related transactions,
including the acquisition of the Company by another entity and any
reorganization, merger or consolidation, which results in the holders of the
Company's capital stock prior to the transaction or transactions holding less
than fifty percent (50%) of the outstanding voting power of the Company after
the transaction or transactions, or which results in the sale of all or
substantially all of the assets of the Company.
"DISABILITY" shall mean a physical or mental illness or injury which, as
determined by the Company, has continuously prevented Executive from
performing his duties with the Company for a period of six months prior to
termination.
"GOOD REASON" shall mean any of the following grounds for termination of
employment by Executive based upon prior constructive termination by the
Company:
(i) without Executive's express written consent, a change in his titles
or offices from those that he holds as of the Effective Date such
that he no longer is an officer of the Company, except either (I)
in connection with the termination of his employment for Cause or
Disability or as a result of his death, or (II) in connection with
an acquisition the Company, whether by purchase, merger,
consolidation or otherwise, in which Executive is offered
employment with the successor corporation in a position where
Executive's duties and responsibilities with respect to the
Company's former business are substantially comparable to
Executive's duties and responsibilities in his position with the
Company on the Effective Date and where Executive's base salary and
any bonus compensation formula applicable to him are comparable to
Executive's base salary, commission and any bonus compensation
formula applicable to him as in effect on the Effective Date;
PROVIDED, that whether or not Executive is an officer of the
successor corporation after the consummation of such acquisition
shall not be considered a factor in determining whether, in
Executive's position with the successor corporation, Executive's
duties and responsibilities with respect to the Company's
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former business are comparable to Executive's duties and
responsibilities in his position with the Company on the Effective
Date;
(ii) a material reduction by the Company in Executive's base salary or
commission formula applicable to him on the Effective Date;
(iii) the Company's requiring any purported termination of Executive's
employment by the Company other that for Cause, Disability or
death; or
(iv) the failure of the Company to obtain the assumption of this
Agreement by any successor as contemplated by Section 11 hereof.
(b) PAYMENT. If (i) there is a Change in Control, and (ii) the
Company terminates Executive's employment other than for Cause, Disability or
death, or Executive terminates his employment for Good Reason, then, for six
months following Executive's termination, (1) the Company shall continue to
pay to Executive his then-current salary, less applicable withholding taxes,
on the Company's normal payroll dates during that period, and (2) the Company
shall pay Executive his commission on the terms in effect at the time of
Executive's termination, less applicable withholding taxes, on the dates on
which commission would be payable during that period.
7. AT-WILL EMPLOYMENT. Executive's employment by the Company is "at
will," which means that either Executive or the Company can terminate the
employment at any time, with or without reason.
8. ARBITRATION. Executive and the Company shall submit to mandatory
binding arbitration in any controversy or claim arising out of, or relating
to, this Agreement or any breach hereof. Such arbitration shall be conducted
in accordance with the commercial arbitration rules of the American
Arbitration Association in effect at that time, and judgment upon the
determination or award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
9. ATTORNEYS' FEES. If any dispute under this Agreement is finally
determined in Executive's or Company's favor, the other party shall pay all
reasonable fees and expenses, including attorneys' and consultants' fees,
incurred by the prevailing party in good faith in connection therewith.
10. TERM OF AGREEMENT. This Agreement shall continue in effect until
the date of termination of Executive's employment with the Company, PROVIDED,
that if at the time of such termination Company is making payments to
Executive pursuant to Section 6(b), Company shall continue to make payments
for so long as required by that section.
11. SUCCESSORS. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business or assets of the Company, to expressly
assume and agree to perform the obligations under this Agreement in the same
manner and to the same extent that the Company would be required to perform
if no such succession had taken place. As used in this Agreement, "Company"
includes
3
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any successor to its business or assets which executes and delivers this
Agreement or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
12. NOTICE. Notices and all other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly
given when delivered by United States registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth
on the last page of this Agreement, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
13. AMENDMENT OR WAIVER. No provision of this Agreement may be
amended, modified, waived or discharged unless such amendment, waiver,
modification or discharge is agreed to in a writing signed by the Executive
and the Company. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time.
14. VALIDITY. This invalidity or unenforceabiltiy of any provision
of this Agreement shall not affect the validity or enforceability of any
other provisions of this Agreement, which shall remain in full force and
effect.
15. APPLICABLE LAW. This Agreement shall be interpreted and enforced
in accordance with the internal laws of the State of California.
16. CONFIDENTIALITY. Executive will not disclose the terms of this
Agreement to anyone except as follows: (1) to accountants, attorneys, or
other advisors for the purpose of consulting with them, (2) as required by
law.
17. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the Company and the Executive with respect to the matters set forth
herein and supersedes all prior undertakings and agreements with respect to
the subject matter hereof.
IN WITNESS WHEREOF, this Agreement is executed as of the Effective Date.
Silicon Image, Inc. Executive
By: /s/ David Lee /s/ Parviz Khodi
-------------------------- --------------------------------
David Lee Parviz Khodi
10131 Bubb Road
Cupertino, CA 95014-4976
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EXHIBIT 10.07
AMENDED AND RESTATED SEVERANCE AGREEMENT
This Amended and Restated Severance Agreement (the "AGREEMENT") is
entered into as of August 15, 1997 (the "EFFECTIVE DATE") by and between
Silicon Image, Inc., a California corporation (the "COMPANY"), and David D.
Lee ("EXECUTIVE"). This Agreement supersedes in its entirety that certain
Severance Agreement dated as of April 22, 1997 by and between the Company and
Executive (the "PRIOR SEVERANCE AGREEMENT").
RECITALS
WHEREAS, the Company and Executive are parties to the Prior Severance
Agreement and desire to amend and restate the Prior Severance Agreement as
set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. PURPOSES. The purpose of this Agreement is to enhance Executive's
ability to perform effectively by providing him with employment security.
2. DEFINITIONS. As used in this Agreement:
"CAUSE" shall mean any of the following grounds for termination of
Executive:
(i) Executive's willful and continued failure to substantially
perform his duties with the Company (other than any such failure resulting
from his incapacity due to physical or mental illness) after there is
delivered to him by the Board of Directors a written demand for substantial
performance which sets forth in detail the specific respects in which it
believes he has not substantially performed his duties, or
(ii) Executive's willfully engaging in gross misconduct which is
materially and demonstrably injurious to the Company.
No act, or failure to act, by Executive shall be considered
"willful" if done, or omitted to be done, by him in good faith and in the
reasonable belief that his act or omission was in the best interest of the
Company and/or required by applicable law.
"COMPETE WITH THE COMPANY" means, directly or indirectly, to engage in
(whether as an employee, consultant, proprietor, partner, director or
otherwise), or have any ownership interest in, or participate in the
financing, operation, management, or control of, any person, firm,
corporation or business that engages in a "Restricted Business", as such term
is defined hereafter. "RESTRICTED BUSINESS" shall mean any business that is
engaged or involved in (or, to Executive's knowledge after due inquiry,
planning or preparing to engage or become involved in) research, development,
production, marketing, leasing, selling or servicing any product, product
line or service (including any component thereof or research to develop
information useful in connection with a product or service) that is being
designed, developed, manufactured, marketed or sold by the Company or any
subsidiary or affiliate of the Company (or, to Executive's
<PAGE>
knowledge after due inquiry, with a product or service that the Company or
any such subsidiary or affiliate is planning or preparing to design, develop,
manufacture, market or sell).
"DISABILITY" shall mean a physical or mental illness or injury which, as
determined by the Company, has continuously prevented Executive from
performing his duties with the Company for a period of six months prior to
termination.
"GOOD REASON" shall mean any of the following grounds for termination of
employment by Executive based upon prior constructive termination by the
Company:
(i) without Executive's express written consent, a change in his
titles or offices from those that he holds as of the Effective Date such that
he no longer is an officer and a director of the Company, except either (I)
in connection with the termination of his employment for Cause or Disability
or as a result of his death or (II) in connection with an acquisition of the
Company, whether by purchase, merger, consolidation or otherwise, in which
Executive is offered employment with the successor corporation in a position
where Executive's duties and responsibilities with respect to the Company's
former business are comparable to Executive's duties and responsibilities in
his position with the Company on the Effective Date and where Executive's
base salary and any bonus compensation formula applicable to him are
comparable to Executive's base salary and any bonus compensation formula
applicable to him as in effect on the Effective Date; PROVIDED THAT whether
or not Executive is a member of the Board of Directors or an officer of the
successor corporation after the consummation of such acquisition shall not be
considered a factor in determining whether, in Executive's position with the
successor corporation, Executive's duties and responsibilities with respect
to the Company's former business are comparable to Executive's duties and
responsibilities in his position with the Company on the Effective Date.
(ii) a material reduction by the Company in Executive's base
salary or in any bonus compensation formula applicable to him as in effect on
the Effective Date;
(iii) a material reduction by the Company in the kind or level of
employee benefits to which Executive was entitled on the Effective Date with
the result that Executive's overall benefits package is significantly reduced
after the Effective Date; or the taking of any action by the Company which
would materially and adversely affect his participation in any plan, program
or policy generally applicable to employees of the Company or any successor
of the Company (including but not limited to paid vacation days) or deprive
his in a material way of any fringe benefits enjoyed by him on the Effective
Date;
(iv) the Company's requiring any purported termination of
Executive's employment by the Company other than for Cause, Disability or
death; or
(v) the failure of the Company to obtain the assumption of this
Agreement by any successor as contemplated by Section 8 hereof.
2
<PAGE>
3. BENEFITS UPON TERMINATION.
(i) If, within the period beginning on the Effective Date and
ending on December 31, 2000, the Company shall terminate Executive's
employment other than for Cause, Disability or death, or if the Executive
shall terminate his employment for Good Reason, then:
(a) for six months following Executive's termination,
Executive shall be available to consult to the Company from time to time as
the Company may request, and the Company shall continue to pay to Executive
his then-current salary, less applicable withholding taxes, on the Company's
normal payroll dates during that period; and
(b) all of Executive's options to purchase the Company's
common stock, shall, as of the date of employment termination, be immediately
exercisable in full and shall remain exercisable for the periods specified in
such options or the plans governing such options, and all shares of the
Company's common stock owned by Executive shall immediately be released from
any and all vesting restrictions; PROVIDED THAT Executive's options to
purchase the Company's common stock, that but for the provisions of this
Section 3(b) would not be exercisable, shall not be immediately exercisable
and shall continue to be subject to any and all vesting restrictions if (I)
acceleration of vesting of such options pursuant to this Section 3(b) would
cause an acquisition of the Company, whether by purchase, merger,
consolidation or otherwise, to fail, in the opinion of the Company's
independent auditors, to meet the requirements for accounting for such
acquisition as a pooling of interests and (II) the Company arranges for
Executive to receive compensation having substantially the same value to
Executive as accelerated vesting of such options would have had.
(ii) If, within the period beginning on the Effective Date and
ending on December 31, 2000, Executive's employment with the Company shall
terminate for any reason not described in the preceding paragraph (i), then
the Company may in its sole discretion notify Executive that it is choosing
to pay Executive the amounts described in subparagraph (a) of the preceding
paragraph (i), and Executive shall be available to consult to the Company
from time to time as the Company may request.
(iii) During any period that Executive is receiving payments under
subparagraph (a) of paragraph (i) above (the "RESTRICTED PERIOD"):
(a) Executive shall not Compete with the Company in any
geographic area where the Company or any subsidiary or affiliate of the
Company engages in business or maintains sales or service representatives or
employees;
(b) Executive will inform any prospective new employer,
prior to accepting employment, of the existence of this Agreement and provide
such employer with a copy hereof; and
(c) Executive will promptly notify the Company in
writing of any new employment.
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4. DISPUTES. To dispute a termination for Good Reason by Executive,
the Company must give written notice of such dispute to Executive within
thirty (30) days after his date of termination. To dispute a termination by
the Company or any failure to make payments claimed to be due hereunder,
Executive must give written notice of such dispute to the Company within
thirty (30) days after the termination or the date on which a payment claimed
by him to be due hereunder was due to be made, as the case may be.
5. ARBITRATION. Executive and the Company shall submit to mandatory
binding arbitration in any controversy or claim arising out of, or relating
to, this Agreement or any breach hereof. Such arbitration shall be conducted
in accordance with the commercial arbitration rules of the American
Arbitration Association in effect at that time, and judgment upon the
determination or award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
6. ATTORNEYS' FEES. If any dispute under Section 4 is finally
determined in Executive's or Company's favor, the other party shall pay all
reasonable fees and expenses, including attorneys' and consultants' fees,
incurred by the prevailing party in good faith in connection therewith.
7. TERM OF AGREEMENT. This Agreement shall continue in effect until
December 31, 2000, unless sooner terminated by written agreement of the
Company and Executive, provided, that if at the time of such termination
Company is making payments to Executive pursuant to Section 3, Company shall
continue to make payments for so long as required by that section. Executive
will have no right to the benefits described in Section 3 if Executive's
employment with the Company or its successor is terminated for any reason or
no reason after the expiration of this Agreement.
8. COMPANY'S SUCCESSORS. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business or assets of the Company, to
expressly assume and agree to perform the obligations under this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. As used in this Agreement,
"Company" includes any successor to its business or assets which executes and
delivers this Agreement or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
9. NOTICE. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given
when delivered by United States registered mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth on the last
page of this Agreement, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
10. AMENDMENT OR WAIVER. No provision of this Agreement may be
amended, modified, waived or discharged unless such amendment, waiver,
modification or discharge is agreed to in a writing signed by the Executive
and the Company. No waiver by either party
4
<PAGE>
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
11. EXECUTIVE'S SUCCESSORS. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to him
hereunder, all such amounts shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee, or other designee or, if
there be no such designees, to his estate.
12. VALIDITY. This invalidity or unenforceabiltiy of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
13. APPLICABLE LAW. This Agreement shall be interpreted and enforced
in accordance with the internal laws of the State of California.
14. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the Company and the Executive with respect to the matters set forth
herein.
IN WITNESS WHEREOF, this Agreement is executed as of the Effective Date.
Silicon Image, Inc. Executive
By: /s/ Scott A Macomber /s/ David D. Lee
-------------------------------- -------------------------------------
Printed Name: Scott A. Macomber Address: 3715 Redwood Circle
---------------------- -----------------------------
Title: President Palo Alto, CA 94306
----------------------------- -------------------------------------
5
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EXHIBIT 10.08
AMENDED AND RESTATED SEVERANCE AGREEMENT
This Amended and Restated Severance Agreement (the "AGREEMENT") is
entered into as of August 15, 1997 (the "EFFECTIVE DATE") by and between
Silicon Image, Inc., a California corporation (the "COMPANY"), and Scott A.
Macomber ("EXECUTIVE"). This Agreement supersedes in its entirety that
certain Severance Agreement dated as of April 22, 1997 by and between the
Company and Executive (the "PRIOR SEVERANCE AGREEMENT").
RECITALS
WHEREAS, the Company and Executive are parties to the Prior Severance
Agreement and desire to amend and restate the Prior Severance Agreement as
set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. PURPOSES. The purpose of this Agreement is to enhance Executive's
ability to perform effectively by providing him with employment security.
2. DEFINITIONS. As used in this Agreement:
"CAUSE" shall mean any of the following grounds for termination of
Executive:
(i) Executive's willful and continued failure to substantially
perform his duties with the Company (other than any such failure resulting
from his incapacity due to physical or mental illness) after there is
delivered to him by the Board of Directors a written demand for substantial
performance which sets forth in detail the specific respects in which it
believes he has not substantially performed his duties; or
(ii) Executive's willfully engaging in gross misconduct which is
materially and demonstrably injurious to the Company.
No act, or failure to act, by the Executive shall be considered
"willful" if done, or omitted to be done, by him in good faith and in the
reasonable belief that his act or omission was in the best interest of the
Company and/or required by applicable law.
"COMPETE WITH THE COMPANY" means, directly or indirectly, to engage in
(whether as an employee, consultant, proprietor, partner, director or
otherwise), or have any ownership interest in, or participate in the
financing, operation, management, or control of, any person, firm,
corporation or business that engages in a "Restricted Business", as such term
is defined hereafter. "RESTRICTED BUSINESS" shall mean any business that is
engaged or involved in (or, to Executive's knowledge after due inquiry,
planning or preparing to engage or become involved in) research, development,
production, marketing, leasing, selling or servicing any product, product
line or service (including any component thereof or research to develop
information useful in connection with a product or service) that is being
designed, developed, manufactured, marketed or sold by the Company or any
subsidiary or affiliate of the Company (or, to Executive's knowledge after
due inquiry, with a product or service that the Company or any such
subsidiary or affiliate is planning or preparing to design, develop,
manufacture, market or sell).
<PAGE>
"DISABILITY" shall mean a physical or mental illness or injury which, as
determined by the Company, has continuously prevented Executive from
performing his duties with the Company for a period of six months prior to
termination.
"GOOD REASON" shall mean any of the following grounds for termination of
employment by Executive based upon prior constructive termination by the
Company.
(i) without Executive's express written consent, a change in his
titles or offices from those that he holds as of the Effective Date such that
he no longer is an officer and a director of the Company, except either (I)
in connection with the termination of his employment for Cause or Disability
or as a result of his death or (II) in connection with an acquisition of the
Company, whether by purchase, merger, consolidation or otherwise, in which
Executive is offered employment with the successor corporation in a position
where Executive's duties and responsibilities with respect to the Company's
former business are comparable to Executive's duties and responsibilities in
his position with the Company on the Effective Date and where Executive's
base salary and any bonus compensation formula applicable to him are
comparable to Executive's base salary and any bonus compensation formula
applicable to him as in effect on the Effective Date; PROVIDED THAT whether
or not Executive is a member of the Board of Directors or an officer of the
successor corporation, after the consummation of such acquisition shall not
be considered a factor in determining whether, in Executive's position with
the successor corporation Executive's duties and responsibilities with
respect to the Company's former business are comparable to Executive's duties
and responsibilities in his position with the Company on the Effective Date.
(ii) a material reduction by the Company in Executive's base
salary or in any bonus compensation formula applicable to him as in effect
on the Effective Date;
(iii) a material reduction by the Company in the kind or level of
employee benefits to which Executive was entitled on the Effective Date with
the result that Executive's overall benefits package is significantly reduced
after the Effective Date; or the taking of any action by the Company which
would materially and adversely affect his participation in any plan, program
or policy generally applicable to employees of the Company or any successor
of the Company (including but not limited to paid vacation days) or deprive
his in a material way of any fringe benefits enjoyed by him on the Effective
Date;
(iv) the Company's requiring any purported termination of
Executive's employment by the Company other than for Cause, Disability or
death; or
(v) the failure of the Company to obtain the assumption of this
Agreement by any successor as contemplated by Section 8 hereof.
3. BENEFITS UPON TERMINATION.
(i) If, within the period beginning on the Effective Date and ending
on December 31, 2000, the Company shall terminate Executive's employment
other than for Cause, Disability or death, or if the Executive shall
terminate his employment for Good Reason, then:
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(a) for six months following Executive's termination,
Executive shall be available to consult the Company from time to time as the
Company may request, and the Company shall continue to pay to Executive his
then-current salary, less applicable withholding taxes, on the Company's
normal payroll dates during that period; and
(b) all of Executive's options to purchase the Company's
common stock, shall, as of the date of employment termination, be immediately
exercisable in full and shall remain exercisable for the periods specified in
such options or the plans governing such options, and all shares of the
Company's common stock owned by Executive shall immediately be released from
any and all vesting restrictions; PROVIDED THAT Executive's options to
purchase the Company's common stock, that but for the provisions of this
Section 3(b) would not be exercisable, shall not be immediately exercisable
and shall continue to be subject to any and all vesting restrictions if (I)
acceleration of vesting of such options pursuant to this Section 3(b) would
cause an acquisition of the Company, whether by purchase, merger,
consolidation or otherwise, to fail, in the opinion of the Company's
independent auditors, to meet the requirements for accounting for such
acquisition as a pooling of interests and (II) the Company arranges for
Executive to receive compensation having substantially the same value to
Executive as accelerated vesting of such options would have had.
(ii) If, within the period beginning on the Effective Date and
ending on December 31, 2000, Executive's employment with the Company shall
terminate for any reason not described in the preceding paragraph (i), then
the Company may in its sole discretion notify Executive that it is choosing
to pay Executive the amounts described in subparagraph (a) of the preceding
paragraph (i), and Executive shall be available to consult to the Company
from time to time as the Company may request.
(iii) During any period that Executive is receiving payments under
subparagraph (a) of paragraph (i) above (the "RESTRICTED PERIOD"):
(a) Executive shall not Compete with the Company in any
geographic area where the Company or any subsidiary or affiliate of the
Company engages in business or maintains sales or service representatives or
employees;
(b) Executive will inform any prospective new employer,
prior to accepting employment, of the existence of this Agreement and provide
such employer with a copy hereof; and
(c) Executive will promptly notify the Company in writing
of any new employment.
4. DISPUTES. To dispute a termination for Good Reason by Executive, the
Company must give written notice of such dispute to Executive within thirty
(30) days after his date of termination. To dispute a termination by the
Company or any failure to make payments claimed to be due hereunder,
Executive must give written notice of such dispute to the Company within
thirty (30) days after the termination or the date on which a payment claimed
by him to be due hereunder was due to be made, as the case may be.
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5. ARBITRATION. Executive and the Company shall submit to mandatory
binding arbitration in any controversy or claim arising out of, or relating
to, this Agreement or any breach hereof. Such arbitration shall be conducted
in accordance with the commercial arbitration rules of the American
Arbitration Association in effect at that time, and judgment upon the
determination or award rendered by the arbitrator may be entered in any court
having jurisdiction thereof.
6. ATTORNEY'S FEES. If any dispute under Section 4 is finally
determined in Executive's or Company's favor, the other party shall pay all
reasonable fees and expenses, including attorneys' and consultants' fees,
incurred by the prevailing party in good faith in connection therewith.
7. TERM OF AGREEMENT. This Agreement shall continue in effect until
December 31, 2000, unless sooner terminated by written agreement of the
Company and Executive, provided, that if at the time of such termination
Company is making payments to Executive pursuant to Section 3, Company shall
continue to make payments for so long as required by that section. Executive
will have no right to the benefits described in Section 3 if Executive's
employment with the Company or its successor is terminated for any reason or
no reason after the expiration of this Agreement.
8. COMPANY'S SUCCESSORS. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business or assets of the Company, to
expressly assume and agree to perform the obligations under this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. As used in this Agreement,
"Company" includes any successor to its business or assets which executes and
delivers this Agreement or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
9. NOTICE. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given
when delivered by United States registered mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth on he last
page of this Agreement, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
10. AMENDMENT OR WAIVER. No provision of this Agreement may be amended,
modified, waived or discharged unless such amendment, waiver, modification or
discharge is agreed to in a writing signed by the Executive and the Company.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
11. EXECUTIVE'S SUCCESSORS. The Agreement shall inure to the benefit of
and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts
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are still payable to him hereunder, all such amounts shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee,
or other designee or, if there be no such designees, to his estate.
12. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
13. APPLICABLE LAW. This Agreement shall be interpreted and enforced in
accordance with the internal laws of the State of California.
14. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the Company and the Executive with respect to the matters set forth
herein.
IN WITNESS WHEREOF, this Agreement is executed as of the Effective Date.
Silicon Image, Inc. Executive
By: /s/ David D. Lee /s/ Scott A. Macomber
--------------------------------- ---------------------------------------
Printed Name: David D. Lee Address: 25980 Vinedo Lane
----------------------- -------------------------------
Title: CEO Los Altos Hills, CA 94022
------------------------------ ---------------------------------------
August 25, 1997
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EXHIBIT 10.09
CONSULTING AGREEMENT
(AMENDED AND RESTATED CONSULTING AGREEMENT DATED MARCH 1, 1998)
This Consulting Agreement (the "AGREEMENT") is effective 1st day of March,
1999 (the "EFFECTIVE DATE") by and between Silicon Image, Inc., a California
corporation with its principal place of business at 10131 Bubb Road,
Cupertino, CA 95014 ("COMPANY") and Doeg-Kyoon Jeong, with a principal place
of business at Seoul National University, Seoul, Korea ("CONSULTANT") (As
used herein, "PARTY" or "PARTIES" will refer to Company, Consultant or both,
as the case may be.)
RECITAL
Consultant desires to perform, and Company desires to have Consultant
perform, consulting services as an independent contractor to Company.
NOW, THEREFORE, the Parties agree as follows:
1. SERVICES
1.1. REQUEST. From time to time during the Period of Consultancy
(as defined below), Company may request Consultant to provide
certain services to Company. However, Company has no obligation to
request Consultant to perform any services, and if such a request
is made by Company, Consultant has no obligation to agree to
perform such services. Company's request will specify the services
to be performed and the specific results to be achieved (the
"SERVICES") by use of the form attached hereto as Exhibit A (the
"PROJECT DESCRIPTION").
1.2. PERFORMANCE. Upon agreement between Consultant and Company to the
Services, compensation and completion date terms of the Project
Description, Consultant will perform the Services. Consultant
agrees to use best efforts to perform the Services during the
Period of Consultancy.
1.3. PERIOD OF CONSULTANCY. The "Period of Consultancy" will
commence on the Effective Date and will terminate on OCTOBER 31,
2002, unless at that time Services are being performed pursuant to
a Project Description which specifies a later completion date, in
which case the Period of Consultancy will terminate on such
completion date.
1.4. PAYMENT. As sole compensation for the performance of the
Services, Company will pay Consultant a monthly fee stated in the
Project Description. Any expenses incurred by Consultant in
performing the Services will be the sole responsibility of
Consultant. Consultant will invoice Company on a monthly basis
for the number of hours spent in performing the Services. Company
will pay each such invoice no later
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than thirty (30) days after its receipt. Consultant will receive
no further royalty or other remuneration on the production or
distribution of any products developed pursuant to this Consulting
Agreement AND THE LICENCE AGREEMENT DATED MARCH 15, 1995, AS
AMENDED.
2. RELATIONSHIP OF THE PARTIES.
2.1. INDEPENDENT CONTRACTOR. Consultant is an independent
contractor and is not an agent or employee of, and has no
authority to bind, Company by contract or otherwise. Consultant
will perform the Services under the general direction of Company,
but Consultant will determine, in Consultant's sole discretion,
the manner and means by which the Services are accomplished,
subject to the requirement that Consultant shall at all times
comply with applicable law. Company has no right or authority to
control the manner or means by which the Services are
accomplished.
2.2. EMPLOYMENT TAXES AND BENEFITS. Consultant will report as
self-employment income all compensation received by Consultant
pursuant to this Agreement. Consultant will indemnify Company and
hold it harmless from and against all claims, damages, losses and
expenses, including reasonable fees and expenses of attorneys and
other professionals, relating to any obligation imposed by law on
Company to pay any withholding taxes, social security,
unemployment or disability insurance, or similar items in
connection with compensation received by Consultant pursuant to
this Agreement. Consultant will not be entitled to receive any
vacation or illness payments, or to participate in any plans,
arrangements, or distributions by Company pertaining to any bonus,
stock option, profit sharing, insurance or similar benefits for
Company's employees.
2.3. LIABILITY INSURANCE. Consultant will maintain adequate insurance
to protect Consultant from the following: a) claims under worker's
compensation and state disability acts; b) claims for damages
because of bodily injury, sickness, disease or death which arise
out of any negligent act or omission of Consultant; and c) claims
for damages because of injury to or destruction of tangible or
intangible property, including loss of use resulting therefrom,
which arise out of any negligent act or omission of Consultant.
3. PROPERTY OF COMPANY
3.1. DEFINITION. For the purpose of this Agreement, "Designs and
Materials" shall mean all designs, discoveries, inventions,
products or product ideas, manufactured semiconductor devices,
test results, computer programs, procedures, improvements,
developments, drawings, notes,
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documents, information and materials made, conceived or developed
by Consultant alone or with others which result from or relate to
the Services.
3.2. ASSIGNMENT OF OWNERSHIP. Consultant hereby irrevocably
transfers and assigns any and all of its rights, title, and
interest in and to Designs and Materials, including but not
limited to all copyrights, patent rights, trade secrets and
trademarks, to Company. Designs and Materials will be the sole
property of Company and Company will have the sole right to
determine the treatment of any Designs and Materials, including
the right to keep them as trade secrets, to file and execute
patent applications on them, to use and disclose them without
prior patent application, to file registrations for copyright or
trademark on them in its own name, or to follow any other
procedure that Company deems appropriate. Consultant agrees: a)
to disclose promptly in writing to Company all Designs and
Materials; b) to cooperate with and assist Company to apply for,
and to execute any applications and/or assignments reasonably
necessary to obtain, any patent, copyright, trademark or other
statutory protection for Designs and Materials in Company's name
as Company deems appropriate; and c) to otherwise treat all
Designs and Materials as "Confidential Information" as defined
below. These obligations to disclose, assist, execute and keep
confidential will survive any expiration or termination of this
Agreement.
3.3. MORAL RIGHTS WAIVER. "Moral Rights" means any right to claim
authorship of a work, any right to object to any distortion or
other modification of a work, and any similar right, existing
under the law of any country in the world, or under any treaty.
Consultant hereby irrevocably transfers and assigns to Company any
and all Moral Rights that Consultant may have in any Services,
Designs and Materials or Products. Consultant also hereby forever
waives and agrees never to assert against Company, its successors
or licensees any and all Moral Rights Consultant may have in any
Services, Designs and Materials or Products, even after expiration
or termination of the Period of Consultancy.
4. CONFIDENTIAL INFORMATION
Consultant acknowledges that Consultant will acquire information and
materials from Company and knowledge about the business, products,
programming techniques, experimental work, customers, clients and
suppliers of Company and that all such knowledge, information and
materials acquired, the existence, terms and conditions of this
Agreement, and the Designs and Materials, are and will be the trade
secrets and confidential and proprietary information of Company
(collectively "CONFIDENTIAL INFORMATION"). Confidential Information will
not include, however, any information which is or becomes part of the
public domain through no fault of Consultant or that Company regularly
gives to third parties
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without restriction on use or disclosure. Consultant agrees to hold all
such Confidential Information in strict confidence, not to disclose it
to others or use it in any way, commercially or otherwise, except in
performing the Services, and not to allow any unauthorized person access
to it, either before or after expiration or termination of this
Agreement. Consultant further agrees to take all action reasonably
necessary and satisfactory to protect the confidentiality of the
Confidential Information including, without limitation, implementing and
enforcing operating procedures to minimize the possibility of
unauthorized use or copying of the Confidential Information.
5. INDEMNIFICATION BY CONSULTANT.
Consultant will indemnify Company and hold it harmless from and against
all claims, damages, losses and expenses, including court costs and
reasonable fees and expenses of attorneys, expert witnesses, and other
professionals, arising out of or resulting from, and, at Company's
option, Consultant will defend Company against:
a) any action by a third party against the Company that is based on
any claim that any Services performed under this Agreement, or
their results, infringe a patent, copyright or other proprietary
right or violate a trade secret; and
b) any action by a third party that is based on any negligent act or
omission or willful conduct of Consultant which results in i) any
bodily injury, sickness, disease or death ii) any injury or
destruction to tangible or intangible property (including computer
programs and data) or any loss of use resulting therefrom; or iii)
any violation of any statute, ordinance, or regulation.
6. TERMINATION AND EXPIRATION
6.1. TERMINATION.
6.1.1. BREACH. Either party may terminate this Agreement in the
event of a breach by the other party if such breach
continues uncured for a period of ten (10) days after
written notice.
6.1.2. AT WILL. Either party may terminate this Agreement at any
time, for any reason or no reason, by written notice to the
other party.
6.2. EXPIRATION. Unless terminated earlier, this Agreement will expire
at the end of the Period of Consultancy.
6.3. NO ELECTION OF REMEDIES. The election by Company to terminate
this Agreement in accordance with its terms shall not be deemed an
election of remedies, and all other remedies provided by this
Agreement or available at law or in equity shall survive any
termination.
7. EFFECT OF EXPIRATION OR TERMINATION.
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Upon the expiration or termination of this Agreement for any reason:
a) each party will be released from all obligations to the other
arising after the date of expiration or termination, except that
expiration or termination of this Agreement will not relieve
Consultant of its obligations under Sections 2.2, 3, 4, 5, 8, 9c
and 10 nor will expiration or termination relieve Consultant or
Company from any liability arising from any breach of this
Agreement; and
b) Consultant will promptly notify Company of all Confidential
Information, including but not limited to the Designs and
Materials, in Consultant's possession and, at the expense of
Consultant and in accordance with Company's instruction, will
promptly deliver to Company all such Confidential Information.
8. LIMITATION OF LIABILITY
IN NO EVENT SHALL COMPANY BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT
OR CONSEQUENTIAL DAMAGES OF ANY KIND IN CONNECTION WITH THIS AGREEMENT,
EVEN IF COMPANY HAS BEEN INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH
DAMAGES.
9. COVENANTS
a) COMPETITIVE ACTIVITIES. Consultant will not during the term of
this Agreement, and for a period of one year after the termination
or expiration of this Agreement, directly or indirectly, in any
individual or representative capacity, engage or participate in or
provide services to any business that is competitive with the
types and kinds of business being conducted by Company.
b) PRE-EXISTING OBLIGATIONS. Consultant represents and warrants
that Consultant is not under any pre-existing obligations
inconsistent with the provisions of this Agreement.
c) SOLICITATION OF EMPLOYMENT. Because of the trade secret subject
matter of Company's business, Consultant agrees that it will not
solicit the services of any of the employees, consultants,
suppliers or customers of Company for the Period of Consultancy
and for six (6) months thereafter.
10. GENERAL
a) ASSIGNMENT. Consultant may not assign Consultant's rights or
delegate Consultant's duties under this Agreement either in whole
or in part without
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the prior written consent of Company. Any attempted assignment
or delegation without such consent will be void.
b) EQUITABLE REMEDIES. Because the Services are personal and unique
and because Consultant will have access to Confidential
Information of Company, Company will have the right to enforce
this Agreement and any of its provisions by injunction, specific
performance or other equitable relief without prejudice to any
other rights and remedies that Company may have for a breach of
this Agreement.
c) ATTORNEYS' FEES. If any action is necessary to enforce the terms
of this Agreement, the substantially prevailing party will be
entitled to reasonable attorney's fees, costs and expenses in
addition to any other relief to which such prevailing party may be
entitled.
d) GOVERNING LAW; SEVERABILITY. This Agreement will be governed by
and construed in accordance with the laws of the State of
California excluding that body of law pertaining to conflict of
laws. If any provision of this Agreement is for any reason found
to be unenforceable, the remainder of this Agreement will continue
in full force and effect.
e) NOTICES. Any notices under this Agreement will be sent by
certified or registered mail, return receipt requested, to the
address specified below or such other address as the party
specifies in writing. Such notice will be effective upon its
mailing as specified.
f) COMPLETE UNDERSTANDING; MODIFICATIONS. This Agreement, together
with each version of Exhibit A executed by the parties,
constitutes the complete and exclusive understanding and agreement
of the parties and supersedes all prior understandings and
agreements, whether written or oral, with respect to the subject
matter hereof. Any waiver, modification or amendment of any
provision of this Agreement will be effective only if in writing
and signed by the parties hereto.
EXHIBITS
Exhibit A Project Description
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
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COMPANY CONSULTANT
By: /s/ David D. Lee /s/ Deog-Kyoon Jeong
-------------------------------- ----------------------------------
Name: David D. Lee Deog-Kyoon Jeong
------------------------------ ----------------------------------
Title: Chairman & CEO
----------------------------- ----------------------------------
Date: 6/24/99 6-24-99
------------------------------ ----------------------------------
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EXHIBIT A
PROJECT DESCRIPTION
This Project Description is issued under and subject to all of the terms
and conditions of the Amended and Restated Consultant Agreement dated as
of March 1, 1999 by and between Company and Deog-Kyoon Jeong.
1. Services to be performed and results to be achieved:
MANAGEMENT OF RESEARCH AND DEVELOPMENT ACTIVITIES OF GIGABIT
ETHERNET PHY CHIP, PLESIOCHROUOUS NETWORK CHIP, BIDIRECTIONAL
PANELLINK.
2. Period of Agreement:
Start Date: March 1, 1999.
End Date: October 31, 2002.
3. Monthly Consulting Rate
$8,000 per month for March 1, 1999 - December 31, 1999;
$9,000 per month for January 1, 2000 - December 31, 2000;
$10,000 per month for January 1, 2001 - December 31, 2001;
$11,000 per month for January 1, 2002 - October 31, 2002.
AGREED as of March 1, 1999.
COMPANY: CONSULTANT:
/s/ David D. Lee /s/ Deog-Kyoon Jeong
--------------------- ------------------------------
By: David D. Lee DEONG-KYOON JEONG
Title: Chairman & CEO
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EXHIBIT 10.11
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, April 9, 1997, is made by and between Elisabeth Griffinger ("LESSOR")
and Silicon Image, Inc., a California corporation ("LESSEE"), (collectively
the "PARTIES," or individually a "PARTY").
1.2 "PREMISES: That certain real property, including all
improvements therein or to be provided by Lessor under the terms of this
Lease, and commonly known by the street address of 10131 Bubb Road,
Cupertino, located in the County of Santa Clara, State of California, and
generally described as (describe briefly the nature of the property) that
certain single-story office/R&D building consisting of approximately 18,000
square feet, APN 357-20-004 ("PREMISES"). (See Paragraph 2 for further
provisions.)
1.3 TERM: Five (5) years and six (6) months ("ORIGINAL TERM")
commencing June 15, 1997 ("COMMENCEMENT DATE") and ending December 14, 2002
("EXPIRATION DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: ______________________________________
("EARLY POSSESSION DATE"). (See Paragraphs 3.2 and 3.3 for further
provisions.)
1.5 BASE RENT: $36,000.00 per month ("BASE RENT"), payable on the
first day of each month commencing on August 1, 1997 and on the first day of
each successive calendar month thereafter as such Base Rent shall be adjusted
from time to time in accordance with the schedule set forth in the Addendum
attached hereto and made a part hereof, and $18,000.00. (See Paragraph 4 for
further provisions.)
/X/ If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $36,000.00 as Base Rent for the
period as Base Rent for the period June 15, 1997 to July 15, 1997. July 15,
1997 to August 1, 1997 payable on July 1, 1997.
1.7 SECURITY DEPOSIT: $43,799.50 ("SECURITY DEPOSIT"). (See
Paragraph 5 for further provisions.)
1.8 PERMITTED USE: Administrative office, sales, research &
development, shipping and receiving (See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless
otherwise stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
CPS, the Commercial Property Services Company represents
/X/ Lessor exclusively ("LESSOR'S BROKER"); / /both Lessor and Lessee, and
BT Commercial represents
/X/ Lessee exclusively ("LESSEE'S BROKER"); / /both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by N/A ("GUARANTOR"). (See Paragraph 37 for further
provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting
of Paragraphs 4.2, 4.3, 5.1, 6.3.1, 6.3.2, 6.3.3, 12.1(b), 12.3(f)-(j) and
49-56 all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all
of the terms, covenants and conditions set forth in this Lease. Unless
otherwise provided herein, any statement of square footage set forth in this
Lease, or that may have been used in
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calculating rental, is an approximation which Lessor and Lessee and Lessee
agree is reasonable and the rental based thereon is not subject to revision
whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean
and free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning,
heating, and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants to Lessee that the improvements on the Premises comply with
all applicable covenants or restrictions of record and applicable building
codes, regulations and ordinances in effect on the Commencement Date. Said
warranty does not apply to the use to which Lessee will put the Premises or
to any Alterations or Utility Installations (as defined in Paragraph 7.3(a))
made of written notice from Lessee setting forth with specificity the nature
and extent of such non-compliance, rectify the same at Lessor's expense. If
Lessee does not give Lessor written notice of a non-compliance with this
warranty within six (6) months following the Commencement Date, correction of
that non-compliance shall be the obligation of Lessee at Lessee's sole cost
and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that
it has been advised by the Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and
fire sprinkler systems, security, environmental aspects, compliance with
Applicable Law, as defined in Paragraph 6.3) and the present and future
suitability of the Premises for Lessee's intended use, (b) that Lessee has
made such investigation as it deems necessary with reference to such matters
and assumes all responsibility therefor as the same relate to Lessee's
occupancy of the Premises and/or the term of this Lease, and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to the said matters other than as
set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Real Property Taxes and insurance premiums and to maintain the Premises)
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date if one is specified in Paragraph 1.4 or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease,
or the obligations of Lessee hereunder, or extend the term hereof, but in
such case, Lessee shall not, except as otherwise provided herein, be
obligated to pay rent or perform any other obligation of Lessee under the
terms of this Lease until Lessee delivers possession of the Premises to
Lessee. If possession of the Premises is not delivered to Lessee within
sixty (60) days after the Commencement Date, Lessee may, at its option, by
notice in writing to Lessor within ten (10) days thereafter, cancel this
Lease, in which event the Parties shall be discharged from all obligations
hereunder; provided, however, that if such written notice by Lessee is not
received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease shall terminate and be of no further force or effect. Except as
may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this
Lease and Lessee does not terminate this Lease, as aforesaid, _____ period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue
for a period equal to what Lessee would otherwise have enjoyed under the
terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
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4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other
rent or charges, as the same may be adjusted from time to time, to be
received by Lessor in lawful money of the United States, without offset or
deduction on or before the day on which it is due under the terms of this
Lease Base Rent and all other rent and charges for any period during the term
hereof which is for less than one (1) full calendar month shall be prorated
based upon the actual number of days of the calendar involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated
herein or to such other persons or at such other addressees as Lessor may
from time to time designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges dues hereunder, or
otherwise defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within ten (10) days
after written request therefor deposit moneys with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease.
Lessor shall not be required to keep all or any part of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment
for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
purposes set forth in Paragraph 1.8, or any other use which is comparable
thereto and for no other purpose. Lessee shall not use or permit the use of
the Premises in a manner that creates waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to, neighboring premises or
properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to
be on the Premises, is either: (i) potentially injurious to the public
health, safety or welfare, the environment or the Premises, (ii) regulated or
monitored by any governmental authority, or (iii) a basis for liability of
Lessor to any governmental agency or third party under any applicable statute
or common law theory. Hazardous Substance shall include, but not be limited
to, hydrocarbons, petroleum, gasoline, crude oil or any products, by-products
or fractions thereof. Lessee shall not engage in any activity in, on or
about the Premises which constitutes a Reportable Use (as hereinafter
defined) of Hazardous Substances without the express prior written consent of
Lessor and compliance in a timely manner (at Lessee's sole cost and expense)
with all Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE"
shall mean (i) the installation or use of any above or below ground storage
tank, (ii) the generation, possession, storage, use, transportation, or
disposal of a Hazardous Substance that requires a permit from, or with
respect to which a report, notice, registration or business plan is required
to be filed with, any governmental authority. Reportable Use shall also
include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in
the normal course of Lessee's business permitted on the Premises, so long as
such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to the use or presence
of any Hazardous Substance, activity or storage tank by Lessee upon Lessee's
giving Lessor such additional assurances as Lessor, in it reasonable
discretion, deems necessary to protect itself, the public, the Premises and
the environment against damage, contamination or injury and/or liability
therefrom or therefor, including, but not limited to, the installation (and
removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
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(b) DUTY TO INFORM LESSOR. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance, or a condition
involving or resulting from same, has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor. Lessee shall
also immediately give Lessor a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action or
proceeding given to, or received from, any governmental authority or private
party, or persons entering or occupying the Premises, concerning the
presence, spill, release, discharge of, or exposure to, any Hazardous
Substance or contamination in, on, or about the Premises, including but not
limited to all such documents as may be involved in any Reportable Uses
involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect,
defend and hold Lessor, its agents, employees, lenders and ground lessor, if
any, and the Premises, harmless from and against any and all loss of rents
and/or damages, liabilities, judgments, costs, claims, liens, expenses,
penalties, permits and attorney's and consultant's fees arising out of or
involving any Hazardous Substance or storage tank brought onto the Premises
by or for Lessee or under Lessee's control. Lessee's obligations under this
Paragraph 6 shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation (including consultant's and
attorney's fees and testing), removal, remediation, restoration and/or
abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to
Hazardous Substances or storage tanks, unless specifically so agreed by
Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in
this Lease, Lessee, shall, at Lessee's sole cost and expense, fully,
diligently and in a timely manner, comply with all "APPLICABLE LAW," which
term is used in this Lease to include all laws, rules, regulations,
ordinances, directives, recommendations of Lessor's engineers and/or
consultants, relating in any manner to the Premises (including but not
limited to matters pertaining to (i) industrial hygiene, (ii) environmental
conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage,
spill or release of any Hazardous Substance or storage tank), now in effect
or which may hereafter come into effect, and whether or not reflecting a
change in policy from any previously existing policy. Lessee shall, within
five days after receipt of Lessor's written request, provide Lessor with
copies of all documents and information, including, but not limited to,
permits, registration upon receipt, notify Lessor in writing (with copies of
any documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or
the Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as
defined in Paragraph 8.3(a)) shall have the right to enter the Premises at
any time in the case of an emergency, and otherwise at reasonable times, with
24 hours notice, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Laws (as defined in Paragraph 6.3), and to employ experts and/or consultants
in connection therewith and/or to advise Lessor with respect to Lessee's
activities, including but not limited to the installation, operation, use,
monitoring, maintenance, or removal of any Hazardous Substance or storage
tank on or from the Premises. The costs and expenses of any such inspections
shall be paid by the party requesting same, unless a Default or Breach of
this Lease, violation of Applicable Law, or a contamination, caused or
materially contributed to by Lessee is found to exist or be imminent, or
unless the inspection is requested or ordered by a governmental authority as
the result of any such existing or imminent violation or contamination. In
any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender,
as the case may be, for the costs and expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to compliance with covenants, etc.) 7.2 (Lessor's obligations to
repair), 9 (damage and destruction), and 14 (condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times keep the Premises and every
part thereof in good order, condition and repair, structural and
non-structural (whether or not such portion of the Premises requiring repair,
or the means of repairing the same, are reasonably or readily accessible to
Lessee, and whether or not the need for such repairs occurs as a result of
Lessee's use, any prior use, the elements or the age of such portion of the
Premises, including, without limiting the generality of the foregoing, all
equipment or facilities serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing system, including fire alarm and/or smoke
detection systems and equipment, fire hydrants, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveways,
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parking lots, fences, retaining walls, signs, sidewalks and parkways located
in, on, about, or adjacent to the Premises. Lessee shall not cause or permit
any Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee or under its control. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises
and all improvements thereon or a part thereof in good order, condition and
state of repair. If Lessee occupies the Premises for seven (7) years or
more. Lessor may require Lessee to repaint the exterior of the buildings on
the Premises as reasonably required, but not more frequently than once every
seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure
and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in, the
inspection, maintenance and service of the following equipment and
improvements, if any, located on the Premises: (i) heating, air conditioning
and ventilation equipment, (ii) boiler, fired or unfired pressure vessels,
(iii) fire sprinkler and/or standpipe and hose or other automatic fire
extinguishing systems, including fire alarm and/or smoke detection, (iv)
landscaping and irrigation systems, (v) roof covering and drain maintenance
and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements
of Lessor contained in Paragraphs 2.2 (relating to condition of the
Premises), 2.3 (relating to compliance with covenants, restrictions and
building code), 9 (relating to destruction of the Premises) and 14 (relating
to condemnation of the Premises), it is intended by the Parties hereto that
Lessor have no obligation, in any manner whatsoever, to repair and maintain
the Premises, the improvements located thereon, or the equipment therein,
whether structural or non-structural, all of which obligations are intended
to be that of the Lessee under Paragraph 7.1 hereof. It is the intention of
the Parties that the terms of this Lease govern the respective obligations of
the Parties as to maintenance and repair of the Premises. Lessee and Lessor
expressly waive the benefit of any statute now or hereafter in effect to the
extent it is inconsistent with the terms of this Lease with respect to, or
which affords Lessee the right to make repairs at the expense of Lessor or to
terminate this Lease by reason of any needed repairs.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security fire
protection systems, removable office partitions, communication systems,
computer systems and cabling, lighting fixtures, heating, ventilating, and
air conditioning equipment, plumbing, and fencing in, on or about the
Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and
equipment that can be removed without doing material damage to the Premises.
The term "ALTERATIONS" shall mean any modification of the improvements on the
Premises from that which are provided by Lessor under the terms of this
Lease, other than Utility Installations or Trade Fixtures, whether by
addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY
INSTALLATIONS" are defined as Alterations and/or Utility Installations made
by Lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a).
Lessee shall not make any Alterations or Utility Installations in, on, under
or about the Premises without Lessor's prior written consent, which consent
shall not be unreasonably withheld and provided that if Lessor shall have not
responded to Lessee's written request, to make such Alterations and/or
Utility Installations within 14 calendar days of Lessor's receipt of same,
Lessor shall be deemed to have approved such Alterations and/or Utility
Installations. The obligation or Lessor to respond within 14 calendar days
of receipt of Lessee's written notice shall not be construed to require that
Lessor consent to or disapprove of such Alterations and/or Utility
Installations within such period, but Lessor will agree or disagree within a
reasonable period of time. Lessee may make non-structural Utility
Installations to the interior of the Premises (excluding the roof), as long
as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative
cost exclusive of the cost of removable office partitions, computer and
communication systems and cabling, thereof during the term of this Lease does
not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with proposed detailed plans. All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities, (ii)
the furnishing of copies of such permits together with a copy of the plans
and specifications for the Alteration or Utility Installation to Lessor prior
to commencement of the work thereon, and (iii) the compliance by Lessee with
all conditions of said permits in a prompt and expeditious manner. Any
Alterations
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or Utility Installations by Lessee during the term of this Lease shall be
done in a good and workmanlike manner, with good and sufficient materials,
and in compliance with all Applicable Law. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $10,000 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration
or Utility Installation and/or upon Lessee's posting an additional Security
Deposit with Lessor under Paragraph 36 hereof
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanics' or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises.
If Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorney's fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal or become the owner thereof as hereinafter provided in this Paragraph
7.4, all Alterations and Utility Additions made to the Premises by Lessee
shall be the property of and owned by Lessee, but considered a part of the
Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee Owned
Alterations, and Utility Installations. Unless otherwise instructed per
subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon and be surrendered by Lessee
with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease,
notwithstanding their installation may have been consented to by Lessor.
Lessor may require the removal at any time of all or any part of any Lessee
Owned Alterations or Utility Installations made without the required consent
of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier
termination date, with all of the improvements, parts and surfaces thereof
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. "ORDINARY WEAR AND TEAR" shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under
this Lease. Except as otherwise agreed or specified in writing by Lessor,
the Premises, as surrendered, shall include the Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Alterations and/or Utility Installations, as well as the
removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water
contaminated by Lessee, all as may then be required by Applicable Law and/or
good practice. Lessee's Trade Fixtures shall remain the property of Lessee
and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or
Lessee is the Insuring Party, Lessee shall pay for all insurance required
under this Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor in excess of $2,000,000 per occurrence.
Premiums for policy periods commencing prior to or extending beyond the
Lease term shall be prorated to correspond to the Lease term. Payment shall
be made by Lessee to Lessor within ten (10) days following receipt of an
invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in
force during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee and Lessor (as an additional insured)
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against claims for bodily injury, personal injury and property damage based
upon, involving or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be on an occurrence basis providing single limit coverage in
an amount not less than $2,000,000 per occurrence with an "Additional
Insured-Managers or Lessors of Premises" Endorsement and contain the
"Amendment of the Pollution Exclusion" for damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an "insured contract" for
the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring
Party, Lessor shall also maintain liability insurance described in Paragraph
8.2(a), above, in addition to, and not in lieu of, the insurance required to
be maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall
obtain and keep in force during the term of this Lease a policy or policies
in the name of Lessor, with loss payable to Lessor and to the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDER(S)"),
insuring loss or damage to the Premises. The amount of such insurance shall
be equal to the full replacement cost of the Premises, as the same shall
exist from time to time, or the amount required by Lenders, but in no event
more than the commercially reasonable and available insurable value thereof
if, by reason of the unique nature or age of the improvements involved, such
latter amount is less than full replacement cost. If Lessor is the insuring
Party, however, Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage
is available and commercially appropriate, such policy or policies shall
insure against all risks of direct physical loss or damage (except the perils
of flood and/or earthquake unless required by a Lender), including coverage
for any additional costs resulting from debris removal and reasonable amounts
of coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property
insurance coverage amount by a factor at not less than the adjusted U.S.
Department of Labor Consumer Price Index for All Urban Consumers for the city
nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the
event of an Insured Loss, as defined in Paragraph 9.l(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition,
obtain and keep in force during the term of this Lease a policy or policies
in the name of Lessor, with loss payable to Lessor and Lender(s), insuring
the loss of the full rental and other charges payable by Lessee to Lessor
under this Lease for one (1) year (including all real estate taxes, insurance
costs, and any scheduled rental increases). Said insurance shall provide
that in the event the Lease is terminated by reason of an insured loss, the
period of indemnity for such coverage shall be extended beyond the date of
the completion of repairs or replacement of the Premises, to provide for one
full year's loss of rental revenues from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any
coinsurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, property taxes, insurance premium costs
and other expenses, if any, otherwise payable by Lessee, for the next twelve
(12) month period. Lessee shall be liable for any deductible amount in the
event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in
the premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring
Party, the Lessor shall not be required to insure Lessee Owned Alterations
and Utility Installations unless the item in question has become the property
of Lessor under the terms of this Lease. If Lessee is the Insuring Party,
the policy carried by Lessee under this Paragraph 8.3 shall insure Lessee
Owned Alterations and Utility installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain
insurance coverage on all of Lessee's personal property, Lessee Owned
Alterations and Utility Installations in,
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on, or about the Premises similar in coverage to that carried by the insuring
Party under Paragraph 8.3. Such insurance shall be full replacement cost
coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement
of personal property or the restoration of Lessee Owned Alterations and
Utility Installations. Lessee shall be the Insuring Party with respect to
the Insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "GENERAL POLICYHOLDERS
RATING" of at least B+, V, or such other rating as may be required by a
Lender having a lien on the Premises, as set forth in the most current issue
of "Best's Insurance Guide." Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in this
Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be
delivered to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with the
insureds and loss payable clauses as required by this Lease. No such policy
shall be cancellable or subject to modification except after thirty (30) days
prior written notice to Lessor. Lessee shall at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with evidence of renewals
or "insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to
procure and maintain the insurance required to be carried by the Insuring
Party under this Paragraph 8, the other Party may, but shall not be required
to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in
contract or in tort) against the other, for loss of or damage to the Waiving
Party's property arising out of or incident to the perils required to be
insured against under Paragraph 8. The effect of such releases and waivers
of the right to recover damages shall not be limited by the amount of
Insurance carried or required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, permits, attorney's and
consultant's fees, expenses and/or liabilities arising out of, involving, or
in dealing with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by
Lessee in the performance in a timely manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not
be limited to, the defense or pursuit of any claim or any action or
proceeding involved therein, and whether or not (in the case of claims made
against Lessor) litigated and/or reduced to judgment, and whether well
founded or not. In case any action or proceeding be brought against Lessor
by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory
to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need
not have first paid any such claim or order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except as may be caused by
the gross negligence or willful misconduct of Lessor, Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or
other property of Lessee, Lessee's employees, contractors, invitees,
customers, or any other person in or about the Premises, whether such damage
or Injury is caused by or results from fire, steam, electricity, gas, water
or rain, or from the breakage, leakage, obstruction or other defects of
pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures, or from any other cause, whether the said injury or damage
results from conditions arising upon the Premises or upon other portions of
the building of which the Premises are a part, or from other sources or
places, and regardless of whether the cause of such damage or injury or the
means of repairing the same is accessible or not. Lessor shall not be liable
for any damages arising from any act or neglect of any other tenant of
Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor
shall under no circumstances be liable for injury to Lessee's business or for
any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the improvements on the Premises, other than Lessee Owned
Alterations and Utility Installations, the repair cost of which damage or
destruction is less than 50% of the then Replacement Cost of the Premises
immediately prior to such damage or
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destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is 50% or more
of the then Replacement Cost of the Premises immediately prior to such damage
or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible
amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to
their condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of applicable building
codes, ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in,
on, or under the Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total
cost to repair of which is $10,000 or less, and, in such event, Lessor shall
make the insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was
not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
(except as to the deductible which is Lessee's responsibility) as and when
required to complete said repairs. In the event, however, the shortage in
proceeds was due to the fact that reason at the unique nature of the
improvements, the replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee Provides Lessor with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds
or adequate assurance, thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If Lessor
does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days
thereafter to make such restoration and repair as is commercially reasonable
with Lessor paying any shortage in proceeds in which case this Lease shall
remain in full force and effect. If in such case Lessor does not so elect,
then this Lease shall terminate sixty (60) days following the occurrence of
the damage or destruction. Unless otherwise agreed, Lessee shall in no event
have any right to reimbursement from Lessor any funds contributed by Lessee
to repair any such damage or destruction. Premises partial Damage due to
flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph
9.2, notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if
made by either Party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful
act of Lessee in which event Lessee shall make the repairs at Lessee's
expense and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 13, Lessor may at Lessor's option, either:
(i) repair such damage as soon as reasonably possible at Lessor's expense,
in which event this Lease shall continue in full force and effect, or (ii)
give written notice to Lessee within thirty (30) days after receipt by Lessor
of knowledge of the occurrence of such damage of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such
notice. In the event Lessor elects to give such notice of Lessor's intention
to terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage totally at Lessee's expense
and without reimbursement from Lessor, Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as
soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
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9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs (including any destruction required by
any authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six
(6) months of the term of this Lease there is damage for which the cost to
repair exceeds one (1) month's Base Rent, whether or not an Insured Loss,
Lessor may, at Lessor's option, terminate this Lease effective sixty (60)
days following the date of occurrence of such damage by giving written notice
to Lessee of Lessor's election to do so within thirty (30) days after the
date of occurrence of such damage. Provided, however, if Lessee at that time
has an exercisable option to extend this Lease or to purchase the Premises,
then Lessee may preserve this Lease by, within twenty (20) days following the
occurrence of the damage, or before the expiration of the time provided in
such option for its exercise, whichever is earlier ("EXERCISE PERIOD"), (i)
exercising such option and (ii) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise Period
and provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such
funds or assurance during said Exercise Period, then Lessor may at Lessor's
option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in
the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2
(Partial Damage-Insured), whether or not Lessor or Lessee repairs or restores
the Premises, the Base Rent, Real Property Taxes, insurance premiums, and
other charges, if any, payable by Lessee hereunder for the period during
which such damage, its repair, or the restoration continues (not to exceed
the period for which rental value insurance is required under Paragraph
8.3(b)), shall be abated in proportion to the degree to which Lessee's use of
the Premises is impaired. Except for abatement of Base Rent, Real Property
Taxes, insurance premiums, and other charges, if any, as aforesaid, all other
obligations of Lessee hereunder shall be performed by Lessee, and Lessee
shall have no claim against Lessor for any damage suffered by reason of any
such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in
a substantial and meaningful way, the repair or restoration of the Premises
within sixty (60) days after such obligation shall accrue, Lessee may, at any
time prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not commenced
within thirty (30) days after receipt of such notice, this Lease shall
terminate as of the date specified in said notice. If Lessor or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after receipt of such notice, this Lease shall continue in full force and
effect. "COMMENCE" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which
case Lessee shall make the investigation and remediation thereof required by
Applicable Law and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option
either (i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to investigate and remediate such condition exceeds twelve (12) times
the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge
of the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten
(10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to
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make such investigation and remediation as soon as reasonably possible and
the required funds are available. If Lessee does not give such notice and
provide the required funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice
of termination. If a Hazardous ubstance Condition occurs for which Lessee is
not legally responsible, there shall be abatement of Lessee's obligations
under this Lease to the same extent as provided in Paragraph 9.6(a) for a
period of not to exceed twelve months.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by
Lessor under the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions
of any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property
Taxes, as defined in Paragraph 10.2, applicable to the Premises during the
term of this Lease. Subject to Paragraph 10.11(b). all such payments shall be
made at least ten (10) days prior to the delinquency date of the applicable
installment. Lessee shall promptly furnish Lessor with satisfactory evidence
that such taxes have been paid. If any such taxes to be paid by Lessee shall
cover any period of time prior to or after the expiration or earlier
termination of the term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal
year this Lease is in effect, and Lessor shall reimburse Lessee for any
overpayment after such proration. If Lessee shall fail to pay any Real
Property Taxes required by this Lease to be paid by Lessee. Lessor shall have
the right to pay the same. and Lessee shall reimburse Lessor therefor upon
demand.
(b) ADVANCE PAYMENT. In order to insure payment when due
and before delinquency of any or all Real Property Taxes, Lessor reserves the
right, at Lessor's option, to estimate the current Real Property Taxes
applicable to the Premises, and to require such current year's Real Property
Taxes to be paid in advance to Lessor by Lessee, either: (i) in a lump sum
amount equal to the installment due, at least twenty (20) days prior to the
applicable delinquency date, or (ii) monthly in advance with the payment of
the Base Rent. If Lessor elects to require payment monthly in advance, the
monthly payment shall be that equal monthly amount which, over the number of
months remaining before the month in which the applicable tax installment
would become delinquent (and without interest thereon), would provide a fund
large enough to fully discharge before delinquency the estimated installment
of taxes to be paid. When the actual amount of the applicable tax bill is
known, the amount of such equal monthly advance payment shall be adjusted as
required to provide the fund needed to pay the applicable taxes before
delinquency. If the amounts paid to Lessor by Lessee under the provisions of
this Paragraph are insufficient to discharge the obligations of Lessee to pay
such Real Property Taxes as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums as are necessary to pay such
obligations. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the
provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional
Security Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES.' As used herein, the term
"REAL PROPERTY TAXES" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed upon the Premises by
any authority having the direct or indirect power to tax, including any city,
state or federal government, or any school, agricultural, sanitary, fire,
street, drainage or other improvement district thereof, levied against any
legal or equitable interest of Lessor in the Premises or in the real property
of which the Premises are a part. Lessor's right to rent or other income
therefrom, and/or Lessor's business of leasing the Premises. The term "REAL
PROPERTY TAXES" shall also include any tax, fee, levy, assessment or charge,
or any increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but
not limited to a change in the ownership of the Premises or in the
improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property
Taxes for all of the land and improvements included within the tax parcel
assessed. such proportion to be determined by Lessor from the respective
valuations assigned in the
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assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause its Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor. If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property or, at Lessor's option, as
provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas. heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer or issuance on a
cumulative basis, of fifty percent (50%) to one entity or person or more of
the voting control of Lessee shall constitute a change in control for this
purpose.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease or Lessee's assets
occurs, which results or will result in a reduction of the Net Worth of
Lessee, as hereinafter defined, by an amount equal to or greater than
twenty-five percent (25%) of such Net Worth of Lessee as it was represented
to Lessor at the time of the execution by Lessor of this Lease or at the time
of the most recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting such
reduction, at whichever time said Net Worth of Lessee was or is greater,
shall be considered an assignment of this Lease by Lessee to which Lessor may
reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes of this
Lease shall be the net worth of Lessee (excluding any guarantors) established
under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unconsented to assignment or subletting as a
noncurable Breach, Lessor shall have the right to either: (i) terminate this
Lease, or (ii) upon thirty (30) days written notice ("Lessor's Notice"),
increase the monthly Base Rent to fair market rental value or one hundred ten
percent (110%) of the Base Rent then in effect, whichever is greater.
Pending determination of the new fair market rental value, if disputed by
Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any
overpayment credited against the next installment(s) of Base Rent coming due,
and any underpayment for the Period retroactively to the effective date of
the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and market value adjustment,
(i) the purchase price of any option to purchase the Premises held by Lessee
shall be subject to similar adjustment to the then fair market value (without
the Lease being considered an encumbrance or any deduction for depreciation
or obsolescence, and considering the Premises at its highest and best use and
in good condition), or one hundred ten percent (110%) of the price previously
in effect, whichever is greater, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio
as the new market rental bears to the Base Rent in effect immediately prior
to the market value adjustment.
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12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not: (i) be effective without the express written
assumption by such assignee or sublessee of the obligations of Lessee under
this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter
the primary liability of Lessee for the payment of Base Rent and other sums
due Lessor hereunder or for the performance of any other obligations to be
performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this
Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto
without notifying Lessee or anyone else liable on the Lease or sublease and
without obtaining their consent, and such action shall not relieve such
persons from liability under this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's
obligations under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or any one else responsible for the performance of the Lessee's
obligations under this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor or Lessee.
(e) Any assignee of, or sublessee under, this Lease shall,
by reason of accepting such assignment or entering into such sublease, be
deemed for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein to
be observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
(f) The occurrence of a transaction described in Paragraph
12.1(c) shall give Lessor the right (but not the obligation) to require that
the Security Deposit be increased to an amount equal to two (2) times the
then monthly Base Rent, and Lessor may make the actual receipt by Lessor of
the amount required to establish such Security Deposit a condition to
Lessor's consent to such transaction.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all
or a portion of the Premises heretofore or hereafter made by Lessee, and
Lessor may collect such rent and income and apply same toward Lessee's
obligations under this Lease; provided, however, that until a Breach (as
defined in Paragraph 13.1) shall occur in the performance of Lessee's
obligations under this Lease, Lessee may, except as otherwise provided in
this Lease, receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor, nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under
such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and
shall pay such rents and other charges to Lessor without any obligation or
right to inquire as to whether such Breach exists and notwithstanding any
notice from or claim from Lessee to the contrary. Lessee shall have no right
or claim against said sublessee, or, until the Breach has been cured, against
Lessor, for any such rents and other charges so paid by said sublessee to
Lessor.
(b) In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior Defaults or Breaches of such sublessor under such sublease.
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(c) Any matter or thing requiring the consent of the
sublessor under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the
Default of Lessee within the grace period, if any, specified in such notice.
The sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney
is consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said Default. A "DEFAULT" is
defined as a failure by the Lessee to observe, comply with or perform any of
the terms, covenants, conditions or rules applicable to Lessee under this
Lease. A "BREACH" is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is
specified herein, the failure by Lessee to cure such Default prior to the
expiration of the applicable grace period, and shall entitle Lessor to pursue
the remedies set forth in Paragraph 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease,
the failure by Lessee to make any payment of Base Rent or any other monetary
payment required to be made by Lessee hereunder, whether to Lessor or to a
third party, as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease,
the failure by Lessee to provide Lessor with reasonable written evidence (in
duly executed original form, if applicable) of (i) compliance with applicable
law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1(b), (iii) the recission of an unauthorized
assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii)
the execution of any document requested under Paragraph 42 (easements), or
(viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice by or on
behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the rules adopted under
Paragraph 40 hereof, that are to be observed, complied with or performed by
Lessee, other than those described in subparagraphs (a), (b) or (c), above,
where such Default continues for a period of thirty (30) days after written
notice thereof by or on behalf of Lessor to Lessee: provided, however, that
if the nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach
of this Lease by Lessee if Lessee commences such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where possession is not restored to Lessee within thirty (30) days; or
(iv) the attachment, execution or other judicial seizure of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
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(f) The discovery by Lessor that any financial statement
given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder
was materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check
given to Lessor by Lessee shall not be honored by the bank upon which it is
drawn, Lessor, at its option, may require all future payments to be made
under this Lease by Lessee to be made only by cashier's check. In the event
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or
without further notice or demand, and without limiting Lessor in the exercise
of any right or remedy which Lessor may have by reason of such Breach, Lessor
may:
(a) Terminate Lessee's right to possession of the Premises
by any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises
to Lessor. In such event Lessor shall be entitled to recover from Lessee:
(i) the worth at the time of the award of the unpaid rent which had been
earned at the time of termination; (ii) the worth at the time of award of the
amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that the Lessee proves could have been reasonably avoided; (iii) the worth at
the time of award of the amount by which the unpaid rent for the balance of
the term after the time of award exceeds the amount of such rental loss that
the Lessee proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Lessor for all the detriment proximately caused by
the Lessee's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom, including
but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease.
The worth at the time of award of the amount referred to in provision (iii)
of the prior sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent. Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall
have the right to recover in such proceeding the unpaid rent and damages as
are recoverable therein, or Lessor may reserve therein the right to recover
all or any part thereof in a separate suit for such rent and/or damages. If
a notice and grace period required under subparagraphs 13.1(b), (c) or (d)
was not previously given, a notice to pay rent or quit, or to perform or
quit, as the case may be, given to Lessee under any statute authorizing the
forfeiture of leases for unlawful detainer shall also constitute the
applicable notice for grace period purposes required by subparagraphs
13.1(b), (c) or (d). In such case, the applicable grace period under
subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure
of Lessee to cure the Default within the greater of the two such grace
periods shall constitute both an unlawful detainer and a Breach of this Lease
entitling Lessor to the remedies rovided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after
Lessee's Breach and abandonment and recover the rent as it becomes due,
provided Lessee has the right to sublet or assign, subject only to reasonable
limitations. See Paragraphs 12 and 36 for the limitations on assignment and
subletting which limitations Lessee and Lessor agree are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under the Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
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(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by
Lessor for free or abated rent or other charges applicable to the Premises,
or for the giving or paying by Lessor to or for Lessee of any cash or other
bonus, inducement or consideration for Lessee's entering into this Lease, all
of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS,"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph
13.1, any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid
by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor as additional rent due
under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph shall not be deemed a waiver by
Lessor of the provisions of this Paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed: provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall
not be in breach of this Lease if performance is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the land area not occupied by any building, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor
area of the building located on the Premises. No reduction of Base Rent
shall occur if the only portion of the Premises taken is land on which there
is no building. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages: provided, however, that
Lessee shall be entitled to any compensation, separately awarded to Lessee
for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In
the event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of its net severance damages, over and above the
legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation, except to the
extent that
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Lessee has been reimbursed therefor by the condemning authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of
this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay
to said Brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate written agreement
between Lessor and said Brokers.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises,
any part thereof, or the building of which the Premises are a part, Lessee
and all Guarantors of Lessee's performance hereunder shall deliver to any
potential lender or purchaser designated by Lessor such financial statements
of Lessee and such Guarantors as may be reasonably required by such lender or
purchaser, including but not limited to Lessee's financial statements for the
past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for
the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid,
the prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in
this Lease to be performed by the Lessor shall be binding only upon the
Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON POST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but
not exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13A.
20. TIME OF ESSENCE. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties
under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding
shall be effective. Lessor and Lessee each represents and warrants to the
Brokers that it has made, and is relying solely upon, its own investigation
as to the nature, quality, character and financial responsibility of the
other Party to this Lease and as to the nature, quality and character of the
Premises. Brokers have no responsibility with respect thereto or with
respect to any default or breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing
of notice purposes. Either Party may
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by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to
be given to Lessor hereunder shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time to time hereafter
designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the United States Postal Service or courier.
If any notice is transmitted by facsimile transmission or similar means, the
same shall be deemed served or delivered upon telephone confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Sunday or legal holiday, it
shall be deemed received on the next business day
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted. Any payment
given Lessor by Lessee may be accepted by Lessor on account of moneys or
damages due Lessor. notwithstanding any qualifying statements or conditions
made to Lessee in connection therewith, which such statements and/or
conditions shall be of no force or effect whatsoever unless specifically
agreed to in writing by Lessor at or before the time of deposit of such
payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed by Lessor upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have
no duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
and allow such Lender thirty (30) days following receipt of such notice for
the cure of said default before invoking any remedies Lessee may have by
reason thereof. It any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of
the documentation or recordation thereof.
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30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or
(iii) be bound by prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT")
from the Lender that Lessee's possession and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Lessee is
not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection
with a sale, financing or refinancing of the Premises, Lessee and Lessor
shall execute such further writings as may be reasonably required to
separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
Prevailing Party (as hereafter defined) or Broker in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorney's fees.
Such fees may be awarded in the same suit or recovered in a separate suit,
whether or not such action or proceeding is pursued to decision or judgment.
The term, "PREVAILING PARTY" shall include, without limitation, a Party or
Broker who substantially obtains or defeats the relief sought, as the case
may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorney's fee award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorney's fees reasonably incurred. Lessor
shall be entitled to attorney's fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's
agents shall have the right to enter the Premises at any time, in the case of
an emergency, and otherwise at reasonable times for the purpose of showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or building any
ordinary "For Sale" signs and Lessor may at any time during the last one
hundred twenty (120) days of the term hereof place on or about the Premises
any ordinary "For Lease" signs. All such activities of Lessor shall be
without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without
first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. TERMINATION; MERGER. Unless specifically stated otherwise in writing
by Lessor, the voluntary or other surrender of this Lease by Lessee, the
mutual termination or cancellation hereof, or a termination hereof by Lessor
for Breach by Lessee, shall automatically terminate any sublease or lesser
estate in the Premises; provided, however, Lessor shall, in the event of any
such surrender, termination or cancellation, have the option to continue any
one or all of any existing subtenancies. Lessor's failure within ten (10)
days following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
35. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to
an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed. Lessor's actual reasonable costs and expenses
(including but not limited to architects', attorneys', engineers' or other
consultants' fees) incurred in the consideration of or response to, a request
by Lessee for any Lessor consent pertaining to this Lease or the Premises,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, practice or storage tank, shall be
paid by Lessee to Lessor upon receipt of an invoice arid supporting
documentation therefor. Subject to Paragraph 12.2(e) (applicable to
assignment or subletting), Lessor may, as a condition to considering any such
request by Lessee, require that Lessee deposit with Lessor an amount of money
(in addition to the
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Security Deposit held under Paragraph 5) reasonably calculated by Lessor to
represent the cost Lessor will incur in considering and responding to
Lessee's request. Except as otherwise provided, any unused portion of said
deposit shall be refunded to Lessee without interest. Lessor's consent to
any act, assignment of this Lease or subletting of the Premises by Lessee
shall not constitute an acknowledgment that no Default or Breach by Lessee of
this Lease exists, nor shall such consent be deemed a waiver of any then
existing Default or Breach, except as may be otherwise specifically stated in
writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the
imposition by Lessor at the time of consent of such further or other
conditions as are then reasonable with reference to the particular matter for
which consent is being given.
36. GUARANTOR.
36.1 If there are to be any Guarantors of this Lease per Paragraph
1.11, the form of the guaranty to be executed by each such Guarantor shall be
in the form most recently published by the American Industrial Real Estate
Association, and each said Guarantor shall have the same obligations as
Lessee under this Lease, including but not limited to the obligation to
provide the Tenancy Statement and information called for by Paragraph 16.
36.2 It shall constitute a Default of the Lessee under this Lease if
any such Guarantor fails or refuses, upon reasonable request by Lessor to
give: (a) evidence of the due execution of the guaranty called for by this
Lease, including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and
including in the case of a corporate Guarantor, a certified copy of a
resolution of its board of directors authorizing the making of such guaranty,
together with a certificate of incumbency showing the signatures of the
persons authorized to sign on its behalf, (b) current financial statements of
Guarantor as may from time to time be requested by Lessor, (c) a Tenancy
Statement, or (d) written confirmation that the guaranty is still in effect.
37. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises
and the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
38. OPTIONS.
38.1 DEFINITIONS. As used in this Paragraph 38 the word "Option"
has the following meaning: (a) the right to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal to lease the Premises or
the right of first offer to lease the Premises or the right of first refusal
to lease other property of Lessor or the right of first offer to lease other
property of Lessor; (c) the right to purchase the Premises, or the right of
first refusal to purchase the Premises, or the right of first offer to
purchase the Premises, or the right to purchase other property of Lessor, or
the right of first refusal to purchase other property of Lessor, or the right
of first offer to purchase other property of Lessor.
38.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph
1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised
by any person or entity other than said original Lessee while the original
Lessee is in full and actual possession of the Premises and without the
intention of thereafter assigning or subletting. The Options, if any, herein
granted to Lessee are not assignable, either as a part of an assignment of
this Lease or separately or apart therefrom, and no Option may be separated
from this Lease in any manner, by reservation or otherwise.
38.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised
unless the prior Options to extend or renew this Lease have been validly
exercised.
38.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three
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(3) or more notices of Default under Paragraph 13.1, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability
to exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding
Lessee's due and timely exercise of the Option, if, after such exercise and
during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary
obligation of Lessee for a period of thirty (30) days after such obligation
becomes due (without any necessity of Lessor to give notice thereof to
Lessee), or (ii) Lessor gives to Lessee three or more notices of Default
under Paragraph 13.1 during any twelve month period, whether or not the
Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
39. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe
all reasonable rules and regulations which Lessor may make from time to time
for the management, safety, care, and cleanliness of the grounds, the parking
and unloading of vehicles and the preservation of good order, as well as for
the convenience of other occupants or tenants of such other buildings and
their invitees, and that Lessee will pay its fair share of common expenses
incurred in connection therewith.
40. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
41. RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights
and dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
43. AUTHORITY. If either Party hereto is a corporation, trust. or general
or limited partnership, each individual executing this Lease on behalf of
such entity represents and warrants that he or she is duly authorized to
execute and deliver this Lease on its behalf. If Lessee is a corporation.
trust or partnership, Lessee shall, within thirty (30) days after request by
Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority.
44. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
46. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to lime to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder. Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company. or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
47. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee.
the obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
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INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT
THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS
SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS
TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS
SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR
THE TRANSACTION TO WHICH IT RELATES. THE PARTIES SHOULD RELY
SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE IF THE SUBJECT PROPERTY IS LOCATED
IN A STATE OTHER THAN CALIFORNIA. AN ATTORNEY FROM THE STATE
WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Executed at
-------------------------- -------------------------
on May 28, 1997 on May 23, 1997
----------------------------------- ----------------------------------
by LESSOR: by LESSEE:
Elisabeth Griffinger Silicon Image, Inc.
- ------------------------------------- ------------------------------------
- ------------------------------------- ------------------------------------
By /s/ Elisabeth E. Griffinger By /s/ David D. Lee
----------------------------------- ----------------------------------
Name Printed: Elisabeth E. Griffinger Name Printed: David D. Lee
------------------------ -----------------------
Title: Landlord Title: CEO
------------------------------- ------------------------------
Address: Address:
---------------------------- ---------------------------
- ------------------------------------ ------------------------------------
Tel No. (__) _____ Fax No. (__) ______ Tel No. (__) _____ Fax No. (__) ______
NOTICE: THESE FORMS are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association. 345 South
Figueroa Street. Suite M-1, Los Angeles, CA 90071. (213) 6870-6777. Fax No.
(2131 687-8616.
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ADDENDUM TO STANDARD INDUSTRIAL LEASE DATED APRIL 9, 1997, BY AND BETWEEN
ELISABETH GRIFFINGER, LESSOR, AND SILICON IMAGE, INC., LESSEE, FOR
APPROXIMATELY 18,000 SQUARE FEET LOCATED AT 10131 BUBB ROAD, CUPERTINO,
CALIFORNIA.
4.2 THE BASE MONTHLY RENT SHALL BE:
June 15, 1997 to July 15, 1997 $36,000.00
July 15, 1997 to August 1, 1997 $18,000.00
August 1, 1997 to July 1, 1998 $36,000.00 per month
July 1, 1998 to July 1, 1999 $37,440.00 per month
July 1, 1999 to July 1, 2000 $38,937.60 per month
July 1, 2000 to August 1, 2000 $36,595.35
August 1, 2000 to July 1, 2001 $40,495.10 per month
July 1, 2001 to July 1, 2002 $42,114.91 per month
July 1, 2002 to December 1, 2002 $43,799.50 per month
December 1, 2002 to December 15, 2002 $21,899.75
4.3 BASE RENT. Base Rent and all other charges due to Lessor
hereunder shall be made payable as follows: Bubb Road Account/Elisabeth
Griffinger, and shall be mailed to:
Piper Jaffray
Cashier
345 California Street, Suite 2200
San Francisco, CA 94104-2623
Lessor shall have the right to change this address or the name of the
payee at any time upon prior written notice to Lessee.
5.1 PERFORMANCE LETTER OF CREDIT. In addition to the Security
Deposit, Lessee shall deliver to Lessor, on or before the Commencement Date,
an additional amount to secure the performance of Lessee's obligations under
the Lease, according to the following schedule for each Lease year (the
"Additional Security"):
<TABLE>
<CAPTION>
Lease Year Amount
<S> <C>
1 $ 180,000.00
2 $ 144,000.00
3 $ 108,000.00
4 $ 72,000.00
5 $ 36,000.00
</TABLE>
The Additional Security may be in the form of cash or a letter of
credit (the "Performance Letter of Credit"). If the Additional Security is
in the form of the Performance Letter of Credit, the following terms and
conditions shall apply: (a) such letter of credit shall be issued by a
financial institution satisfactory to Lessor, and the Performance Letter of
Credit shall otherwise be in form and substance satisfactory to Lessor,
provided, without limiting the generality of the foregoing, payment under the
Performance Letter of Credit shall be conditional only on Lessor's
certification that a default has occurred under the Lease, including, without
limitation, a failure of Lessee to deliver a replacement Performance Letter
of Credit when required under this Section 5.1; (b) the term of the
Performance Letter of Credit shall be twelve (12) months (the "Minimum Term")
beginning on the Commencement Date, and Lessee shall, sixty (60) days prior
to the expiration of the term of the relevant Performance Letter of Credit,
replace the Performance Letter of Credit with a letter of credit meeting the
requirements of this Section 5.1 that shall be for a term at least equal to
the Minimum Term; and
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(c) if Lessee shall fail to replace the Performance Letter of Credit when
required hereunder, Lessor may draw on the Performance Letter of Credit and
retain the proceeds thereof as Additional Security for the performance by
Lessee of its obligations under this Lease for the remaining Term.
6.3 LESSEE'S COMPLIANCE WITH LAW; HAZARDOUS SUBSTANCES.
6.3.1 LIMITED USE OF HAZARDOUS SUBSTANCES: Indemnification by
Lessee. Lessee shall have the right, without prior written consent of
Lessor, to use customary household and office chemical substances, including,
without limitation, cleansers. solvents, adhesives and lubricants, that may
constitute Hazardous Substances, so long as such chemical substances are
used, kept, disposed of and stored in compliance with all applicable laws
regulating Hazardous Substances. Lessee is expressly prohibited from any
other use, storage or disposal of any Hazardous Substances on, at or about
the Premises. If Lessee breaches the obligations stated in the preceding
sentences, or if the presence of Hazardous Substances located on the Premises
is otherwise caused by or expressly permitted by Lessee, its agents,
employees, contractors or invitees, then Lessee shall indemnify, defend,
protect and hold Lessor harmless from any and all claims, judgments, damages,
penalties, fines, costs, liabilities or losses (including, without
limitation, diminution in value of the Premises, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the
Premises, and sums paid in settlement of claims, reasonable attorneys' fees,
consultant fees and expert fees) which arise during or after the Lease term
as a result of such Hazardous Substances contamination. Such indemnification
of Lessor by Lessee includes, without limitation, costs incurred in
connection with any investigation of site conditions or any clean-up,
remedial, removal or restoration work required by any federal, state or local
governmental agency or political subdivision and damages for personal injury
or property damage to third parties because of a contamination of the
Premises caused by or expressly permitted by Lessee, its agents, employees,
contractors or invitees. Without limiting the foregoing, if the presence of
any Hazardous Substances on the Premises caused by or expressly permitted by
Lessee, its agents, employees, contractors or invitees, results in any
contamination of the Premises, Lessee shall promptly take all actions at its
sole expense as are necessary to return the Premises to the condition
existing prior to the introduction of any such Hazardous Substance to the
Premises; provided, however, that Lessor's approval of such actions shall
first be obtained, which approval shall not be unreasonably withheld so long
as such actions would not potentially have any material adverse long-term or
short-term effect on the Premises. For the purposes of this Paragraph 6.3.1
and Paragraphs 7.1(a) and 7.4(c) of the Lease, the term "expressly permitted"
shall not be deemed to include contamination which results due to the
migration of Hazardous Substances from adjacent property to the Premises, nor
shall such term be deemed to impose any inspection obligation on Lessee
except in connection with the Hazardous Substances used, stored or disposed
of by Lessee, its agents, employees, contractors and invitees. Except to the
extent set forth in Paragraph 6.3 of the Lease and this Addendum Paragraph
6.3.1, Lessee shall not be required to comply with Applicable Law (as defined
in the Lease) with respect to Hazardous Substances.
6.3.2 RESTRICTION ON ASSIGNMENT OR SUBLETTING. It shall not be
unreasonable for Lessor to withhold its consent to any assignment, sublease,
or other transfer if a proposed transferee's anticipated use of the Premises,
in Lessor's reasonable discretion, would increase the likelihood of a
contamination of the Premises by a Hazardous Substance.
6.3.3 The parties intend that Lessee shall be fully responsible for
all costs to comply with any existing and future Applicable Laws affecting
the Premises, including the cost of any repairs and alterations to the
Premises necessary to comply with such Applicable Laws. The parties have
expressly negotiated this provision and have agreed to allocate the cost to
comply with Applicable Law as provided herein based on the rental rates and
other consideration given to Lessee under the terms of this Lease. Lessee
acknowledges that Lessor would have demanded a higher rental rate absent
Lessee's agreement to assume these obligations. Lessor and Lessee agree that
Lessee's obligation to bear the cost of such repairs and alterations shall
apply regardless of whether the repairs or alterations to the Premises are
structural or non-structural in nature, provided that repairs or alterations
that constitute "capital Improvements" shall be subject to Paragraph 54
below. Lessee acknowledges that efforts to comply with Applicable Law may
interfere with its quiet enjoyment of the Premises. Nevertheless, Lessee
agrees to accept any such interference and that such interference shall not
excuse its obligations to comply with Applicable Law. The parties intend
that Lessee shall be responsible for all future Applicable Laws, whether or
not presently foreseeable. Without in any way limiting Lessee's obligations,
the parties intend that Lessee shall be responsible for all costs to comply
with Applicable Law relating to the Americans with Disabilities Act of 1990,
hazardous materials, earthquake retrofitting, fire safety and similar
requirements.
12.1(b) Assignment or Subletting. Notwithstanding the foregoing,
Lessor shall not be required to consent to, and Lessee shall be permitted to
pursue, a public offering of its stock. Subsequent thereto, public stock
trades shall not be governed by this clause 12.1(b). Further, in the event
of an acquisition of the stock of
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Lessee which would otherwise violate this clause 12.1(b), Lessor agrees that
it would be unreasonable to withhold its consent thereto if the Net Worth of
the acquiring company is at least equal to the greater of (i) the Net Worth
of Lessee as of the date of the acquisition or (ii) the Net Worth of Lessee
as of the commencement of the Lease term.
12.3(f) Lessor's Election. If Lessee shall desire to assign its
interest under this Lease or to sublet the Leased Premises, Lessee must first
notify Lessor, in writing, of its intent to so assign or sublet, at least
thirty (30) days in advance of the date it intends to so assign its interest
in this Lease or sublet the Leased Premises but not more than one hundred
eighty days in advance of such date, specifying in detail the terms of such
proposed assignment or subletting, including the name of the proposed
assignee or sublessee, the proposed assignee's or sublessee's intended use of
the Leased Premises, a current financial statement of such proposed assignee
or sublessee, the form of documents to be used in effectuating such
assignment or subletting and such other information as Lessor may reasonably
request. Lessor shall have a period of fifteen days following receipt of
such notice and the required information within which to do one of the
following: (a) subject to Lessee's right to withdraw its request prior to
termination, cancel and terminate this Lease effective as of the intended
subletting or assignment with respect to the portion of the Leased Premises
to be subject to the assignment or subletting on the date set forth in
Lessee's notice, if said portion is greater than 25% of the Premises, or (b)
if Lessor shall not have elected to cancel and terminate this Lease to either
(i) consent to such requested assignment or Subletting subject to Lessee's
compliance with the conditions set forth in Paragraph 12.3 below or (ii)
refuse to so consent to such requested assignment or subletting, provided
that such consent shall not be unreasonably refused. During said fifteen day
period, Lessee covenants, and agrees to supply to Lessor, upon request, all
necessary or relevant information which Lessor may reasonably request
respecting such proposed assignment or subletting and/or the proposed
assignee or sublessee. In the event Lessor elects to cancel and terminate
this Lease, with respect to the portion of the remises to be sulbject to the
assignment or subletting then the rent shall be abated on a pro rata basis
with respect to. such portion of the Premises. If Lessor fails to elect one
of the options afforded by this Section within fifteen (15) days of Lessor's
receipt of all requested information, such failure shall be deemed a consent
to such assignment or sublease. If Lessor refuses his consent, Lessor's
refusal shall identify each and every basis upon which such consent is
refused.
At no time shall the Premises be occupied by more than a) Tenant and
one Subtenant, or b) two Subtenants in lieu of tenant.
Notwithstanding anything herein to the contrary, in no event shall
Lessor's election to cancel and terminate this Lease in accordance with
clause (a) of this Paragraph 12.3(f) be deemed or otherwise construed to be
Lessor's unreasonable refusal to consent to any subletting or assignment
requested by Lessee.
12.3(g) CONDITIONS TO LESSOR'S CONSENT. If Lessor elects to consent,
or shall have been ordered to so consent by a court of competent
jurisdiction, to such requested assignment, subletting or encumbrance, such
consent shall be expressly conditioned upon the occurrence of each of the
conditions below set forth, and any purported assignment, subletting or
encumbrance made or ordered prior to the full and complete satisfaction of
each of the following conditions shall be void and, at the election of
Lessor, which election may be exercised at any time following such a
purported assignment, subletting or encumbrance but prior to the satisfaction
of each of the stated conditions, shall constitute a material default by
Lessee under this Lease until cured by satisfying in full each such condition
by the assignee, sublessee or encumbrancer. The conditions are as follows:
A. Lessor having approved in form and substance the assignment
or sublease agreement (or the encumbrance agreement), which approval shall
not be unreasonably withheld by Lessor if the requirements of this Article
12.3 are otherwise complied with.
B. Each such sublessee or assignee having agreed, in writing
satisfactory to Lessor and its counsel and for the benefit of Lessor, to
assume, to be bound by, and to perform the obligations of this Lease to be
performed by Lessee (or, in the case of an encumbrance, each such
encumbrancer having similarly agreed to assume, be bound by and to perform
Lessee's obligations upon a foreclosure or transfer in lieu thereof).
C. Lessee having fully and completely performed all of its
obligations under the terms of this Lease through and including the date of
such assignment or subletting.
D. Lessee having reimbursed to Lessor all reasonable costs and
reasonable attorney's fees incurred by Lessor in conjunction with the
processing and documentation of any such requested subletting, assignment or
encumbrance; provided, however, that such costs and fees shall not exceed
$2,500 per request.
E. Lessee having delivered to Lessor a complete and fully
executed duplicate original of such sublease agreement, assignment agreement
or encumbrance (as applicable) and all related agreements.
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F. Lessee having paid, or having agreed in writing to pay as to
future payments, to Lessor 75% of all assignment consideration or excess
rentals to be paid to Lessee or to any other on Lessee's behalf or for
Lessee's benefit for such assignment or subletting as follows:
(1) If Lessee assigns its interest under this Lease and
if all or a portion of the consideration for such assignment is to be paid by
the assignee at the time of the assignment, that Lessee shall have paid to
Lessor and Lessor shall have received an amount equal to seventy-five percent
(75%) of the assignment consideration so paid or to be paid (whichever is
greater) at the time of the assignment by the assignee; or
(2) If Lessee assigns its interest under this Lease and
if Lessee is to receive all or a portion of the consideration for such
assignment in future installments, that Lessee and Lessee's assignee shall
have entered into a written assignment with and for the benefit of Lessor
satisfactory to Lessor and its counsel whereby Lessee and Lessee's assignee
jointly agree to pay to Lessor an amount equal to seventy-five percent (75%)
of all such future assignment consideration installments to be paid by such
assignee as and when such assignment consideration is so paid.
(3) If Lessee subleases the Leased Premises, that Lessee
and Lessee's sublessee shall have entered in to a written agreement with and
for the benefit of Lessor satisfactory to Lessor and its counsel whereby
Lessee and Lessee's sublessee jointly agree to pay to Lessor seventy-five
percent (75%) of all excess rentals to be paid by such sublessee as and when
such excess rentals are so paid.
12.3(h) ASSIGNMENT CONSIDERATION AND EXCESS RENTALS DEFINED: For
purposes of this Article, the term "assignment consideration" shall mean all
consideration to be paid by the assignee to Lessee or any other on Lessee's
behalf or for Lessee's benefit as consideration for such assignment, less any
commissions paid by Lessee to a licensed real estate broker for arranging
such assignment (not to exceed then standard rates), and the term "excess
rentals" shall mean all consideration to be paid by the sublessee to Lessee
or to any other on Lessee's behalf or for Lessee's benefit for the sublease
of the Leased Premises in excess of the rent due to Lessor under the terms of
this Lease for the same period, less any commissions paid by Lessee to a
licensed real estate broker for arranging such sublease (not to exceed then
standard rates). Lessee agrees that the portion of any assignment
consideration and/or excess rentals arising from any assignment or subletting
by Lessee which is to be paid to Lessor pursuant to this Article now is and
shall then be the property of Lessor and not the property of Lessee.
12.3(i) PAYMENTS: All payments required by this Article to be made to
Lessor shall be made in cash in full as and when they become due. At the time
Lessee, Lessee's assignee or sublessee makes each such payment to Lessor,
Lessee, or Lessee's assignee or sublessee, as the case may be, shall deliver
to Lessor an itemized statement in reasonable detail showing the method by
which the amount due Lessor was calculated and certified by the party making
such payment as true and correct.
12.3(j) GOOD FAITH: The rights granted to Lessee by this Article are
granted in consideration of Lessee's express covenant that all pertinent
allocations which are made by Lessee between the rental value of the Leased
Premises and the value of any of Lessee's personal property which may be
conveyed or leased generally concurrently with and which may reasonably be
considered a part of the same transaction as the permitted assignment or
subletting shall be made fairly, honestly, and in good faith. If Lessee
shall breach this Covenant of Good Faith, Lessor may immediately declare
Lessee to be in default under the terms of this Lease and terminate this
Lease and/or exercise any other rights and remedies Lessor would have under
the terms of this Lease in the case of a material default by Lessee under
this Lease.
II. ADDITIONAL PROVISIONS
49. OPTION TO RENEW LEASE.
Extended Term. Subject to Paragraph 39 of the Lease, Lessee
shall have one (1) option to renew the Lease on all the applicable terms and
conditions set forth herein (the "Option"), for an additional period of five
(5) years (the "Extended Term"), subject to the following:
(a) Lessee may exercise its Option hereunder by giving
written notice of the exercise of the Option to Lessor not less than four (4)
months before expiration of the Original Term.
(b) Base Monthly Rent during the Extended Term shall be at
the then fair market rent for similar property in the same geographic area,
as agreed upon in a meeting of the parties hereto and shall be subject to
annual increases.
26
<PAGE>
50. MAINTENANCE OF PREMISES. In addition to any other obligations
of Lessee set forth in the Lease, Lessee shall contract with a professional
commercial building maintenance and landscaping company acceptable to Lessor
for the maintenance of the Premises and the landscaping surrounding the
Premises. Lessee shall assume the existing landscaping contract for the
Premises.
51. SIGNAGE. Lessee, at Lessee's sole cost and expense, may place
signs on the Premises (exclusive of the roof) or monument pedestal, subject
to (a) reasonable approval by Lessor's architect, if any; and (b) approval of
the City of Cupertino, if required.
52. APPROVAL OF CONTRACTOR. All repairs, improvements, alterations
and additions made by Lessee in the Premises, including, but not limited to,
any repairs, improvements, alterations and additions made by Lessee pursuant
to Paragraphs 7.3 and 9 of the Lease, shall be made by a licensed general
contractor reasonably acceptable to Lessor. The foregoing shall not apply to
non-structural work which does not require a permit.
53. TENANT IMPROVEMENTS. Prior to the Commencement Date, Lessor
shall, at Lessor's sole expense, provide the following:
(a) Professionally clean carpets and floor tiles and entire
premises.
(b) Paint purple and yellow walls to match, as closely as
possible, the color of interior walls.
The retaining wall will be repaired by Lessor, at Lessor's sole
expense, but cannot be done prior to lease commencement.
54. CAPITAL IMPROVEMENTS. If any of Lessee's obligations under
this Lease would require Lessee to pay all or any portion of any charge which
would be treated as a capital improvement under generally accepted accounting
principles, then Lessee shall pay its share of such expense. To the extent
any such capital improvement cost exceeds $15,000, the cost of such
improvement shall be amortized over the useful life of the improvement (as
reasonably determined by Lessor) with interest on the unamortized balance at
12% annually, but not to exceed the maximum rate permitted by law, and Lessor
shall inform Lessee of the monthly amortization payment required to amortize
such cost, and shall also provide Lessee with the information upon which such
determination is made. Lessee shall pay its proportionate share of such
amortization payment for each month after such improvement is completed until
the first to occur of (i) the expiration of the Lease term or (ii) the end of
the term over which such costs were amortized, which amount shall be due at
the same time Base Monthly Rent is due.
55. WARRANTIES. Lessor warrants that as of the date of delivery of
the Premises to Lessee it has received no written notice that the building or
the common areas are in violation of any Applicable Law, including, without
limitation, the American with Disabilities Act, Title 24. Lessor further
warrants to Lessee that it has received no written notice that the Premises,
building or project are in violation of any Hazardous Materials laws.
56. PARKING. Lessor warrants the Lessee is allowed to share
parking on a nonexclusive basis with the building on the south side of the
Premises.
LESSOR: Elisabeth Griffinger LESSEE: Silicon Image, Inc.
----------------------------- -----------------------------
By: /s/ Elisabeth E. Griffinger By: /s/ David D. Lee
--------------------------------- ---------------------------------
Its: Landlord Its: CEO
-------------------------------- --------------------------------
Date: May 28, 1997 Date: May 23, 1997
------------------------------- -------------------------------
27
<PAGE>
CORPORATE RESOLUTIONS AND INCUMBENCY CERTIFICATION
Authority to Procure Loans
- --------------------------------------------------------------------------------
I certify that I am the duly elected and qualified Secretary of SILICON
IMAGE, INC., a CALIFORNIA (Corporation) and the keeper of the records of the
Corporation; that the following is a true and correct copy of resolutions
duly adopted by the Board of Directors of the Corporation in accordance with
its bylaws and applicable statutes on or as of ________________________________.
COPY OF RESOLUTIONS:
BE IT RESOLVED, That:
1. Any (insert number required to sign) (1) one of the following (insert
titles only) CEO, President, CFO of the Corporation are/is authorized,
for, on behalf of, and in the name of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or
financial accommodations from Comerica Bank-California (the
"Bank") up to an amount not exceeding $4 million;
(b) Discount with the Bank commercial or other business paper
belonging to the Corporation made or drawn by or upon third
parties, without limit as to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or
deliver certificates and/or instruments representing stocks,
bonds, evidences of Indebtedness or other securities owned by the
Corporation, whether or not registered in the name of the
Corporation;
(d) Give security for any liabilities of the Corporation to the Bank
by grant, security interest, assignment, lien, deed of trust or
mortgage upon any real or personal property, tangible or
intangible of the Corporation; and
(e) Execute and deliver in form and content as may be required by the
Bank any and all notes, evidences of Indebtedness, applications
for letters of credit, guaranties, subordination agreements, loan
and security agreements, financing statements, assignments, liens,
deeds of trust, mortgages, trust receipts and other agreements,
instruments or documents to carry out the purposes of these
Resolutions, any or all of which may relate to all or to
substantially all of the Corporation's property and assets.
2. Said Bank be and it is authorized and directed to pay the proceeds of any
such loans or discounts as directed by the persons so authorized to sign,
whether so payable to the order of any of said persons in their
individual capacities or not, and whether such proceeds are deposited to
the individual credit of any of said persons or not;
3. Any and all agreements, instruments and documents previously executed and
acts and things previously done to carry out the purposes of these
Resolutions are ratified, confirmed and approved as the act or acts of
the Corporation.
4. These Resolutions shall continue in force, and the Bank may consider the
holders of said offices and their signatures to be and continue to be as
set forth in a certified copy of these Resolutions delivered to the Bank,
until notice to the contrary in writing is duly served on the Bank (such
notice to have no effect on any action previously taken by the Bank in
reliance on these Resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may
rely upon a certificate signed by an officer of the Bank to effect that
these Resolutions and any agreement, instrument or document executed
pursuant to them are still in full force and effect and binding upon the
Corporation.
6. The Bank may consider the holders of the offices of the Corporation and
their signatures, respectively, to be and continue to be as set forth in
the Certificate of the Secretary of the Corporation until notice to the
contrary in writing is duly served on the Bank.
I further certify that the above Resolutions are in full force and effect as
of the date of this Certificate; that these Resolutions and any borrowings or
financial accommodations under these Resolutions have been properly noted in
the corporate books and records, and have not been rescinded, annulled,
revoked or modified; that neither the foregoing Resolutions nor any actions
to be taken pursuant to them are or will be in contravention of any provision
of the articles of incorporation or bylaws of the Corporation or of any
agreement, indenture or other instrument to which the Corporation is a party
or by which it is bound; and that neither the articles of incorporation nor
bylaws of the Corporation nor any agreement, indenture or other instrument to
which the Corporation is a party or by which it is bound require the vote or
consent of shareholders of the Corporation to authorize any act, matter or
thing described in the foregoing Resolutions.
I further certify that the following named persons have been duly elected to
the offices set opposite their respective names, that they continue to hold
these offices at the present time, and that the signatures which appear below
are the genuine, original signatures of each respectively:
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
<TABLE>
<CAPTION>
NAME (Type or Print) TITLE SIGNATURE
<S> <C> <C>
Scott Macomber President /s/ Scott Macomber
-----------------------
Daniel K. Atler CFO /s/ Daniel K. Atler
-----------------------
David Lee CEO /s/ David D. Lee
-----------------------
- ----------------------- ----------------------- -----------------------
- ----------------------- ----------------------- -----------------------
- ----------------------- ----------------------- -----------------------
</TABLE>
IN WITNESS WHEREOF, I have affixed my name as Secretary and have caused the
corporate seal of said Corporation to be affixed on ___________________________.
/s/ Susun Dunn
-----------------------
Secretary
- --------------------------------------------------------------------------------
The Above Statements are Correct. /s/ Daniel K. Atler
-------------------------------------------
SIGNATURE OF OFFICER OR DIRECTOR OR, IF
NONE, A SHAREHOLDER, OTHER THAN SECRETARY
WHEN SECRETARY IS AUTHORIZED TO SIGN ALONE.
Failure to complete the above when the Secretary is authorized to sign alone
shall constitute a certification by the Secretary that the Secretary is the
sole Shareholder, Director and Officer of the Corporation.
- --------------------------------------------------------------------------------
<PAGE>
REVOLVING CREDIT LOAN & SECURITY
AGREEMENT
(ACCOUNTS AND INVENTORY)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
OBLIGOR # NOTE # AGREEMENT DATE
<S> <C> <C>
December 17, 1998
- --------------------------------------------------------------------------------
CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
$4,000,000 Base Rate+ 0.250% 48703, MARY BETH SUHR
- --------------------------------------------------------------------------------
</TABLE>
THIS AGREEMENT is entered into on December 17, 1998, between Comerica
Bank-California ("Bank") as secured party, whose Headquarter Office is 333 West
Santa Clara Street, San Jose, CA and SILICON IMAGE, INC. ("Borrower"), a
Corporation whole sole place of business (if it has only one), chief
executive office (if it has more than one place of business) or residence (if
an individual) is located at 10131 BUBB ROAD, CUPERTINO, CA. The parties
agree as follows:
1. DEFINITIONS
1.1 "Agreement" as used in this Agreement means and includes this
Revolving Credit Loan & Security Agreement (Accounts and Inventory), any
concurrent or subsequent rider to this Revolving Credit Loan & Security
Agreement (Accounts and Inventory) and any extensions, supplements,
amendments or modifications to this Revolving Credit Loan & Security
Agreement (Accounts and Inventory) and to any such rider.
1.2 "Bank Expenses" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement
which are paid or advanced by Bank; taxes and insurance premiums of every
nature and kind of Borrower paid by Bank; filing, recording, publication
and search fees, appraiser fees, auditor fees and costs, and title
insurance premiums paid or incurred by Bank in connection with Bank's
transactions with Borrower; costs and expenses incurred by Bank in
collecting the Receivables (with or without suit) to correct any default
or enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, disposing
of, preparing for sale and/or advertising to sell the Collateral, whether
or not a sale is consummated; costs and expenses of suit incurred by Bank
in enforcing or defending this Agreement or any portion hereof,
including, but not limited to, expenses incurred by Bank in attempting to
obtain relief from any stay, restraining order, injunction or similar
process which prohibits Bank from exercising any of its rights or
remedies; and attorneys' fees and expenses incurred by Bank in advising,
structuring, drafting, reviewing, amending, terminating, enforcing,
defending or concerning this Agreement, or any portion hereof or any
agreement related hereto, whether or not suit is brought. Bank Expenses
shall include Bank's in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate of
interest so announced by Bank at is headquarters office in San Jose,
California as its "Base Rate" from time to time and which serves as the
basis upon which effective rates of interest are calculated for those
loans making reference thereto.
1.4 "Borrower's Books" as used in this Agreement means and includes
all of the Borrower's books and records including but not limited to:
minute books; ledgers; records indicating, summarizing or evidencing
Borrower's assets, liabilities, Receivables, business operations or
financial condition, and all information relating thereto, computer
programs; computer disk or tape files; computer printouts; computer runs;
and other computer prepared information and equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of:
(1) Eighty percent (80.000%) of the net amount of Eligible Accounts after
deducting therefrom all payments, adjustments and credits applicable
thereto ("Accounts Receivable Borrowing Base"); and (2) the amount, if
any, of the advances against Inventory agreed to be made pursuant to any
Inventory Rider ("Inventory Borrowing Base"), or other rider, amendment
or modification to this Agreement, that may now or hereafter be entered
into by Bank and Borrower. See Addendum "A" attached hereto and made a
part hereof.
1.6 "Cash Flow" as used in this Agreement means, for any applicable
period of determination, the Net Income (after deduction for income taxes
and other taxes of such person determined by reference to income or
profits of such person) for such period, plus, to the extent deducted in
computation of such Net Income, the amount of depreciation and
amortization expense and the amount of deferred tax liability during such
period, all as determined in accordance with GAAP. The applicable period
of determination will be ____ N/A ____, beginning with the period from
__________________________ to __________________________.
1.7 "Collateral" as used in this Agreement means and includes each and
all of the following: the Receivables; the negotiable collateral, the
Inventory; all money, deposit accounts and all other assets of Borrower
in which Bank receives a security interest or which hereafter come into
the possession, custody or control of Bank; and the proceeds of any of
the foregoing, including, but not limited to, proceeds of insurance
covering the Collateral and any and all Receivables, negotiable
collateral, Inventory, equipment, money, deposit accounts or other
tangible property of borrower resulting from the sale or other
disposition of the Collateral, and the proceeds thereof. Notwithstanding
anything to the contrary contained herein, Collateral shall not include
any waste or other materials which have been or may be designated as
toxic or hazardous by Bank.
1.8 "Credit" as used in this Agreement means all Obligations, except
those obligations arising pursuant to any other separate contract,
instrument, note, or other separate agreement which, by its terms,
provides for a specified interest rate and term.
1
<PAGE>
1.9 "Current Assets" as used in this Agreement means, as of any
applicable date of determination, all cash, non-affiliated customer
receivables, United States government securities, claims against the
United States government, and inventories.
1.10 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination, (i) all liabilities of a person that
should be classified as current in accordance with GAAP, including
without limitation any portion of the principal of the Indebtedness
classified as current, plus (ii) to the extent not otherwise included,
all liabilities of the Borrower to any of its affiliates whether or not
classified as current in accordance with GAAP.
1.11 "Daily Balance" as used in this Agreement means the amount
determined by taking the amount of the Credit owed at the beginning of a
given day, adding any new Credit advanced or incurred on such date, and
subtracting any payments or collections which are deemed to be paid to
the Bank in reduction of the Credit on that date under the provisions of
this Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and includes
those accounts of Borrower which are due and payable within sixty
(60) days, or less, from the date of invoice, have been validly assigned
to Bank and strictly comply with all of Borrower's warranties and
representations to Bank; but Eligible Accounts shall not include the
following: (a) accounts with respect to which the account debtor is an
officer, employee, partner, joint venturer or agent of Borrower;
(b) accounts with respect to which goods are placed on consignment,
guaranteed sale or other terms by reason of which the payment by the
account debtor may be conditional; (c) accounts with respect to which the
account debtor is not a resident of the United States; (d) accounts with
respect to which the account debtor is the United States or any
department, agency or instrumentality of the United States; (e) accounts
with respect to which the account debtor is any State of the United
States or any city, county, town, municipality or division thereof;
(f) accounts with respect to which the account debtor is a subsidiary of,
related to, affiliated or has common shareholders, officers or directors
with Borrower; (g) accounts with respect to which Borrower is or may
become liable to the account debtor for goods sold or services rendered
by the account debtor to Borrower; (h) accounts not paid by an account
debtor within ninety (90) days from the date of the invoice; (i) accounts
with respect to which account debtors dispute liability or make any
claim, or have any defense, crossclaim, counterclaim, or offset;
(j) accounts with respect to which any Insolvency Proceeding is filed by
or against the account debtor, or if an account debtor becomes insolvent,
fails or goes out of business; and (k) accounts owed by any single
account debtor which exceed twenty percent (20%) of all of the Eligible
Accounts; and (l) accounts with a particular account debtor on which over
twenty-five percent (25%) of the aggregate amount owing is greater than
ninety (90) days from the date of the invoice. See Addendum "A" attached
hereto and made a part hereof.
1.13 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means and includes, for
any applicable period of determination, the sum, without duplication, of
(a) all interest paid or payable during such period by a person on debt
of such person, plus (b) all payments of principal or other sums paid or
payable during such period by such person with respect to debt of such
person having a final maturity more than one year from the date of
creation of such debt, plus (c) all debt discount and expense amortized
or required to be amortized during such period by such person, plus (d)
the maximum amount of all rents and other payments paid or required to be
paid by such person during such period under any lease or other contract
or arrangement providing for use of real or personal property in respect
of which such person is obligated as a lessee, use or obligor, plus
(e) all dividends and other distributions paid or payable by such person
or otherwise accumulating during such period on any capital stock of such
person, plus (f) all loans or other advances made by such person during
such period to any Affiliate of such person. The applicable period of
determination will be ____ N/A ____, beginning with the period from
________________________ to ________________________.
1.15 "GAAP" as used in this Agreement means as of any applicable
period, generally accepted accounting principles in effect during such
period.
1.16 "Insolvency proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against the Borrower, or
any guarantor of Borrower's Obligations, or any of borrower's account
debtors, under any provisions of the Bankruptcy Code, as amended, or any
other bankruptcy or insolvency law, including but not limited to
assignments for the benefit of creditors, formal or informal moratoriums,
composition or extensions with some or all creditors, any proceeding
seeking a reorganization, arrangement or any other relief under the
Bankruptcy code, as amended or any other bankruptcy or insolvency law.
1.18 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest,
including, but not limited to, goods held by Borrower for sale or lease
or to be furnished under a contract of service and all of Borrower's
present and future raw materials, work in process, finished goods,
advertising materials, and packing and shipping materials, wherever
located and any documents of title representing any of the above, and any
equipment, fixtures or other property used in the storing, moving,
preserving, identifying, accounting for and shipping or preparing for the
shipping of inventory, and any and all other items hereafter acquired by
Borrower by way of substitution, replacement, return, repossession or
otherwise, and all additions and accessions thereto, and the resulting
product or mass, and any documents of title respecting any of the above.
2
<PAGE>
1.19 "Net Income" as used in this Agreement means the net income (or
loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
(a) any gains or losses on the sale or other disposition, not
in the ordinary course of business, of investments or fixed or
capital assets, and any taxes on the excluded gains and any tax
deductions or credits on account on any excluded losses; and
(b) in the case of the Borrower, net earnings of any Person in
which Borrower has an ownership interest, unless such net earnings
shall have actually been received by Borrower in the form of cash
distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means
and includes any trustee, receiver, controller, custodian, assignee for
the benefit of creditors or any other person or entity having powers or
duties like or similar to the powers and duties of trustee, receiver,
controller, custodian or assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any
and all loans, advances, overdrafts, debts, liabilities (including,
without limitation, any and all amounts charged to Borrower's account
pursuant to any agreement authorizing Bank to charge Borrower's account),
obligations, lease payments, guaranties, covenants and duties owing by
Borrower to Bank of any kind and description whether advanced pursuant to
or evidenced by this Agreement; by any note or other instrument; or by
any other agreement between Bank and Borrower and whether or not for the
payment of money, whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, and including,
without limitation, any debt, liability or obligation owing from Borrower
to others which Bank may have obtained by assignment, participation,
purchase or otherwise, and further including, without limitation, all
interest not paid when due and all Bank Expenses which Borrower is
required to pay or reimburse by this Agreement, by law, or otherwise.
1.22 "Person" or "person" as used in this Agreement means and includes
any individual, corporation, partnership, joint venture, association,
trust, unincorporated association, joint stock company, government,
municipality, political subdivision or agency, or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments,
documents, chattel paper, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all
contracts or agreements (whether or not yet earned or due), all
merchandise returned to or reclaimed by Borrower and the Borrower's books
(except minute books) relating to any of the foregoing.
1.24 "Subordinated Debt" as used in this Agreement means indebtedness
of the Borrower to third parties which has been subordinated to the
Obligations pursuant to a subordination agreement in form and content
satisfactory to the Bank.
1.25 "Subordination Agreement" as used in this Agreement means a
subordination agreement in form satisfactory to Bank making all present
and future indebtedness of the Borrower to ____ N/A ____ subordinate to
the Obligations.
1.26 "Tangible Effective Net Worth" as used in this Agreement means
net worth as determined in accordance with GAAP consistently applied,
increased by Subordinated Debt, if any, and decreased by the following:
patents, licenses, goodwill, subscription lists, organization expenses,
trade receivables converted to notes, money due from affiliates
(including officers, directors, subsidiaries and commonly held
companies).
1.27 "Tangible Net Worth" as used in this Agreement means, as of any
applicable date of determination, the excess of
a. the net book value of all assets of a person (other than
patents, patent rights, trademarks, trade names, franchises,
copyrights, licenses, goodwill, and similar intangible assets)
after all appropriate deductions in accordance with GAAP
(including, without limitation, reserves for doubtful receivables,
obsolescence, depreciation and amortization), over
b. all Debt of such person.
1.28 "Total Liabilities" as used in this Agreement means the total of
all items of indebtedness, obligation or liability which, in accordance
with GAAP consistently applied, would be included in determining the
total liabilities of the Borrower as of the date Total Liabilities is to
be determined, including without limitation (a) all obligations secured
by any mortgage, pledge, security interest or other lien on property
owned or acquired, whether or not the obligations secured thereby shall
have been assumed; (b) all obligations which are capitalized lease
obligations; and (c) all guaranties, endorsements or other contingent or
surety obligations with respect to the indebtedness of others, whether or
not reflected on the balance sheets of the Borrower, including any
obligation to furnish funds, directly or indirectly through the purchase
of goods, supplies, services, or by way of stock purchase, capital
contribution, advance or loan or any obligation to enter into a contract
for any of the foregoing.
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current
Liabilities.
3
<PAGE>
1.30 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under
and pursuant to the California Uniform Commercial Code (hereinafter
referred to as the "Code") as amended.
1.31 See Addendum "A" attached hereto and made a part hereof.
2. LOAN AND TERMS OF PAYMENT
For value received, Borrower promises to pay to the order of Bank such
amount, as provided for below, together with interest, as provided for
below.
2.1 Upon the request of Borrower, made at any time and from time to
time during the term hereof, and so long as no Event of Default has
occurred, Bank shall lend to Borrower an amount equal to the Borrowing
Base*, provided, however, that in no event shall Bank be obligated to
make advances to Borrower under this Section 2.1 whenever the Daily
Balance exceeds, at any time, either the Borrowing Base including Letters
of Credit sub-feature or the sum of Four Million and no/100
($4,000,000.00), such amount being referred to herein as an
"Overadvance".
2.2 Except as hereinbelow provided, the Credit shall bear interest,
on the Daily Balance owing, at a rate of Zero 25/100 (0.250)
percentage points per annum above the Base Rate (the "Rate"). The
Credit shall bear interest, from and after the occurrence of an Event
of Default and without constituting a waiver of any such Event of
Default, on the Daily Balance owing, at a rate three (3) percentage
points per annum above the Rate. All interest chargeable under this
Agreement that is based upon a per annum calculation shall be computed
on the basis of a three hundred sixty (360) day year for actual days
elapsed.
The Base Rate as of the date of this Agreement is Eight (8.000%) per
annum. In the event that the Base Rate announced is, from time to time
hereafter changed, adjustment in the Rate shall be made and based on the
Base Rate in effect on the date of such change. The Rate, as adjusted,
shall apply to the Credit until the Base Rate is adjusted again. The
minimum interest payable by the Borrower under this Agreement shall in no
event be less than ____ N/A ____ per month. All interest payable by
Borrower under the Credit shall be due and payable on the first day of
each calendar month during the term of this Agreement. A late payment
charge equal to 5% of each late payment may be charged on any payment not
received by the Bank within 10 calendar days after the payment due date,
but acceptance of payment of this charge shall not waive any Default
under this Agreement.
2.3 Without affecting Borrower's obligation to repay immediately any
Overadvance in accordance with Section 2.1 hereof, all Overadvances shall
bear additional interest on the amount thereof at a rate equal to
____ N/A ____. (____ N/A ____%) percentage points per month in excess
of the interest rate set forth in Section 2.2, from the date incurred
and for each month thereafter, until repaid in full.
3. TERM
3.1 This Agreement shall remain in full force and effect until
April 30, 2000, or until terminated by notice by Borrower. Notice of
such termination by Borrower shall be effectuated by mailing of a
registered or certified letter not less than thirty (30) days prior to
the effective date of such termination, addressed to the Bank at the
address set forth herein and the termination shall be effective as of the
date so fixed in such notice. Notwithstanding the foregoing, should
Borrower be in default*, as defined in Section 7 (Default) of one or more
of the provisions of this Agreement, Bank may terminate this Agreement at
any time without notice. Notwithstanding the foregoing, should either
Bank or Borrower become insolvent or unable to meet its debts as they
mature, or fail, suspend, or go out of business, the other party shall
have the right to terminate this Agreement at any time without notice.
On the date of termination all Obligations shall become immediately due
and payable without notice or demand; no notice of termination by
Borrower shall be effective until Borrower shall have paid all
Obligations to Bank in full. Notwithstanding termination, until all
Obligations have been fully satisfied, Bank shall retain its security
interest in all existing Collateral and Collateral arising thereafter,
and Borrower shall continue to perform all of its Obligations. *As
defined in Section 7. (Default)
3.2 After termination and when Bank has received payment in full of
Borrower's Obligations to Bank, Bank shall reassign to Borrower all
Collateral held by Bank, and shall execute a termination of all security
agreements and security interests given by Borrower to Bank, upon the
execution and delivery of mutual general releases.
4. CREATION OF SECURITY INTEREST
4.1 Borrower hereby grants to Bank a continuing security interest in
all presently existing and hereafter arising Collateral in order to
secure prompt repayment of any and all Obligations owed by Borrower to
Bank and in order to secure prompt performance by Borrower of each and
all of its covenants and Obligations under this Agreement and otherwise
created. Bank's security interest in the Collateral shall attach to all
Collateral without further act on the part of Bank or Borrower. In the
event that any Collateral, including proceeds, is evidenced by or
consists of a letter of credit, advice of credit, instrument, money,
negotiable documents, chattel paper or similar property (collectively,
"Negotiable Collateral"), Borrower shall, immediately upon receipt
thereof, endorse and assign such Negotiable Collateral over to Bank and
deliver actual physical possession of the Negotiable Collateral to Bank.
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4.2 Bank's security interest in Receivables shall attach to all
Receivables without further act on the part of Bank or Borrower. Upon
request from Bank, Borrower shall provide Bank with schedules describing
all Receivables created or acquired by Borrower (including without
limitation agings listing the names and addresses of, and amounts owing
by date by account debtors), and shall execute and deliver written
assignments of all Receivables to Bank all in a form acceptable to Bank,
provided, however, Borrower's failure to execute and deliver such
schedules and/or assignments shall not affect or limit Bank's security
interest and other rights in and to the Receivables. Together with each
schedule, Borrower shall furnish Bank with copies of Borrower's
customers' invoices or the equivalent, and original shipping or delivery
receipts for all merchandise sold, and Borrower warrants the genuineness
thereof. Bank or Bank's designee may notify customers or account debtors
of collection costs and expenses to Borrower's account but, unless and
until Bank does so or gives Borrower other written instructions, Borrower
shall collect all Receivables for Bank, receive in trust all, payments
thereon as Bank's trustee, and, if so requested to do so from Bank,
Borrower shall immediately deliver said payments to Bank in their
original form as received from the account debtor and all letters of
credit, advices of credit, instruments, documents, chattel paper or any
similar property evidencing or constituting Collateral. Notwithstanding
anything to the contrary contained herein, if sales of Inventory are made
for cash, Borrower shall immediately deliver to Bank, in identical form,
all such cash, checks, or other forms of payment which Borrower receives.
The receipt of any check or other item of payment by Bank shall not be
considered a payment on account until such check or other item of payment
is honored when presented for payment, in which event, said check or
other item of payment shall be deemed to have been paid to Bank two (2)
calendar days after the date Bank actually receives such check or other
item of payment.
4.3 Bank's security interest in Inventory shall attach to all
Inventory without further act on the part of Bank or Borrower. Upon
Default Borrower will from time to time at Borrower's expense pledge,
assemble and deliver such Inventory to Bank or to a third party as Bank's
bailee; or hold the same in trust for Bank's account or store the same in
a warehouse in Bank's name; or deliver to Bank documents of title
representing said Inventory; or evidence of Bank's security interest in
some other manner acceptable to Bank. Until a Default by Borrower under
this Agreement or any other Agreement between Borrower and Bank, Borrower
may, subject to the provisions hereof and consistent herewith, sell the
Inventory, but only in the ordinary Course of Borrower's business. A
sale of Inventory in Borrower's ordinary course of business does not
include an exchange or a transfer in partial or total satisfaction of a
debt owing by Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of this Agreement, and at any time or times
hereafter at the request of Bank, all financing statements, continuation
financing statements, security agreements, mortgages, assignments,
certificates of title, affidavits, reports, notices, schedules of
accounts, letters of authority and all other documents that Bank may
request, in form satisfactory to Bank, to perfect and maintain perfected
Bank's security interest in the Collateral and in order to fully
consummate all of the transactions contemplated under this Agreement.
Borrower hereby irrevocably makes, constitutes and appoints Bank (and any
of Bank's officers, employees or agents designated by Bank) as Borrower's
true and lawful attorney-in-fact with power to sign the name of Borrower
on any financing statements, continuation financing statements, security
agreement, mortgage, assignment, certificate of title, affidavit, letter
of authority, notice of other similar documents which must be executed
and/or filed in order to perfect or continue perfected Bank's security
interest in the Collateral.
Borrower shall make appropriate entries in Borrower's Books disclosing
Bank's security interest in the Receivables. Bank (through any of its
officers, employees or agents) shall have the right at any time or times
hereafter during Borrower's usual business hours, or during the usual
business hours of any third party having control over the records of
Borrower, to inspect and verify Borrower's Books in order to verify the
amount or condition of, or any other matter, relating to, said Collateral
and Borrower's financial condition.
4.5 Borrower appoints Bank or any other person whom Bank may designate
as Borrower's attorney-in-fact, with power to endorse Borrower's name on
any checks, notes, acceptances, money order, drafts or other forms of
payment or security that may come into Bank's possession; to sign
Borrower's name on any invoice or bill of lading relating to any
Receivables, on drafts against account debtors, on schedules and
assignments of Receivables, on verifications of Receivables and on
notices to account debtors; to establish a lock box arrangement and/or
upon Default notify the post office authorities to change the address for
delivery of Borrower's mail addressed to Borrower to an address
designated by Bank, to receive and open all mail addressed to Borrower,
and to retain all mail relating to the Collateral and forward all other
mail to Borrower; to send, whether in writing or by telephone, requests
for verification of Receivables; and to do all things necessary to carry
out this Agreement. Borrower ratifies and approves all acts of the
attorney-in-fact. Neither Bank nor its attorney-in-fact will be liable
for any acts or omissions or for any error of judgement or mistake of
fact or law. This power being coupled with an interest, is irrevocable
so long as any Receivables in which Bank has a security interest remain
unpaid and until the Obligations have been fully satisfied.
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien
or encumbrance or bond the same, pay any insurance, maintain guards,
warehousemen, or any personnel to protect the Collateral, pay any service
bureau, or, obtain any records, and all costs for the same shall be added
to the Obligations and shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to this
Agreement or relating to Borrower to Bank's parent, affiliates,
subsidiaries and service providers.
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5. CONDITIONS PRECEDENT
5.1 Conditions precedent to the making of the loans and the extension
of the financial accommodations hereunder, Borrower shall execute, or
cause to be executed, and deliver to Bank, in form and substance
satisfactory to Bank and its counsel, the following:
a. This Agreement and other documents required by Bank;
b. Financing statements (Form UCC-1) in form satisfactory to Bank
for filing and recording with the appropriate governmental authorities;
c. If Borrower is a corporation, then certified extracts from the
minutes of the meeting of its board of directors, authorizing the
borrowings and the granting of the security interest provided for herein
and authorizing specific officers to execute and deliver the agreements
provided for herein;
d. If Borrower is a corporation, then a certificate of good
standing showing that Borrower is in good standing under the laws of the
state of its incorporation and certificates indicating that Borrower is
qualified to transact business and is in good standing in any other state
in which it conducts business;
e. If Borrower is a partnership, then a copy of Borrower's
partnership agreement certified by each general partner of Borrower;
f. UCC searches, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or other
similar documents which Bank may require and in such form as Bank may
require, in order to reflect, perfect or protect Bank's first priority
security interest in the Collateral and in order to fully consummate all
of the transactions contemplated under this Agreement;
g. Evidence that Borrower has obtained insurance and acceptable
endorsements;
h. Waivers executed by landlords and mortgagees of any real
property on which any Collateral is located; and
i. Warranties and representations of officers.
6. WARRANTIES REPRESENTATIONS AND COVENANTS
6.1 If so requested by Bank, Borrower shall, at such intervals
designated by Bank, during the term hereof execute and deliver a Report
of Accounts Receivable or similar report, in form customarily used by
Bank. Borrower's Borrowing Base at all times pertinent hereto shall not
be less than the advances made hereunder. Bank shall have the right to
recompute Borrower's Borrowing Base in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is
not paid in full by an account debtor within Ninety (90) days from the
date of invoice, or an account debtor disputes liability or makes any
claim with respect thereto, or a petition in bankruptcy or other
application for relief under the Bankruptcy Code or any other insolvency
law is filed by or against an account debtor, or an account debtor makes
an assignment for the benefit of creditors, becomes insolvent, fails or
goes out of business, then Bank may deem ineligible any and all accounts
owing by that account debtor, and reduce Borrower's Borrowing Base by the
amount thereof. Bank shall retain its security interest in all
Receivables and accounts, whether eligible or ineligible, until all
Obligations have been fully paid and satisfied. Returns and allowances,
if any, as between Borrower and its customers, will be on the same basis
and in accordance with the usual customary practices of the Borrower, as
they exist at this time. Any merchandise which is returned by an account
debtor or otherwise recovered shall be set aside, marked with Bank's
name, and Bank shall retain a security interest therein Borrower shall
promptly notify Bank of all disputes and claims and settle or adjust them
on terms approved by Bank. After Default by Borrower hereunder, no
discount, credit or allowance shall be granted to any account debtor by
Borrower and no material return of merchandise shall be accepted by
Borrower without Bank's consent. Bank may, after default by Borrower,
settle or adjust disputes and claims directly with account debtors for
amounts and upon terms which Bank considers advisable, and in such cases
Bank will credit Borrower's account with only the net amounts received by
Bank in payment of the accounts, after deducting all Bank Expenses in
connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
a. Borrower has good and marketable title to the Collateral. Bank
has and shall continue to have a first priority perfected security
interest in and to the Collateral. The Collateral shall at all times
remain free and clear of all liens, encumbrances and security interests
(except as held by Bank and except as may be consented to, in writing, by
Bank.)
b. All accounts are and will, at all times pertinent hereto, be
bona fide existing obligations created by the sale and delivery of
merchandise or the rendition of services to account debtors in the
ordinary course of business, free of liens, claims, encumbrances and
security interests (except as held by Bank and except as may be consented
to, in writing, by Bank) and are unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims, rights of return or
cancellation, and Borrower shall have received no notice of
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actual or imminent bankruptcy or insolvency of any account debtor at the
time an account due from such account debtor is assigned to Bank.
c. At the time each account is assigned to Bank, all property
giving rise to such account shall have been delivered to the account
debtor or to the agent for the account debtor for immediate shipment to,
and unconditional acceptance by, the account debtor. Borrower shall
deliver to Bank, as Bank may from time to time require, delivery
receipts, customer's purchase orders, shipping instruction, bills of
lading and any other evidence of shipping arrangements. Absent such a
request by Bank, copies of all such documentation shall be held by
Borrower as custodian for Bank.
6.4 At the time each Eligible Account is assigned to Bank, all such
Eligible Accounts will be due and payable on terms set forth in
Section 1.12, or on such other terms approved in writing by Bank in
advance of the creation of such accounts and which are expressly set
forth on the face of all invoices, copies of which shall be held by
Borrower as custodian for Bank, and no such Eligible Account will then be
past due.
6.5 Borrower shall keep the Inventory only at the following locations:
______________________________________ and the owner or mortgagees of the
respective locations are: _______________________________________________
a. Borrower, immediately upon demand by Bank therefor, shall now
and from time to tin4a hereafter, at such intervals as are requested by
Bank, deliver to Bank, designations of Inventory specifying Borrowers
cost of Inventory, the wholesale market value thereof and such other
matters and information relating to the Inventory as Bank may request;
b. Borrower's Inventory, valued at the lower of Borrower's cost
or the wholesale market value thereof, at all times pertinent hereto
shall not be less than ____ N/A _________________________________ Dollars
($____N/A________) of which no less than ______ N/A _____________________
__________ Dollars ($____N/A________) shall be in raw materials and
finished goods;
c. All of the Inventory is and shall remain free from all
purchase money or other security interests, liens or encumbrances, except
as held by Bank;
d. Borrower does now keep and hereafter at all times shall keep
correct and accurate records itemizing and describing the kind, type,
quality and quantity of the Inventory, its cost therefor and selling
price thereof, and the daily withdrawals therefrom and additions thereto,
all of which records shall be available upon demand to any of Bank's
officers, agents and employees for inspection and copying;
e. All Inventory, now and hereafter at all times, shall be new
Inventory of good and merchantable quality free from defects;
f. Inventory is not now and shall not at any time or times
hereafter be located or stored with a bailee, warehouseman or other third
party without Bank's prior written consent which consent shall not be
unreasonably withheld, and, in such event, Borrower will concurrently
therewith cause any such bailee, warehouseman or other third party to
issue and deliver to Bank, in a form acceptable to Bank, warehouse
receipts in Bank's name evidencing the storage of Inventory or other
evidence of Bank's prior rights in the Inventory. In any event, Borrower
shall instruct any third party to hold all such Inventory for Bank's
account subject to Bank's security interests and its instructions; and
g. Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours, to inspect and examine
the Inventory and to check and test the same as to quality, quantity,
value and condition and Borrower agrees to reimburse Bank for Bank's
reasonable costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that
Borrower will not, without Bank's prior written consent:
a. Grant a security interest in or permit a lien, claim or
encumbrance upon any of Borrower's property to any person, association,
firm, corporation, entity or governmental agency or instrumentality;
b. Permit any levy, attachment or restraint to be made affecting
any of Borrower's assets;
c. Permit any Judicial Officer or Assignee to be appointed or to
take possession of any or all of Borrower's assets;
d. Other than sales of Inventory in the ordinary course of
Borrower's business, to sell, lease, or otherwise dispose of, move, or
transfer, whether by sale or otherwise, any of Borrower's material
assets;
e. Change its name, business structure, corporate identity or
structure; add any new fictitious names, liquidate, merge or consolidate
with or into any other business organization;
f. Move or relocate any Collateral;
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g. Acquire any other business organization;
h. Enter into any transaction not in the usual course of
Borrower's business;
i. Make any investment in securities of any person, association,
firm, entity, or corporation other than the securities of the United
States of America, except in accordance with Borrower's Investment Policy
which has been attached hereto and accepted by Bank.
j. Make any change in Borrower's financial structure or in any of
its business objectives, purposes or operations which would adversely
effect the ability of Borrower to repay Borrower's Obligations;
k. Incur any debts outside the ordinary course of Borrower's
business except renewals or extensions of existing debts and interest
thereon, except for Indebtedness incurred to finance the acquisition of
fixed assets (including software) which shall not exceed $2,500,000.00.
l. Make any advance or loan except in the ordinary course of
Borrower's business as currently conducted;
m. Make loans, advances or extensions of credit to any Person,
except for sales on open account and otherwise in the ordinary course of
business, and loans in an amount not to exceed $400,000.00 to officers
and executives of Borrower approved by Borrower's Board of Directors for
the purchase of Borrower's Capital Stock.
n. Guarantee or otherwise, directly or indirectly, in any way be
or become responsible for obligations of any other Person, whether by
agreement to purchase the indebtedness of any other Person, agreement for
the furnishing of funds to any other Person through the furnishing of
goods, supplies or services, by way of stock purchase, capital
contribution, advance or loan, for the purpose of paying or discharging
(or causing the payment or discharge of) the indebtedness of any other
Person, or otherwise, except for the endorsement of negotiable
instruments by the Borrower in the ordinary course of business for
deposit or collection.
o. (a) Sell, lease, transfer or otherwise dispose of properties
and assets having an aggregate book value of more than
____ N/A ____________ Dollars ($____N/A________) (whether in one
transaction or in a series of transactions) except as to the sale of
inventory in the ordinary course of business; (b) change its name,
consolidate with or merge into any other corporation, permit another
corporation to merge into it, acquire all or substantially all the
properties or assets of any other Person, enter into any reorganization
or recapitalization or reclassify its capital stock, or (c) enter into
any sale-leaseback transaction;
p. Subordinate any indebtedness due to it from a person to
indebtedness of other creditors of such person;
q. Purchase or hold beneficially any stock or other securities
of, or make any investment or acquire any interest whatsoever in, any
other Person, except for the common stock of the Subsidiaries owned by
the Borrower on the date of this Agreement and except for certificates of
deposit with maturities of one year or less of United States commercial
banks with capital, surplus and undivided profits in excess of
$100,000,000 and direct obligations of the United States Government
maturing within one year from the date of acquisition thereof; or except
as provided in the approved Investment Policy.
r. Allow any fact, condition or event to occur or exist with
respect to any employee pension or profit sharing plans established or
maintained by it which might constitute grounds for termination of any
such plan or for the Court appointment of a trustee to administer any
such plan.
6.7 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent
(75%) in dollar volume of its total sales of all goods during the 12
months preceding the filing by Bank of a financing statement describing
the Collateral. At no time hereafter shall Borrower's sales for resale of
goods for personal, family or household purposes exceed seventy-five
percent (75%) in dollar volume of its total sales.
6.8 Borrower's sole place of business or chief executive office or
residence is located at the address indicated above and Borrower
covenants and agrees that it will not, during the term of this Agreement,
without prior written notification to Bank, relocate said sole place of
business or chief executive office or residence.
6.9 If Borrower is a corporation, Borrower represents, warrants and
covenants as follows:
a. Borrower will not make any distribution or declare or pay any
dividend (in stock or in cash) to any shareholder or on any of its
capital stock, of any class, whether now or hereafter outstanding, or
purchase, acquire, repurchase, redeem or retire any such capital stock;
in accordance with employee stock repurchase agreements (provided a
Default does not exist at the time of such repurchase or would not exist
after giving effect thereto.)
b. Borrower is and shall at all times hereafter be a corporation
duly organized and existing in good standing under the laws of the state
of its incorporation and qualified and licensed to do business in
California or any other state in which it conducts its business;
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c. Borrower has the right and power and is duly authorized to
enter into this Agreement; and
d. The execution by Borrower of this Agreement shall not
constitute a breach of any provision contained in Borrower's articles of
incorporation or by-laws.
6.10 The execution of and performance by Borrower of all of the terms
and provisions contained in this Agreement shall not result in a breach
of or constitute an event of default under any agreement to which
Borrower is now or hereafter becomes a party.
6.11 Borrower shall promptly notify Bank in writing of its acquisition
by purchase, lease or otherwise of any after acquired property of the
type included in the Collateral, with the exception of purchases of
Inventory in the ordinary course of business.
6.12 All assessments and taxes, whether real, personal or otherwise,
due or payable by, or imposed, levied or assessed against, Borrower or
any of its property have been paid, and shall hereafter be paid in full,
before delinquency. Borrower shall make due and timely payment or
deposit of all federal, state and local taxes, assessments or
contributions required of it by law, and will execute and deliver to
Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof. Borrower will make timely payment or deposit of all
F.I.C.A. payments and withholding taxes required of it by applicable
laws, and will upon request furnish Bank with proof satisfactory to it
that Borrower has made such payments or deposit. If Borrower fails to
pay any such assessment, tax, contribution, or make such deposit, or
furnish the required proof, Bank may, in its sole and absolute discretion
and without notice to Borrower, (i) make payment of the same or any part
thereof; or (ii) set up such reserves in Borrower's account as Bank deems
necessary to satisfy the liability therefor, or both. Bank may
conclusively rely on the usual statements of the amount owing or other
official statements issued by the appropriate governmental agency. Each
amount so paid or deposited by Bank shall constitute a Bank Expense and
an additional advance to Borrower.
6.13 There are no actions or proceedings pending by or against
Borrower or any guarantor of Borrower before any court or administrative
agency and Borrower has no knowledge of any pending, threatened or
imminent litigation, governmental investigations or claims, complaints,
actions or prosecutions involving Borrower or any guarantor of Borrower,
except as heretofore specifically disclosed in writing to Bank. If any
of the foregoing arise during the term of the Agreement, Borrower shall
immediately notify Bank in writing.
6.14 a. Borrower, at its expense, shall keep and maintain its assets
insured against loss or damage by fire, theft, explosion, sprinklers and
all other hazards and risks ordinarily insured against by other owners
who use such properties in similar businesses for the full insurable
value thereof. Borrower shall also keep and maintain business
interruption insurance and public liability and property damage insurance
relating to Borrower's ownership and use of the Collateral and its other
assets. All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be satisfactory to Bank. Borrower
shall deliver to Bank certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All such policies of
insurance (except those of public liability and property damage) shall
contain an endorsement in a form satisfactory to Bank showing Bank as a
loss payee thereof, with a waiver of warranties (Form 438-BFU), and all
proceeds payable thereunder shall be payable to Bank and, upon receipt by
Bank, shall be applied on account of the Obligations owing to Bank. To
secure the payment of the Obligations, Borrower grants Bank a security
interest in and to all such policies of insurance (except those of public
liability and property damage) and the proceeds thereof, and upon Default
Borrower shall direct all insurers under such policies of insurance to
pay all proceeds thereof directly to Bank.
b. Upon Default Borrower hereby irrevocably appoints Bank (and any of
Bank's officers, employees or agents designated by Bank) as Borrower's
attorney for the purpose of making, selling and adjusting claims under
such policies of insurance, endorsing the name of Borrower on any check,
draft, instrument or other item of payment for the proceeds of such
policies of insurance and for making all determinations and decisions
with respect to such policies of insurance. Borrower will not cancel any
of such policies without Bank's prior written consent. Each such insurer
shall agree by endorsement upon the policy or policies of insurance
issued by it to Borrower as required above, or by independent instruments
furnished to Bank, that it will give Bank at least ten (10) days written
notice before any such policy or policies of insurance shall be altered
or cancelled, and that no act or default of Borrower, or any other
person, shall affect the right of Bank to recover under such policy or
policies of insurance required above or to pay any premium in whole or in
part relating thereto. Bank, without waiving or releasing any
Obligations or any Event of Default, may, but shall have no obligation to
do so, obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect to such policies which
Bank deems advisable. All sums so disbursed by Bank, as well as
reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall constitute Bank Expenses and are payable on
demand.
6.15 All financial statements and information relating to Borrower
which have been or may hereafter be delivered by Borrower to Bank are
true and correct and have been prepared in accordance with GAAP
consistently applied and there has been no material adverse change in the
financial condition of Borrower since the submission of such financial
information to Bank.
6.16 a. Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with GAAP consistently applied
with ledger and account cards and/or computer tapes and computer disks,
computer printouts and computer records pertaining to the Collateral
which contain information as may from
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time to time be requested by Bank, not modify or change its method of
accounting or enter into, modify or terminate any agreement presently
existing, or at any time hereafter entered into with any third party
accounting firm and/or service bureau for the preparation and/or
storage of Borrower's accounting records without the written consent
of Bank first obtained and without said accounting firm and/or service
bureau agreeing to provide information regarding the Receivables and
Inventory and Borrower's financial condition to Bank; permit Bank and
any of its employees, officers or agents, upon demand, during Borrower's
usual business hours, or the usual business hour of third persons
having control thereof, to have access to and examine all of the
Borrower's Books relating to the Collateral, Borrower's Obligations to
Bank, Borrower's financial condition and the results of Borrower's
operations and in connection therewith, permit Bank or any of its
agents, employees or officers to copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty (30) days after the
end of each Month , a COMPANY PREPARED balance sheet and profit and loss
statement covering Borrower's operations and deliver to Bank within one
hundred twenty (120) days after the end of each of Borrower's fiscal
years a(n) AUDITED statement of the financial condition of the Borrower
for each such fiscal year, including but not limited to, a balance sheet
and profit and loss statement and any other report requested by Bank
relating to the Collateral and the financial condition of Borrower, and a
certificate signed by an authorized employee of Borrower to the effect
that all reports, statements, computer disk or tape files, computer
printouts, computer runs, or other computer prepared information of any
kind or nature relating to the foregoing or documents delivered or caused
to be delivered to Bank under this subparagraph are complete, correct and
thoroughly present in accordance with GAAP the financial condition of
borrower and that there exists on the date of delivery to Bank no
condition or event which constitutes a breach or Event of Default under
this Agreement.
c. In addition to the financial statements requested above, the
Borrower agrees to provide Bank with the following schedules:
__ XX ___________ Accounts Receivable Agings on a MONTHLY * basis:
__ XX ___________ Accounts Payable Agings on a MONTHLY * basis;
_________________ Job Progress Reports on a ___________ basis; and
____ XX ____ BORROWING BASE CERTIFICATES, on a MONTHLY * basis
BUDGETS, PROJECTIONS OR OTHER FINANCIAL
EXHIBIT WHICH LENDER MAY REASONABLY
* Within 15 days of month end
6.17 Borrower shall maintain the following financial ratios and
covenants on a consolidated and non-consolidated basis:
a. Working Capital in an amount not less than ____ N/A _________________
b. Tangible Effective Net Worth in an amount not less than $5,500,000.00
TO INCREASE BY 75% OF QUARTERLY NET PROFIT AFTER TAX AND 50% OF NEW
EQUITY RAISED AFTER SEPTEMBER 30, 1998.
c. a ratio of Current Assets to Current Liabilities of not less than
____ N/A ________________________________________________________________
_________________________________________________________________________
d. a quick ratio of cash plus securities plus Receivables to Current
Liabilities of not less than 1.50:1.00.
e. a ratio of Total Liabilities (less debt subordinated to Bank) to
Tangible Effective Net Worth of less than ____ N/A ______________________
_________________________________________________________________________
f. a ratio of Cash Flow to Fixed Charges of not less than ____ N/A _____
_________________________________________________________________________
g. Net Income after taxes of QUARTERLY PROFITABILITY ON AN OPERATING AND
AFTER TAX BASIS, BEGINNING QUARTER ENDING MARCH 31, 2000.
h. Borrower shall not without Bank's prior written consent acquire or
expend for or commit itself to acquire or expend for fixed assets by
lease, purchase or otherwise in an aggregate amount that exceeds
____ N/A ________________________________________________________________
__________________________ Dollars ($___________) in any fiscal year; and
i. SEE ADDENDUM "A" ATTACHED HERETO AND MADE A PART HEREOF.
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors
and shareholders) shall be excluded from Borrower's assets for all
purposes hereunder.
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6.18 Borrower shall promptly supply Bank (and cause any guarantor to
supply Bank) with such other information (including tax returns)
concerning its financial affairs (or that of any guarantor) as Bank may
request from time to time hereafter, and shall promptly notify Bank of
any material adverse change in Borrower's financial condition and of any
condition or event which constitutes a breach of or an event which
constitutes an Event of Default under this Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and
able to pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank for
all sums expended by Bank in connection with any action brought by Bank
to correct any default or enforce any provision of this Agreement,
including all Bank Expenses; Borrower authorizes and approves all
advances and payments by Bank for items described in this Agreement as
Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and
shall be conclusively presumed to have been relied on by Bank regardless
of any investigation made or information possessed by Bank. The
warranties, representations and agreements set forth herein shall be
cumulative and in addition to any and all other warranties,
representations and agreements which Borrower shall give, or cause to be
given, to Bank, either now or hereafter.
6.22 Borrower shall keep all of its principal bank accounts with Bank
and shall notify the Bank immediately in writing of the existence of any
other bank account, deposit account, or any other account into which
money can be deposited, provided Borrower may maintain investment
accounts with an investment manager acceptable to Bank.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but
in no event later than thirty (30) days after Borrower knows or has
reason to know that any reportable event with respect to any deferred
compensation plan has occurred, a statement of the chief financial
officer of Borrower setting forth the details concerning such reportable
event and the action which Borrower proposes to take with respect
thereto, together with a copy of the notice of such reportable event
given to the Pension Benefit Guaranty Corporation, if a copy of such
notice is available to Borrower; (b) promptly after the filing thereof
with the United States Secretary of Labor or the Pension Benefit Guaranty
Corporation, copies of each annual report with respect to each deferred
compensation plan; (c) promptly after receipt thereof, a copy of any
notice Borrower may receive from the Pension Benefit Guaranty Corporation
or the Internal Revenue Service with respect to any deferred compensation
plan; provided, however, this subparagraph shall not apply to notice of
general application issued by the Pension Benefit Guaranty Corporation or
the Internal Revenue Service; and (d) when the same is made available to
participants in the deferred compensation plan, all notices and other
forms of information from time to time disseminated to the participants
by the administrator of the deferred compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in
compliance with all federal, state and municipal laws, regulations and
ordinances relating to the handling, treatment and disposal of toxic
substances, wastes and hazardous material and shall maintain all
necessary authorizations and permits.
6.25 Borrower shall maintain insurance on the life of _____ N/A _____
in an amount not to be less than ________________ Dollars ($____________)
under one or more policies issued by insurance companies satisfactory to
Bank, which policies shall be assigned to Bank as security for the
Obligations and on which Bank shall be named as sole beneficiary.
6.26 Borrower shall limit direct and indirect compensation paid to
the following employees: ________________, ________________,
________________, to an aggregate of ____ N/A ________________ Dollars
($____ N/A________) per ____ N/A ________.
6.27 Borrower shall perform all acts reasonably necessary to ensure
that: (i) Borrower and any business in which Borrower holds a substantial
interest, and (ii) all customers, suppliers and vendors that are material
to Borrower's business, become Year 2000 Compliant in a timely manner.
Such acts shall include, without limitation, performing a comprehensive
review and assessment of all of Borrower's systems and adopting a
detailed plan, with itemized budget, for the remediation, monitoring and
testing of such systems, As used in this paragraph, "Year 2000 Compliant"
shall mean, in regard to any entity, that all software, hardware,
firmware, equipment, goods or systems utilized by or material to the
business operations or financial condition of such entity, will properly
perform date sensitive function before, during and after the year 2000.
Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with terms of
this paragraph as Bank may from time to time require.
7. EVENTS OF DEFAULT
Any one or more of the following events shall constitute a default by
Borrower under this Agreement: (a "Default").
a. If Borrower fails or neglects to perform, keep or observe any term,
provision, condition, covenant, agreement, warranty or representation
contained in this Agreement, or any other present or future agreement
between Borrower and Bank;
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b. If any representation, statement, report or certificate made or
delivered by Borrower, or any of its officers, employees or agents to
Bank is not true and correct;
c. If Borrower fails to pay when due and payable or declared due and
payable, all or any portion of the Borrower's Obligations (whether of
principal, interest, taxes, reimbursement of Bank Expenses, or
otherwise);
d. If there is a material impairment of the prospect of repayment of all
or any portion of Borrower's Obligations or a material impairment of the
value or priority of Bank's security interest in the Collateral;
e. If all or any of Borrower's assets are attached, seized, subject to a
writ or distress warrant, or are levied upon, or come into the possession
of any Judicial Officer or Assignee and the same are not released,
discharged or bonded against within ten (10) days thereafter;
f. If any Insolvency Proceeding is filed or commenced by or against
Borrower without being dismissed within thirty (30) days thereafter;
g. If any proceeding is filed or commenced by or against Borrower for
its dissolution or liquidation;
h. If Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
i. If a notice of lien, levy or assessment is filed of record with
respect to any or all of Borrower's assets by the United States
Government, or any department, agency or instrumentality thereof, or by
any state, county, municipal or other government agency, or if any taxes
or debts owing at any time hereafter to any one or more of such entities
becomes a lien, whether choate or otherwise, upon any or all of the
Borrower's assets and the same is not paid on the payment date thereof;
j. If a judgment or other claim becomes a lien or encumbrance upon any
or all of Borrower's assets and the same is not satisfied, dismissed or
bonded against within ten (10) days thereafter;
k. If Borrower's records are prepared and kept by an outside computer
service bureau at the time this Agreement is entered into or during the
term of this Agreement such an agreement with an outside service bureau
is entered into, and at any time thereafter, without first obtaining the
written consent of Bank, Borrower terminates, modifies, amends or changes
its contractual relationship with said computer service bureau or said
computer service bureau fails to provide Bank with any requested
information or financial data pertaining to Bank's Collateral, Borrower's
financial condition or the results of Borrower's operations;
l. If Borrower permits a default in any material agreement to which
Borrower is a party with third parties so as to result in an acceleration
of the maturity of Borrower's indebtedness to others, whether under any
indenture, agreement or otherwise;
m. If Borrower makes any payment on account of indebtedness which has
been subordinated to Borrower's Obligations to Bank;
n. If any misrepresentation exists now or thereafter in any warranty or
representation made to Bank by any officer or director of Borrower, or if
any such warranty or representation is withdrawn by any officer or
director;
o. If any party subordinating its claims to that of Bank's or any
guarantor of Borrower's Obligations dies or terminates its subordination
or guaranty, becomes insolvent or an Insolvency Proceeding is commenced
by or against any such subordinating party or guarantor;
p. If Borrower is an individual and Borrower dies;
q. If there is a change of ownership or control of ____ N/A ____________
percent (_____%) or more of the issued and outstanding stock of Borrower;
or
r. If any reportable event, which the Bank determines constitutes
grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer any
such plan, shall have occurred and be continuing thirty (30) days after
written notice of such determination shall have been given to Borrower by
Bank, or any such Plan shall be terminated within the meaning of Title IV
of the Employment Retirement Income Security Act ("ERISA"), or a trustee
shall be appointed by the appropriate United States District Court to
administer any such plan, or the Pension Benefit Guaranty Corporation
shall institute proceedings to terminate any plan and in case of any
event described in this Section 7.0, the aggregate amount oF the
Borrower's liability to the Pension Benefit Guaranty Corporation under
Sections 4062, 4063 or 4064 of ERISA shall exceed five percent (5%) of
Borrower's Tangible Effective Net Worth.
Notwithstanding anything contained in Section 7 to the contrary, Bank
shall refrain from exercising its rights and remedies and Event of
Default shall thereafter not be deemed to have occurred by reason of the
occurrence of any of the events set forth in Sections 7.e, 7.f or 7.j of
this Agreement if, within ten (10) days from the date thereof, the same
is released, discharged, dismissed, bonded against or satisfied;
provided, however, if the event
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<PAGE>
is the institution of Insolvency Proceedings against Borrower, Bank
shall not be obligated to make advances to Borrower during such cure
period.
8. BANK'S RIGHTS AND REMEDIES
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
a. Declare Borrower's Obligations, whether evidenced by this
Agreement, installment notes, demand notes or otherwise, immediately
due and payable to the Bank;
b. Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, or any other agreement
between Borrower and Bank;
c. Terminate this Agreement as to any future liability or
obligation of Bank, but without affecting Bank's rights and security
interests in the Collateral, and the Obligations of Borrower to Bank;
d. Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as Bank considers necessary or
reasonable to protect its security interest in the Collateral.
Borrower agrees to assemble the Collateral if Bank so requires and to
make the Collateral available to Bank as Bank may designate. Borrower
authorizes Bank to enter tile premises where the Collateral is
located, take and maintain possession of the Collateral and the
premises (at no charge to Bank), or any part thereof, and to pay,
purchase, contest or compromise any encumbrance, charge or lien which
in the opinion of Bank appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith;
e. Until a Default is cured or all Obligations have been paid
in full without limiting Bank's rights under any security interest,
Bank is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use OF any
name, trade secrets, trade names, trademarks and advertising matter,
or any property of a similar nature as it pertains to the Collateral,
in completing production of, advertising for sale and selling any
Collateral and Borrower's rights under all licenses and all franchise
agreement shall inure to Bank's benefit, and Bank shall have the right
and power to enter into sublicense agreements with respect to all such
rights with third parties on terms acceptable to Bank, only to the
extent necessary to dispose of Collateral;
f. Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sales and sell (in the manner provided
for herein) the Inventory;
g. Sell or dispose the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including
Borrower's premises) as is commercially reasonable in the opinion of
Bank. It is not necessary that the Collateral be present at any such
sale;
h. Bank shall give notice of the disposition of the Collateral
as follows:
(1) Bank shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Bank a written
request for notice, a notice in writing of the time and place of
public sale, or, if the sale is a private sale or some disposition
other than a public sale is to be made of the Collateral, the time
on or after which the private sale or other disposition is to be
made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower's address appearing in this Agreement, at
least five (5) calendar days before the date fixed for the sale,
or at least five (5) calendar days before the date on or after
which the private sale or other disposition is to be made, unless
the Collateral is perishable or threatens to decline speedily in
value. Notice to persons other than Borrower claiming an interest
in the Collateral shall be sent to such addresses as they have
furnished to Bank;
(3) If the sale is to be a public sale, Bank shall also give
notice of the time and place by publishing a notice one time at
least five (5) calendar days before the date of the sale in a
newspaper of general circulation in the county in which the sale
is to be hold; and
(4) Bank may credit bid and purchase at any public sale.
i. Borrower shall pay all Bank Expenses incurred in connection with
Bank's enforcement and exercise of any of its rights and remedies as
herein provided, whether or not suit is commenced by Bank;
j. Any deficiency which exists after disposition of the Collateral
as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third
parties, to Borrower by Bank, or, in Bank's discretion, to any party
who Bank believes, in good faith, is entitled to the excess; and
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<PAGE>
k. Without constituting a retention of Collateral in satisfaction
of an obligation within the meaning of 9505 of the Uniform Commercial
Code or an action under California Code of Civil Procedure 726, apply
any and all amounts maintained by Borrower as deposit accounts (as
that term is defined under 9105 of the Uniform Commercial Code) or
other accounts that Borrower maintains with Bank against the
Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and
remedies not inconsistent herewith as provided by law or in equity. No
exercise by Bank of one right or remedy shall be deemed an election, and
no waiver by Bank of any default on Borrower's part shall be deemed a
continuing waiver. No delay by Bank shall constitute a waiver, election
or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY
Upon notice, if Borrower fails to pay promptly when due to another person or
entity, monies which Borrower is required to pay by reason of any provision in
this Agreement, Bank may, but need not, pay the same and charge Borrower's
account therefor, and Borrower shall promptly reimburse Bank. All such sums
shall become additional indebtedness owing to Bank, shall bear interest at the
rate hereinabove provided, and shall be secured by all Collateral. Any payments
made by Bank shall not constitute (i) an agreement by it to make similar
payments in the future; or (ii) a waiver by Bank of any default under this
Agreement. Bank need not inquire as to, or contest the validity of, any such
expense, tax, security interest, encumbrance or lien and the receipt of the
usual official notice of the payment thereof shall be conclusive evidence that
the same was validly due and owing. Such payments shall constitute Bank Expenses
and additional advances to Borrower.
10. WAIVERS
10.1 Borrower agrees that checks and other instruments received by
Bank in payment or on account of Borrower's Obligations constitute only
conditional payment until such items are actually paid to Bank and
Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by Bank on account of
Borrower's Obligations and Borrower agrees that Bank shall have the
continuing exclusive right to apply and reapply such payments in any
manner as Bank may deem advisable, notwithstanding any entry by Bank upon
its books.
10.2 Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper, accounts, documents,
instruments chattel paper, and guarantees at any time held by Bank on
which Borrower may in any way be liable.
10.3 Bank shall not in any way or manner be liable or responsible for
(a) the safekeeping of the Inventory; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency or other person
whomsoever. All risk of loss, damage or destruction of Inventory shall be
borne by Borrower, provided Bank uses customary and reasonable methods of
safekeeping and maintenance.
10.4 Borrower waives the right and tile right to assert a
confidential relationship, if any, it may have with any accountant,
accounting firm and/or service bureau or consultant in connection with
any information requested by Bank pursuant to or in accordance with this
Agreement, and agrees that a Bank may contact directly any such
accountants, accounting firm and/or service bureau or consultant in order
to obtain such information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION
HEREUNDER, OR CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT
OR BREACH OF DUTY CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND
BORROWER.
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or falls
to pursue or enforce any terms, such waiver, delay or failure to pursue
or enforce shall only be effective with respect to that single act and
shall not be construed to affect any subsequent transactions or Bank's
right to later pursue such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION
All loans and advances heretofore, now or at any time or times hereafter made by
Bank to Borrower under this Agreement or any other agreement between Bank and
Borrower, shall constitute one loan secured by Bank's security interests in the
Collateral and by all other security interests, lions, encumbrances heretofore,
now or from time to time hereafter granted by Borrower to Bank.
Notwithstanding the above, (i) to the extent that any portion of the Obligations
are a consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in the Borrower's principal dwelling
which is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the Borrower (or
any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
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12. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by either
party on the other relating to this Agreement shall be in writing and sent by
regular United States mail, postage prepaid, properly addressed to Borrower or
to Bank at the addresses stated in this Agreement, or to such other addresses as
Borrower or Bank may from time to time specify to the other in writing. Requests
to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE
Bank is hereby authorized to make loans and advances hereunder upon telephonic
or other instructions received from anyone purporting to be an officer,
employee, or representative of Borrower, or at the discretion of Bank if said
loans and advances are necessary to meet any Obligations of Borrower to Bank.
Bank shall have no duty to make inquiry or verify the authority of any such
party, and Borrower shall hold Bank harmless from any damage, claims or
liability by reason of Bank's honor of, or failure to honor, any such
instructions, provided such actions are consistent with the Borrowing Resolution
provided herein.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
Any documents, schedules, invoices or other papers delivered to Bank, may be
destroyed or otherwise disposed of by Bank six (6) months after they are
delivered to or received by Bank, unless Borrower requests, in writing, the
return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined according to the laws of the State of
California. The parties agree that all actions or proceedings arising in
connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or County of Santa
Clara.
16. GENERAL PROVISIONS
16.1 This Agreement shall be binding and deemed effective when
executed by the Borrower and accepted and executed by Bank at its
Headquarter Office.
16.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, provided,
however, that Borrower may not assign this Agreement or any rights
hereunder without Bank's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Bank
shall release Borrower or any guarantor from their Obligations to Bank.
Bank may assign this Agreement and its rights and duties hereunder. Bank
reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in Bank's rights
and benefits hereunder. In connection therewith, Bank may disclose all
documents and information which Bank now or hereafter may have relating
to Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth
herein for convenience only; unless the contrary is compelled by the
context, everything contained in each paragraph applies equally to this
entire Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under
any rule of construction or otherwise; on the contrary, this Agreement
has been reviewed by all parties and shall be construed and interpreted
according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto. When
permitted by the context, the singular includes the plural and vice
versa.
16.5 Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the
legal enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except as
to currently existing Obligations owing by Borrower to Bank, all prior
agreements, understandings, representations, warranties, and
negotiations, if any, with respect to the subject matter hereof, are
merged into this Agreement.
16.7 The parties intend and agree that their respective rights,
duties, powers liabilities, obligations and discretions shall be
performed, carried out, discharged and exercised reasonably and in good
faith.
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IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit
Loan & Security Agreement (Accounts and Inventory) to be executed as of the date
first hereinabove written.
ATTEST: BORROWER: SILICON IMAGE, INC.
By: /s/ Daniel K Atler
- ----------------------------------------------- --------------------------
Title: Signature of
Accepted and effective as of December 17, 1998 Title: CFO
at Bank's Headquarter Office -----------------------
By:
--------------------------
Signature of
(Bank) Comerica Bank-California Title:
-----------------------
By: /s/ Mary Beth Suhr By:
-------------------------------------------- --------------------------
Signature of MARY BETH SUHR Signature of
Title: VICE PRESIDENT Title:
----------------------------------------- -----------------------
By:
--------------------------
Signature of
Title:
-----------------------
Bank agrees to subordinate any security interest it may have in any
assets, other than Receivables and Inventory, to the security interest of any
person providing purchase money financing for such assets, provided that such
financing shall not exceed a principal amount of $2,500,000 (Two Million Five
Hundred Thousand).
Bank further agrees to execute such form UCC2's as Borrower may
reasonably request to effect the foregoing.
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<PAGE>
EQUIPMENT RIDER
Borrower(s): SILICON IMAGE, INC.
Borrower has entered into a certain Revolving Credit and Security
Agreement (Accounts and Inventory) or a certain Loan and Security Agreement
(Accounts and Inventory) (either hereinafter referred to as "Agreement"), dated
December 17, 1998 with Bank (Secured Party). This EQUIPMENT RIDER (hereinafter
referred to as this Rider) dated December 17, 1998 is hereby made a part of and
incorporated into that Agreement.
1. Borrower grants to Bank a security interest in the following (hereinafter
referred to as "Equipment"):
(a) All of Borrower's present machinery, equipment, fixtures, vehicles,
office equipment, furniture, furnishings, tools, dies, jigs and
attachments, wherever located, (including but not limited to, the items
listed and described on the Schedule of Equipment attached hereto and
marked Exhibit "A" and by this reference made a part hereof as though
fully set forth hereat);
(b) all of Borrower's additional equipment, wherever located, of like or
unlike nature, to be acquired hereafter, and all replacements,
substitutes, accessions, additions and improvements to any of the
foregoing; and
2. Bank's security interest in the Equipment as set forth above shall secure
each, any and all of Borrower's Obligations to Bank, as the term "Obligations"
is defined in the Agreement; and, the payment of Borrower's indebtedness in the
principal amount of Four Million Seven Hundred Fifty Thousand and no/100 Dollars
($4,750,000.00) and interest evidenced by VARIOUS NOTES.
3. Bank may, in its sole discretion, from time to time hereafter, make loans to
Borrower. Loans made by Bank to Borrower pursuant to this Rider shall be
included as part of the Obligations of Borrower to Bank and at Bank's option,
may be evidenced by promissory note(s), in form satisfactory to Bank. Such
loans shall bear interest at the rate and be payable in the manner specified in
said promissory note(s) in the event Bank exercises the aforementioned option,
and in the event Bank does not, such loans shall bear interest at the rate and
be payable in the manner specified in the Agreement.
4. Borrower represents and warrants to Bank that:
(a) it has good and indefeasible title to the Equipment;
(b) the Equipment is and will be free and clear of all liens, security
interests, encumbrances and claims, except as held by Bank,
(c) the Equipment shall be kept only at the following locations:
-------------------------------------------------------------
(d) the owners or mortgagees of the respective locations are:
-------------------------------------------------------------
(e) Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours to inspect and examine
the Equipment and Borrower agrees to reimburse Bank for its reasonable
costs and expenses in so doing.
5. Borrower shall keep and maintain the Equipment in good operating condition
and repair, make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Borrower shall not permit any items of Equipment to become a fixture to real
estate or accession to other property, and the Equipment is now and shall at all
times remain and be personal property.
6. Borrower, at its expense, shall keep and maintain: the Equipment insured
against loss or damage by fire, theft, explosion, sprinklers and all other
hazards and risks ordinarily insured against by other owners who use such
properties and interest in properties in similar businesses for the full
insurable value thereof; and business interruption insurance and public
liability and property damage insurance relating to Borrowers ownership and use
of its assets. All such policies of insurance shall be in such form, with such
companies and in such amounts as may be satisfactory to Bank. Borrower shall
deliver to Bank certified copies of such policies of insurance and evidence of
the payment of all premiums thereof. All such policies of insurance (except
those of public liability and property damage) shall contain an endorsement in a
form satisfactory to Bank showing loss payable to Bank and all proceeds payable
thereunder shall be payable to Bank and upon receipt by Bank shall be applied on
the account of Borrower's Obligations. To secure the payment of Borrower's
Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property damage) and
the proceeds thereof and directs all insurers under such policies of insurance
to pay all proceeds thereof directly to Bank. Borrower hereby irrevocably
appoints Bank (and any of Bank's officers, employees or agents designated by
Bank) as Borrower's attorney-in-fact for the purpose of making, settling and
adjusting claims under such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance. Each
such insurer shall agree by endorsement upon the policy or policies of insurance
issued by it to Borrower as required above, or by independent instruments
furnished to Bank that it will give Bank at least ten (10) days written notice
before any such policy or policies of insurance shall be altered or canceled,
and that no act or default of Borrower, or any other person, shall affect the
right of Bank to recover under such policy or policies of insurance required
above or to pay any premium in whole or in part relating thereto. Bank, without
waiving or releasing any obligations or defaults by Borrower hereunder, may at
any time or times hereafter, but shall have no obligations to do so, obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect to such policies which Bank deems advisable. All sums so
disbursed by Bank, including reasonable attorney's fees, court costs, expenses
and other charges relating thereto, shall be a part of Borrower's Obligations
and payable on demand.
7. Until default by Borrower under the Agreement or this Rider, Borrower may
subject to the provisions of the Agreement and this Rider and consistent
therewith, remain in possession thereof and use the Equipment referred to herein
in the ordinary course of business at the location or locations hereinabove
designated.
8. All of the terms, conditions, warranties, covenants, agreements and
representations of the Agreement are incorporated herein and reaffirmed.
9. Upon a default by Borrower under the Agreement or this Rider, Borrower upon
request of Bank to do so, agrees to assemble and make he Equipment or any part
thereof available to Bank at a place designated by Bank.
10. Borrower shall upon demand by Bank immediately deliver to Bank and properly
endorse, any and all evidences of ownership, certificates of title or
applications for titles to any of the aforesaid items of Equipment.
11. Bank shall not in any way or manner be liable or responsible for (a) the
safekeeping of the Equipment; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof or (d) any act or default by any person whomsoever. All risk of Loss,
damage or destruction of the Equipment shall be borne by Borrower.
Borrower(s): SILICON IMAGE, INC.
/s/ Daniel K. Atler
- ----------------------------------- ---------------------------------------
By: By:
- ----------------------------------- ---------------------------------------
By: By:
Accepted this 17th day of December, 1998 at Bank's place of business in San
Jose, CA 95113
By: /s/ Mary Beth Suhr
------------------------------------
MARY BETH SUHR, VICE PRESIDENT
1
<PAGE>
ENVIRONMENTAL RIDER
Comerica Bank-California
-----------------------------------------------
NAME OF OFFICE
333 West Santa Clara Street, San Jose, CA 95113
-----------------------------------------------
ADDRESS
This ENVIRONMENTAL RIDER (this "Rider") dated this 17th day of
December, 1998 is hereby made a part of and incorporated into that certain
LOAN & SECURITY AGREEMENT (the "Agreement") dated December 17, 1998 between
Comerica Bank-California a California corporation ("Lender") and SILICON
IMAGE, INC. ("Borrower").
1. Borrower hereby represents, warrants and covenants that none of the
collateral or real property occupied and/or owned by Borrower has ever been used
by Borrower or any other previous owner and/or operator in connection with the
disposal of or to refine, generate, manufacture, produce, store, handle, treat,
transfer, release, process or transport any hazardous waste, as defined in 42
U.S.C. 9601 (14) ("Hazardous Substance"), and Borrower will not at any time use
the collateral or such real property for the disposal of, refining of,
generating, manufacturing, producing, storing, handling, treating, transferring,
releasing, processing, or transporting any such Hazardous Waste and/or Hazardous
Substances.
2. None of the collateral or real property used and/or occupied by Borrower
has been designated, listed or identified in any manner by the United States
Environmental Protection Agency (the "EPA") or under and pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, set forth at 42 U.S.C. 9601 et seq. ("CERCLA") or the Resource
Conservation and Recovery Act of 1986, as amended, set forth at 42 U.S.C. 9601
et seq. ("RCRA") or any other environmental protection statute as a Hazardous
Waste or Hazardous Substance disposal or removal site, superfund or cleanup site
or candidate for removal of closure pursuant to RCRA, CERCLA or any other
environmental protection statute.
3. Borrower has not received a summons, citation, notice, directive, letter
or other communication, written or oral, from the EPA or any other federal or
state governmental agency or instrumentality, authorized pursuant to an
environmental protection statute, concerning any intentional or unintentional
action or omission by Borrower resulting in the releasing, spilling, leaking,
pumping, pouring, emitting, emptying, dumping or otherwise disposing of
Hazardous Waste or Hazardous Substance into the environment resulting in damage
thereto or to the fish, shellfish, wildlife, biota or other natural resources.
4. Borrower shall not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part, or on the part of
any third party, on property owned and/or occupied by Borrower, any disposal,
releasing, spilling, leaking, pumping, omitting, Pouring, emptying or dumping of
a Hazardous Waste or Hazardous Substance into the environment where damage may
result to the environment, fish, shellfish, wildlife, biota or other natural
resources unless such disposal, release, spill, leak, pumping, emission,
pouring, emptying or dumping is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal or state governmental
authority.
5. Borrower shall furnish to Lender:
(a) Promptly and in any event within thirty (30) days after receipt
thereof, a copy of any notice, summons, citation, directive, letter or other
communications from the EPA or any other governmental agency or instrumentality
concerning any intentional or unintentional action or omission on Borrower's
part in connection with the handling, transporting, transferring, disposal or in
the releasing, spilling, leaking, pumping, pouring, emitting, emptying or-
dumping of Hazardous Waste or Hazardous Substances into the environment
resulting in damage to the environment, fish. shellfish, wildlife, biota and any
other natural resource;
(b) Promptly and in any event within thirty (30) days after the receipt
thereof, a copy of any notice of or other communication concerning the filing of
a lien upon, against or in connection with Borrower, the collateral or
Borrower's real property by the EPA or any other governmental agency or
instrumentality authorized to file such a lien pursuant to an environmental
protection statute in connection with a fund to pay for damages and/or cleanup
and/or removal costs arising from the intentional or unintentional action or
omission of Borrower resulting from the disposal or in the releasing, spilling,
leaking, pumping, pouring, emitting, emptying or dumping of Hazardous Waste or
Hazardous Substances into the environment;
(c) Promptly and in any event within thirty (30) days after the receipt
thereof, a copy of any notice, directive, letter or other communication from the
EPA or any other governmental agency or instrumentality acting under the
authority of an environmental protection statute indicating that all or any
portion of the Borrower's property or assets have been listed and/or borrowers
deemed by such agency to be the owner and operator of the facility that has
failed to furnish to the EPA or other authorized governmental agency or
instrumentality, all the information required by the RCRA, CERCLA or other
applicable environmental protection statutes;
(d) Promptly and in no event more than thirty (30) days after the filing
thereof with the EPA or other governmental agency or instrumentality authorized
as such pursuant to an environmental protection statute, copies of any and all
information reports filed with such agency or instrumentality in connection with
Borrower's compliance with RCRA, CERCLA or other applicable environmental
protection statutes.
6. Any one or more of the following events which occur with respect to
Borrower shall constitute an event of default:
(a) The breach by Borrower of any covenant or condition, representation
or warranty contained in this Rider;
(b) The failure by Borrower to comply with each, every and all of the
requirements of RCRA, CERCLA or any other applicable environmental protection
statutes on the real property and/or on owned by borrower;
(c) The receipt by Borrower of a notice from the EPA or any other
governmental agency or instrumentality acting under the authority of any
environmental protection statute, indicating that a lien has been filed against
any of the collateral, or any of Borrower's other property by the EPA or any
other governmental agency or instrumentality in connection with a fund as a
result of damage arising from an intentional or unintentional action or omission
by Borrower resulting from the disposal, releasing, spilling, leaking, pumping,
pouring, emitting, emptying or dumping of Hazardous Substances or Hazardous
Waste into the environment; and
(d) Any other event or condition exists which might, in the opinion of
Lender, under applicable environmental protection statutes, have a material
adverse effect on the financial or operational condition of Borrower or the
value of all or any material part of the collateral or other property of
Borrower.
In witness whereof, the Borrower has agreed as of the date first set
forth above.
SILICON IMAGE, INC.
- ---------------------------
(BORROWER/PLEDGOR)
By: /s/ Daniel K. Atler By:
----------------------- ----------------------
Its: Its:
----------------------- ---------------------
By: By:
----------------------- ----------------------
Its: Its:
----------------------- ---------------------
1
<PAGE>
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE-FINANCING STATEMENT-FORM UCC-1 (REV. 1/90)
IMPORTANT-READ INSTRUCTIONS ON BACK BEFORE FILING OUT FORM
This financing Statement is presented for filing and will remain effective,
with certain exceptions, for five years from the date of filing, pursuant to
Section 9403 of the California Uniform Commercial Code.
This FINANCING STATEMENT is presented for filing pursuant to the
California Uniform Commercial Code.
<TABLE>
<S><C>
- ---------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR (LAST NAME FIRST-IF AN INDIVIDUAL) 1A. SOCIAL SECURITY OR FEDERAL TAX NO.
SILICON IMAGE, INC.
77-0396307
- ---------------------------------------------------------------------------------------------------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
10131 BUBB ROAD CUPERTINO, CA 95014
- ---------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST - IF AN INDIVIDUAL) 2A. SOCIAL SECURITY OR FEDERAL TAX NO.
- ---------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY) 3A. FEDERAL TAX NUMBER
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL TAX
NO. OR BANK TRANSIT AND A.B.A. NO.
NAME: Comerica-Bank California
MAILING ADDRESS: 333 West Santa Clara Street 90-3752
CITY: San Jose STATE ZIP CODE 95113
- ---------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX
NO. OR BANK TRANSIT AND A.B.A. NO.
NAME:
MAILING ADDRESS:
CITY: STATE ZIP CODE 95113
- ---------------------------------------------------------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following types or items of property (INCLUDE DESCRIPTION OF REAL PROPERTY ON WHICH
LOCATED AND OWNER OF RECORD WHEN REQUIRED BY INSTRUCTION 4).
</TABLE>
All of the following property now owned or later acquired by Debtor, wherever
located: all accounts, chattel paper, contract rights, deposit accounts,
documents, instruments, inventory, returned or repossessed goods, equipment and
fixtures, and all additions, attachments, accessions, parts, replacements,
substitutions, renewals, and records (including without limit computer software)
pertaining to the foregoing property, and all products and proceeds of any of
the foregoing (whether cash or non-cash proceeds), including without limit
insurance and condemnation proceeds.
<TABLE>
<S><C>
- ---------------------------------------------------------------------------------------------------------------------------------
7. CHECK /X/ 7A. /X/ PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN ACCORDANCE WITH INSTRUCTION
IF APPLICABLE ARE ALSO COVERED 5(A) ITEM
/ / (1) / / (2) / / (3) / / (4)
- ---------------------------------------------------------------------------------------------------------------------------------
8. CHECK /X/ / / DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC SEC. 9105 (1) (n)
IF APPLICABLE
- ---------------------------------------------------------------------------------------------------------------------------------
9. DATE: December 17, 1998 C 10. THIS SPACE FOR USE OF FILING
O OFFICER (DATE, TIME, FILE NUMBER AND
D FILING OFFICER)
SIGNATURE(S) OF DEBTOR(S) /s/ Daniel K. Atler E
- --------------------------------------------------------------------------------------------
SILICON IMAGE, INC. 1
TYPE OR PRINT NAME(S) OF DEBTOR(S) 2
- --------------------------------------------------------------------------------------------
3
SIGNATURE(S) OF SECURED PARTY(IES) /s/ Mary Beth Suhr 4
- --------------------------------------------------------------------------------------------
BY: MARY BETH SUHR, VICE PRESIDENT
Comerica Bank-California 5
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES) 6
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
11. RETURN COPY TO: 7
8
NAME Comerica Bank-California 9
ADDRESS P.O. BOX 49032 0
CITY San Jose
STATE CA
ZIP CODE 95161-9032
</TABLE>
LC 5336 (5-94)
UNIFORM COMMERCIAL CODE-FORM UCC-1 Approved by the Secretary of State
1
<PAGE>
INSTRUCTIONS (REV. 01-83)
1. PLEASE TYPE THIS FORM USING BLACK TYPEWRITER RIBBON.
2. If the space provided for any item is inadequate:
a. Note "Cont'd." in the appropriate space(s).
b. Continue the item(s) preceded by the Item No. on an additional
8-1/2" x 11" sheet.
c. Head each additional sheet with the Debtor's name (last name first
for individuals) appearing in Item No. 1 of this form. Be sure to
attach a copy of the additional sheet to each copy of the form.
3. NUMERICAL IDENTIFICATION:
a. If the Debtor, Secured Party or Assignee is an individual,
include Social Security Number in the appropriate space.
Disclosure of Social Security number is optional for the filing
of this statement. It will be used to assist in correctly
identifying individuals with similar names.
b. If the Debtor, Secured Party or Assignee is other than an
individual or a bank, show Federal Taxpayer Number in the
appropriate space.
c. If the Secured Party or Assignee is a bank, show Transit and ABA
number in the appropriate space. This must be the complete 10
digit number.
4. COLLATERAL DESCRIPTION - Item 6
a. If the financing statement covers Crops growing or to be grown,
the statement must also contain a description of the real
estate concerned in accordance with UCC Sec. 9402(1).
b. If the financing statement covers timber to be cut or minerals or
the like (including oil and gas) or accounts resulting from the
sale of such minerals at the wellhead or minehead or if the
financing statement is filed as a fixture filing under UCC See.
9313, the financing statement (i) must show that it covers this
type of collateral, (ii) must recite that it is to be recorded in
the real estate records, and (iii) must contain a legal
description of the real estate. If the debtor does not have an
interest of record in the real estate, the financing statement
most show the name of a record owner in Item No. 6.
5. SIGNATURES:
Before mailing, be sure that the financing statement has been properly
signed. A financing statement requires the signature of the debtor
only EXCEPT under the following circumstances. If any of these
circumstances apply, check the appropriate box in item 713 and enter
required information in Item 6.
a. a.Under the provisions of UCC Sec. 9402(2), a financing statement
is sufficient when it is signed by the SECURED PARTY alone if it
is filed to perfect a security interest in:
(1) collateral already subject to a security interest in
another jurisdiction when it is brought into this State or when
the debtor's location is changed to this State. Such a
financing statement must state that the collateral was brought
into this State or that the debtor's location was changed to
this State.
(2) proceeds under UCC Sec. 9306, if the security interest in
the original collateral was perfected. Such a financing
statement must describe the original collateral and give the
date of filing and the file number of the prior financing
statement.
(3) collateral as to which the filing has lapsed. Such a
financing statement must include a statement to the effect that
the prior financing statement has lapsed and give the date of
filing and the file number of the prior financing statement.
(4) collateral acquired after a change of name, identity or
corporate structure of the debtor. Such a financing statement
must include a statement that the name, identity or corporate
structure of the debtor has been changed and give the date of
filing and the file number of the prior financing statement and
the name of the debtor as shown in the prior financing
statement.
6. FILING FEE -- PROPER PLACE TO FILE
Enclose the appropriate filing fee payable to the appropriate Filing
Officer. Financing statements and related papers pertaining to
consumer goods should be filed with the County Recorder in the county
of the debtor's residence, or if the debtor is not a resident of this
State, then in the office of the County Recorder of the county in
which the goods are kept. When the collateral is crops growing or to
be grown, timber to be cut, minerals or the like (including oil and
gas), accounts resulting from the sale of such minerals at the
wellhead or minehead, then filing is with the County Recorder of the
county where the property is located. When the financing statement is
filed as a fixture filing, the statement should be filed in the office
where a mortgage on the real estate would be recorded and with the
Secretary of State. In all other cases, including financing statements
covering collateral (including fixtures) of a transmitting utility,
filing is with the Secretary of State.
7. REMOVE SECURED PARTY AND DEBTOR COPIES.
Send the ORIGINAL AND FIRST COPY with interleaved carbon paper to the
Filing Officer with the correct filing fee. The original will be
retained by the Filing Officer. The copy will be returned with the
filing date and time stamped thereon. INDICATE THE NAME AND MAILING
ADDRESS OF THE PERSON OR FIRM TO WHOM THE COPY IS TO BE RETURNED IN
ITEM NO.11.
1
<PAGE>
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE-FINANCING STATEMENT-FORM UCC-1 (REV. 1/90)
IMPORTANT-READ INSTRUCTIONS ON BACK BEFORE FILING OUT FORM
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code.
<TABLE>
<S><C>
- -----------------------------------------------------------------------------------------------------------------------------------
1. FILE NO. OF ORIG. FINANCING 1A. DATE OF FILING OF ORIG. 1B. DATE OF ORIG. FINANCING 1C. PLACE OF FILING ORIG. FINANCING
STATEMENT FINANCING STATEMENT STATEMENT STATEMENT
9720460779 07/18/97 SACRAMENTO, CA
- -----------------------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY OR FEDERAL
TAX NO.
SILICON IMAGE, INC. 77-0396307
- -----------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
10131 BUBB ROAD CUPERTINO, CA 95014
- -----------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR FEDERAL
TAX NO.
- -----------------------------------------------------------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- -----------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL
TAX NO. OR BANK TRANSIT AND
NAME: SILICON VALLEY BANK A.B.A. NO.
MAILING ADDRESS: 3003 TASMAN DR., MAIL SORT NC662
CITY: SANTA CLARA STATE: CA ZIP CODE: 95054
- -----------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY 5A. SOCIAL SECURITY NO., FEDERAL
TAX NO., OR BANK TRANSIT
NAME: A.B.A. NO.
MAILING ADDRESS:
CITY: STATE: ZIP CODE:
- -----------------------------------------------------------------------------------------------------------------------------------
6. A / / CONTINUATION - The original Financing Statement between the
foregoing Debtor and Secured Party bearing the file number and
date showing above is continued. If collateral is crops or
timber, check here / / and insert description of real
property on which growing or to be grown in item 7 below.
- -------------------------------------------------------------------------------
B / / RELEASE - From the collateral described in the Financing
Statement bearing the file number shown above, the Secured
Party releases the collateral described in Item 7 below.
- -------------------------------------------------------------------------------
C / / ASSIGNMENT - The Secured party certifies that the Secured
Party has assigned to the Assignee above named, all the
Secured Party's rights under the Financing Statement bearing
the file number shown above in the collateral described in
Item 7 below.
- -------------------------------------------------------------------------------
D /X/ TERMINATION - The Secured Party certifies that the Secured
Party no longer claims a security interest under the Financing
Statement bearing the file number shown above.
- -------------------------------------------------------------------------------
E / / AMENDMENT - the Financing Statement bearing the file number
shown above is amended as set forth in Item 7 below.
(Signature of Debtor required on all amendments).
- -------------------------------------------------------------------------------
F / / OTHER
- -------------------------------------------------------------------------------
7.
- -----------------------------------------------------------------------------------------------------------------------------------
8. C 9. This Space for Use of Filing Officer
O (Date, Time, Filing Office)
(Date) December 17, 1998 D
------------------------------- E
By: /s/ Daniel K. Atler
-----------------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE) 1
2
SILICON VALLEY BANK
3
By: ________________________________________________________________
SIGNATURE(S) OF DEBTOR(S) (TITLE) 4
5
6
- -------------------------------------------------------------------------
10. RETURN COPY TO 7
NAME Comerica Bank-California
8
ADDRESS P.O. Box 49032
CITY AND STATE San Jose, CA 95161-9032 9
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) FILING OFFICER COPYLC 5337 (1-91)
UNIFORM COMMERCIAL CODE -- Approved by STANDARD FORM --
FORM UCC-2 the Secretary of State FILING FEE $5.00
1
<PAGE>
INSTRUCTIONS
1. PLEASE TYPE THIS FORM USING BLACK TYPEWRITER RIBBON.
2. IF THE SPACE PROVIDED FOR ANY ITEM IS INADEQUATE
a. Note "Cont'd." in the appropriate space(s).
b. Continue the item(s) preceded by the Item No. on an additional
8-1/2"x 11" sheet.
c. Head each additional sheet with the Debtor's name (last name
first) appearing in Item No. 2 of this form. Be sure to attach
a copy of the additional sheet to each copy of the form.
3. NUMERICAL IDENTIFICATION: Social Security, Federal Tax, Transit/ABA
Numbers and ZIP codes are to be included, if possible, so that
Statements may be more readily indexed and information rapidly
retrieved through the use of electronic data processing equipment
in the Secretary of State's Office.
a. If the Debtor, Secured Party or Assignee is an individual,
include Social Security Number in the appropriate space.
b. If the Debtor, Secured Party or Assignee is other than an
individual or a bank, show Federal Taxpayer Number in the
appropriate space.
c. If the Secured Party or Assignee is a bank, show Transit and
ABA number in the appropriate space.
4. Be sure to indicate type of statement being filed by checking the
appropriate box in Item No. 6.
5. Remove Secured Party and Debtor copies.
Send the ORIGINAL AND FIRST COPY with interleaved carbon paper to
the Filing Officer with the correct filing fee. The original will
be retained by the Filing Officer. The copy will be returned with
the filing date and time stamped thereon. Indicate the name and
mailing address of the person or firm to whom the copy is to be
returned in Item No. 10.
6. FILING FEE: Enclose filing fee of three dollars ($3) payable to the
appropriate Filing Officer.
7. SIGNATURES: Before mailing be sure that the Statement has been
properly signed. Continuation, Release, Assignment, or Termination
Statements require only the signature of the Secured Party of
Record. An Amendment requires the signatures of both the Debtor and
Secured Party of Record.
1
<PAGE>
AGREEMENT TO FURNISH INSURANCE
- -------------------------------------------------------------------------------
(Herein called "Bank")
Borrower(s): SILICON IMAGE, INC.
10131 BUBB ROAD
CUPERTINO, CA 95014
I understand that the Security Agreement or Deed of Trust which I executed in
connection with this transaction requires me to provide a physical damage
insurance policy including a Lenders Loss Payable Endorsement in favor of the
Bank as shown below, within ten (10) days from the date of this agreement.
The following minimum insurance must be provided according to the terms of
the security documents.
<TABLE>
<S> <C>
/ / AUTOMOBILES, TRUCKS, RECREATIONAL VEHICLES /X/ MACHINERY & EQUIPMENT: MISCELLANEOUS PERSONAL
PROPERTY
Comprehensive & Collission Fire & Extended Coverage
Lender's Loss Payable Endorsement Lender's Loss Payable Endorsement
/ / Breach of Warranty Endorsement
/ / BOATS / / AIRCRAFT
All Risk Hull Insurance All Risk Ground & Flight Insurance
Lender's Loss Payable Endorsement Lender's Loss Payable Endorsement
/ / Breach of Warranty Endorsement / / Breach of Warranty Endorsement
/ / MOBILE HOMES / / REAL PROPERTY
Fire, Theft & Combined Additional Coverage Fire & Extended Coverage
Lender's Loss Payable Endorsement Lender's Loss Payable Endorsement
/ / Earthquake / / All Risk Coverage
/ / Special Form risk Coverage
/X/ INVENTORY / /
/ / Earthquake
/ / Other_____________________________
/ / Other_____________________________________________________________________________________________
</TABLE>
I may obtain the required insurance from any company that is acceptable to
the Bank, and will deliver proof of such coverage with an effective date of
December 17, 1998 or earlier.
I understand and agree that if I fail to deliver proof of insurance to the
Bank at the address below, or upon the lapse or cancellation of such
insurance, the Bank may procure Lender' Single Interest Insurance or other
similar coverage on the property. If the Bank procures insurance to protect
its interest in the property described in the security documents, the cost
for the insurance will be added to my indebtedness as provided in the
security documents. Lender's Single Interest Insurance shall cover only the
Bank's interest as a secured party, and shall become effective at the earlier
of the funding date of this transaction or the date my insurance was
cancelled or expired. I UNDERSTAND THAT LENDER'S SINGLE INTEREST INSURANCE
WILL PROVIDE ME WITH ONLY LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE
COLLATERAL, UP TO THE BALANCE OF THE LOAN, HOWEVER, MY EQUITY IN THE PROPERTY
WILL NOT BE INSURED. FURTHER, THE INSURANCE WILL NOT PROVIDE MINIMUM PUBLIC
LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND DOES NOT MEET THE
REQUIREMENTS OF THE FINANCIAL RESPONSIBILITY LAW.
-------------------------------------------------------------
Bank Address for Insurance Documents:
Comerica Bank-California
------------------------------------------------
333 West Santa Clara Street
------------------------------------------------
San Jose, CA 95113
------------------------------------------------
-------------------------------------------------------------
I acknowledge having read the provisions of this agreement, and agree to its
terms. I authorize the Bank to provide to any person (including any
insurance agent or company) any information necessary to obtain the insurance
coverage required.
OWNER(S) OF COLLATERAL: DATED: December 17,1998
-------------------------
SILICON IMAGE, INC.
/s/ Daniel K. Atler
- ------------------------------------ -------------------------------------
- ------------------------------------ -------------------------------------
- -------------------------------------------------------------------------------
INSURANCE VERIFICATION
Date _______________________________ Phone _______________________________
Agents Name ________________________ Person Talked to ____________________
Agents Address ________________________________________________________________
Insurance Company _____________________________________________________________
Policy Number(s) ______________________________________________________________
Effective Dates: From ______________ To: _________________________________
Deductible $ _______________________ Comments:
- -------------------------------------------------------------------------------
1
<PAGE>
BORROWER'S AUTHORIZATION
- --------------------------------------------------------------------------------
Date: December 17, 1998
-----------------
I (we) hereby authorize and direct Comerica Bank-California ("Bank") to pay
------------------------------
to Silicon Valley Bank $ Per Demand Letter
------------------------------ ----------------------------
to $
------------------------------ ----------------------------
to $
------------------------------ ----------------------------
to $
------------------------------ ----------------------------
of the proceeds of my (our) loan from the Bank evidenced by a note in the
original principal amount of:
$4,000,000.00, dated December 17, 1998.
Borrower(s):
SILICON IMAGE, INC.
/s/ Daniel K. Atler Its: CFO
- ------------------------------------------- --------------------------
SIGNATURE OF TITLE
Its:
- ------------------------------------------- --------------------------
SIGNATURE OF TITLE
Its:
- ------------------------------------------- --------------------------
SIGNATURE OF TITLE
Its:
- ------------------------------------------- --------------------------
SIGNATURE OF TITLE
1
<PAGE>
BORROWER'S TELEPHONE AND FACSIMILE AUTHORIZATION
- --------------------------------------------------------------------------------
Obligor Number: Date: December 17, 1998
------------------------ -----------------------------
Assignment Unit: 95820 Obligation Number:
----------------------- ----------------
The undersigned confirms certain borrowing arrangements pursuant to and
subject to the terms of the $4,000,000.00 Note, and all renewals, extensions,
modifications, and/or substitutions thereof (the "Note") dated December 17,
1998, executed and delivered by the undersigned to Comerica Bank-California
("Bank").
Until notice to the contrary to the undersigned, Bank has agreed that
advances under the Note may be requested from time to time at the discretion
of the undersigned by telephone or facsimile transmission. Immediately upon
receipt from time to time of such telephone request or facsimile transmission
from the undersigned, Bank is authorized to lend and credit such sums of
money as requested to any of the following accounts or any other account with
Bank designated by the undersigned (together with the Security Code) (such
account(s) referred to as
"Designated Account(s)") those within Comerica
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
Bank may rely on receipt of the Security Code as proof that the caller or
sender is authorized to make the request for advance, repayment, change of
Security Code on Comerica's Flexline System, or change of Designated
Account(s) on behalf of the undersigned.
The undersigned acknowledges that borrowings under the Note may be repaid
from time to time at the election of the undersigned, but subject to the
terms of the Note and any related agreement with Bank, upon receipt of
instructions to do so sent from the undersigned to Bank by telephone or
facsimile transmission (together with the Security Code and the Designated
Account(s)). Repayment may be effected (in whole or in part) by debiting any
account designated above (or designated in compliance with the above
paragraph) in accordance with the undersigned's instructions (together with
the Security Code). The undersigned shall remain fully responsible for any
amounts outstanding under the Note if the undersigned's accounts with Bank
are insufficient for the repayment of the Note. All requests for payments are
to be against collected funds.
The undersigned acknowledges that if Bank makes an advance or effects a
repayment based on a request made by telephone or facsimile transmission, it
shall be for the convenience of the undersigned and all risks involved in the
use of this procedure shall be borne by the undersigned, and the undersigned
expressly agrees to indemnify and hold Bank harmless therefor. Without
limitation of the foregoing, the undersigned acknowledges that Bank shall
have no duty to confirm the authority of anyone requesting an advance or
repayment by telephone or facsimile transmission, and further that Bank has
advised the undersigned to protect and safeguard the Security Code to prevent
its unauthorized use. The undersigned assumes any losses or damages
whatsoever which may occur or arise out of its failure to protect and
safeguard the Security Code or out of its unauthorized use.
Borrower(s): SILICON IMAGE, INC.
- --------------------------------------------------------------------------------
Address: 10131, BUBB ROAD CUPERTINO CA USA 95014
---------------------------------------------------------------------
STREET ADDRESS CITY STATE COUNTRY ZIP CODE
SILICON IMAGE, INC.
/s/ Daniel K. Atler Its: CFO
- ------------------------------------------- --------------------------
SIGNATURE OF TITLE
Its:
- ------------------------------------------- --------------------------
SIGNATURE OF TITLE
Its:
- ------------------------------------------- --------------------------
SIGNATURE OF TITLE
Its:
- ------------------------------------------- --------------------------
SIGNATURE OF TITLE
- --------------------------------------------------------------------------------
Comerica Flexline customers will enter their Security Code directly into
Comerica's Flexline system. For customers desiring to utilize a Security Code
outside of the Flexline system, please enter your Security Code below.
Security Code
------------------
- --------------------------------------------------------------------------------
1
<PAGE>
STATEMENT
DATE: December 17, 1998
------------------
- ---------------------------
SILICON IMAGE, INC. Comerica Bank-California
10131 BUBB ROAD P.O. Box 49032
San Jose, CA 95161-9032
CUPERTINO, CA 95014
- ---------------------------
- --------------------------------------------------------------------------------
RE: Fee on $4,000,000.00 Note, dated December 17, 1998, and Officer 48703
maturing April 30, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Origination/Commitment Fee $30,000.00
TOTAL DUE: $30,000.00
- --------------------------------------------------------------------------------
CUSTOMER COPY
/X/ CUSTOMER CHECK ATTACHED
/ / CHARGE DDA NO.
------------------------------------------------------------
ACKNOWLEDGED BY:
---------------------------------------------------------------
1
<PAGE>
CORPORATE RESOLUTIONS AND INCUMBENCY CERTIFICATION
Authority to Procure Loans
- --------------------------------------------------------------------------------
ADDENDUM "A" ATTACHED TO THAT CERTAIN LOAN & SECURITY AGREEMENT DATED
DECEMBER 17, 1998 BY AND BETWEEN SILICON IMAGE, INC. AND COMERICA
BANK-CALIFORNIA AND MADE A PART THEREOF. NOTWITHSTANDING ANYTHING TO THE
CONTRARY HEREIN, THE FOLLOWING PROVISIONS SHALL APPLY:
Section 1.5
(3) Allowing 95% advance rate on the insured amount of Foreign Accounts
Receivable. Insured amount = invoice amount minus deductible minus
co-insurance.
Section 1.12
(m) Allowing 25% concentration on all Accounts Receivables.
(n) Allowing up to $1,000,000.00 on ATI (Canadian) subject to receipt,
review and acceptance of satisfactory financial information.
(o) Allowing up to 50% concentration limit on Mitac (foreign insured).
Section 1.31
Letter of Credit sub-feature - the amount of $500,000.00 for the
issuance of Letters of Credit is to be allowed within the borrowing base and
within the line amount. Standby and Commercial Letters of Credit expiry
dates to be within one year. Expiry dates to be less than 90 days beyond the
line maturity. If line is not renewed, Letters of Credit have to be cash
secured.
Section 6.17
(i) Semi annual Accounts Receivable audits.
(J) Without Bank's prior written consent, which consent Bank shall not
unreasonably withhold, Borrower shall not enter into any agreement
with a Person other than Bank that prohibits or otherwise restricts
in any way Borrower's ability to grant a security interest in, or
encumber, any of Borrower's Intellectual Property.
INITIAL HERE /s/ DKA
-------
1
<PAGE>
RESEARCH AND DEVELOPMENT CONTRACT:
GIGABIT LINKS AND MULTIMEDIA INFORMATION DELIVERY SYSTEMS
This Research and Development Contract (the "AGREEMENT") is made this 1st day
of July, 1998 (the "EFFECTIVE DATE") between Silicon Image, Inc., a California
corporation with its principal place of business at 10131 Bubb Road,
Cupertino, California 95014 ("SII") and the Inter-University Semiconductor
Research Center of Seoul National University, located in Seoul, Korea
("ISRC"). (As used herein, "PARTY" or "PARTIES" will refer to SiI, ISRC, or
both, as the case may be).
1. OBJECTIVE.
SiI requests ISRC to conduct research and development on "Gigabit Links
and Multimedia Information Delivery Systems." The specific objectives of
the research to be conducted are described in Exhibit A (the "PROJECT").
2. PERIOD OF THE RESEARCH. This Agreement will provide funding for research
activities for a period of eighteen (18) months, through December 31,
1999.
3. OBLIGATIONS BY ISRC.
3.1. USE OF RESEARCH FUNDS. The research funds provided by SiI to ISRC
may only be used to cover expenses directly or indirectly related
to the Project. A complete accounting of the use of the research
funds and expense reports with receipts for any equipment
purchased must be provided in the final report, described below.
3.2. PROJECT LEADER. ISRC will designate Professor Deog-Kyoon Jeong as
the faculty member in charge of this project. Mr. Jeong will be
the primary technical and university contact for SiI for all
technical and administrative issues related to the Project for the
Term of this Agreement ("PROJECT LEADER").
3.3. PROGRESS REPORTS AND SEMINARS
3.3.1. Progress Reports. Within thirty (30) days of the end of
each calendar quarter, ISRC will submit to SiI the status
and accomplishments of all research and development
activities related to the Project ongoing during the
quarter just ended. Within sixty (60) days after
termination of this Agreement, ISRC will submit a final
report to SiI detailing the overall project history,
accomplishments, success and failures of the Project.
3.3.2. Seminars. At most twice yearly, the Project Leader will
provide SiI with a technical seminar at SiI's headquarters
in California, USA, covering the research projects
undertaken as part of this Agreement, as well as other
research areas of interest to both Parties. SiI will cover
all travel expenses associated with the seminar for the
Project Leader and up to three (3) students, as identified
in Exhibit B, participating in the Project.
1
<PAGE>
3.4. PRODUCTIZATION COOPERATION. The Project Leader will support and
help SiI in SiI's efforts to productize the results of the
Project, if SiI chooses to do so. This includes traveling to SiI
to providing technical assistance to SiI's development programs.
SiI agrees to assume all travel expenses associated with such
cooperation and assistance.
4. OBLIGATIONS BY SII.
4.1. PROJECT FUNDING. SiI will provide a total of $120,000 to ISRC to
conduct the research and development associated with the Project.
The funding will be paid as follows:
- $20,000 within forty-five (45) days after the signing of this
Agreement;
- $20,000 by October 1, 1998;
- $40,000 by February 1, 1999;
- $40,000 by July 1, 1999.
5. INTELLECTUAL PROPERTY OWNERSHIP. All right, title and interest in and to
any and all designs, discoveries, inventions, products or product ideas,
research results, measurement data, computer programs, test or other
reports, patents and other intellectual property, and system, PCB or
semiconductor prototypes (collectively "Design Materials") conceived or
developed as part of the Project shall at all times be and remain with
SiI.
6. CONFIDENTIALITY
6.1. DEFINITION. SiI and ISRC acknowledge that, in the course of
performing their obligations hereunder, ISRC will obtain
information and materials from SiI and knowledge about the
business, products, programming techniques, experimental work,
customers, clients and suppliers of SiI and that all such
knowledge, information and materials acquired, the existence,
terms and conditions of this Agreement, and the Designs and
Materials, are and will be the trade secrets of SiI (collectively
"CONFIDENTIAL INFORMATION"). Such Confidential Information
includes without limitation any and all intermediate and final
results and materials from the Project.
6.2. OBLIGATION. ISRC agrees, for itself, its faculty (including the
Project Leader), students and employees that it will (a) use the
other SiI's Confidential Information only in connection with
fulfilling its obligations under this Agreement; (b) hold SiI's
Confidential Information in strict confidence and exercise due
care with respect to its handling and protection, consistent with
its own policies concerning protection of its own Confidential
Information of like importance; (c) not disclose, divulge or
publish SiI's Confidential Information except to such of its
responsible faculty, employees and students who have a bona fide
need to know to the extent necessary to fulfill ISRC's obligations
under this Agreement; and (d) instruct all such persons not to
disclose SiI's Confidential Information to any third parties,
without the prior written permission of SiI.
2
<PAGE>
6.3. EXCEPTIONS. The obligations set forth in Section 6.2 will not
apply to SiI's Confidential Information which (i) is or becomes
public knowledge without the fault or action of ISRC; (ii) is
received by ISRC from a third party, without restriction as to use
or disclosure; (iii) ISRC can document was independently developed
by it; (iv) is required to be disclosed pursuant to law, provided
ISRC uses reasonable efforts to give SiI reasonable notice of such
required disclosure; or (v) is or becomes available ISRC on an
unrestricted basis from SiI.
6.4. NON-DISCLOSURE AGREEMENTS. ISRC represents that to the best of its
knowledge, at the Effective Date, all ISRC faculty (including the
Project Leader), employees and students with access to the SiI
Confidential Information have executed ISRC non-disclosure
agreements or are otherwise under written obligation of
non-disclosure which, inter alia, require such persons to maintain
the confidentiality of Confidential Information of third parties
received by ISRC. ISRC agrees that during the Term of this
Agreement, it shall use reasonable efforts to assure that all
additional ISRC faculty, students and employees will execute ISRC
non-disclosure agreements prior to have access to the SiI
Confidential Information or working on the research covered by
this Agreement.
7. MODIFYING THE AGREEMENT.
The scope, nature, duration and funding of Project may be modified at any
time if agreed to in writing by both Parties.
8. TERM AND TERMINATION.
8.1. TERM. The Term of this Agreement is eighteen (18) months.
8.2. TERMINATION.
8.2.1. Material Breach. If either Party materially breaches any
term or condition of this Agreement and fails to cure that
breach within thirty (30) days after receiving written
notice of the breach, the other Party shall have the right
to terminate this Agreement any time after the end of such
thirty (30) day period.
8.3. EFFECTS OF TERMINATION.
8.3.1. Return of Silicon Image Confidential Information. ISRC
shall return or destroy all copies of the Silicon Image
Confidential Information of the SiI within thirty (30) days
after the effective date of the termination. At the request
of SiI, the Project Leader will certify in writing that
ISRC has complied with this obligation.
8.3.2. No Liability for Damages. Neither Party will be liable for
damages of any kind as a result of exercising its right to
terminate this Agreement according to its terms, and
termination will not affect any other right or remedy at
law or in equity of either Party.
3
<PAGE>
8.3.3. Survival. The rights and obligations of the parties under
Sections 5 (Intellectual Property Ownership) and 6
(Confidentiality), will survive the termination or
expiration of this Agreement.
EXHIBITS
Exhibit A - Research Project Proposal
Exhibit B - Project Participants
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
SILICON IMAGE, INC. INTER-UNIVERSITY SEMICONDUCTOR
RESEARCH CENTER OF
SEOUL NATIONAL UNIVERSITY
By: /s/ Scott A. Macomber /s/ Hyeong Joon Kim
--------------------- -------------------
Name: Scott A. Macomber Hyeong Joon Kim
------------------- -------------------
Title: President Director
------------------ -------------------
Date: 7/15/98 98.7.10
------------------ -------------------
4
<PAGE>
EXHIBIT A
RESEARCH PROJECT PROPOSAL
The research project covered by this Agreement shall focus on the following
areas:
1. high-speed serial communications circuit and protocol technologies
and semiconductor implementations of such technologies;
2. implementation of the above technologies as semiconductor devices,
including the migration of such technologies to multiple
semiconductor processes and the testing of all devices;
3. applications of the above technologies as the physical layer of a
gigabit link and network interface;
4. applications of the above technologies as LCD flat-panel and CRT
interfaces;
5. multimedia applications of the above serial technologies.
5
<PAGE>
EXHIBIT B
PROJECT PARTICIPANTS
1. Project Leader:
Deog-Kyoon Jeong, Associate Professor, Seoul National
University
2. Researchers:
i) Sungjoon Kim, Ph.D. Candidate, Seoul National
University
ii) Yongsam Moon, Ph.D. Candidate, Seoul National
University
iii) Yeshik Shin, Ph.D. Candidate, Seoul National
University
6
<PAGE>
RESEARCH AND DEVELOPMENT CONTRACT:
1000BASE-T GIGABIT ETHERNET PHY CHIP
This Research and Development Contract (the "AGREEMENT") is made this 1st day
of July, 1999 (the "EFFECTIVE DATE") between Silicon Image, Inc., a California
corporation with its principal place of business at 10131 Bubb Rd, Cupertino,
California 95014 ("SIL") and the Inter-University Semiconductor Research
Center of Seoul National University, located in Seoul, Korea ("ISRC") (As
used herein, "PARTY" or "PARTIES" will refer to Sil, ISRC, or both, as the
case may be.)
1. OBJECTIVE.
Sil requests ISRC to conduct research and development on "1000BASE-T
Gigabit Ethernet PHY". The specific objectives of the research to be conducted
are described in Exhibit A ("the Project").
2. PERIOD OF THE RESEARCH.
This Agreement will provide funding for research activities for a
period of eight (8) months.
3. OBLIGATIONS BY ISRC.
3.1. USE OF RESEARCH FUNDS. The research funds provided by Sil to
ISRC may only be used to cover expenses directly or indirectly related to the
Project. A complete accounting of the use of the research funds and expense
reports with receipts for any equipment purchased must be provided in the
final report, described below.
3.2. PROJECT LEADER. ISRC will designate Professor Deog-Kyoon Jeong
as the faculty member in charge of this project. Mr. Jeong will be the
primary technical and university contact for Sil for all technical and
administrative issues related to the Project for the Term of this Agreement
("Project Leader").
3.3. PROGRESS REPORTS AND SEMINARS
3.3.1. Progress Reports. Within thirty (30) days of the end of
each calendar quarter, ISRC will submit to Sil the status and accomplishments
of all research and development activities related to the Project ongoing
during the quarter just ended. Within sixty (60) days after termination of
this Agreement, ISRC will submit a final report to Sil detailing the overall
project history, accomplishments, success and failures of the Project.
3.3.2. Seminars. At most twice yearly, the Project Leader will
provide Sil with a technical seminar at Sil's headquarters in California,
USA, covering the research projects undertaken as part of this Agreement, as
well as other research areas of interest to both Parties. Sil will cover all
travel expenses associated with the seminar for the Project Leader and up to
two (2) students participating in the Project.
<PAGE>
3.4. PRODUCTIZATION COOPERATION. The Project Leader will support
and help Sil in Sil's efforts to productize the results of the Project, if
Sil chooses to do so. This includes traveling to Sil to providing technical
assistance to Sil's development programs. Sil agrees to assume all travel
expenses associated with such cooperation and assistance.
4. OBLIGATIONS BY SIL.
4.1. PROJECT FUNDING. Sil will provide a total of $120,000 to ISRC
to conduct the research and development associated with the Project. The
funding will be paid as follows;
- $40,000 within fifteen (15) days after the signing of this
Agreement;
- $40,000 by August 1, 1999;
- $40,000 by December 1, 1999.
5. INTELLECTUAL PROPERTY OWNERSHIP.
All right, title and interest in and to any and all designs, discoveries,
inventions, products or product ideas, research results, measurement data,
computer programs, test or other reports, patents and other intellectual
property, and system, PCB or semiconductor prototypes (collectively "Design
Materials") conceived or developed as part of the Project shall at all times
be and remain with Sil.
6. CONFIDENTIALITY.
6.1. DEFINITION. Sil and ISRC acknowledge that, in the course of
performing their obligations hereunder, ISRC will obtain information and
materials from Sil and knowledge about the business, products, programming
techniques, experimental work, customers, clients and suppliers of Sil and
that all such knowledge, information and materials acquired, the existence,
terms and conditions of this Agreement, and the Designs and Materials, are
and will be the trade secrets of Sil (collectively "CONFIDENTIAL INFORMATION").
Such Confidential Information includes without limitation any and all
intermediate and final results and materials from the Project.
6.2. OBLIGATION. ISRC agrees, for itself, its faculty (including
the Project Leader), students and employees that it will (a) use the other
Sil's Confidential Information only in connection with fulfilling its
obligations under this Agreement; (b) hold Sil's Confidential Information in
strict confidence and exercise due care with respect to its handling and
protection, consistent with its own policies concerning protection of its own
Confidential Information of like importance; (c) not disclose, divulge or
publish Sil's Confidential Information except to such of its responsible
faculty, employees and student who have a bona fide need to know to the
extent necessary to fulfill ISRC's obligations under this Agreement; and
(d) instruct all such persons not to disclose Sil's Confidential Information
to any third parties, without the prior written permission of Sil.
6.3. EXCEPTIONS. The obligations set forth in Section 6.2 will not
apply to Sil's Confidential Information which (i) is or becomes public
knowledge without the fault or action of ISRC; (ii) is received by ISRC from
a third party, without restriction as to use or disclosure;
2
<PAGE>
(iii) ISRC can document was independently developed by it; (iv) is required
to be disclosed pursuant to law, provided ISRC uses reasonable efforts to
give Sil reasonable notice of such required disclosure; or (v) is or becomes
available ISRC on an unrestricted basis from Sil.
6.4. NON-DISCLOSURE AGREEMENTS. ISRC represents that to the best of
its knowledge, at the Effective Date, all ISRC faculty (including the Project
Leader), employees and students with access to the Sil Confidential Information
have executed ISRC non-disclosure agreements or are otherwise under written
obligation of non-disclosure which, inter alia, require such persons to
maintain the confidentiality of Confidential Information of third parties
received by ISRC. ISRC agrees that during the Term of this Agreement, it
shall use reasonable efforts to assure that all additional ISRC faculty,
students and employees will execute ISRC non-disclosure agreements prior to
have access to the Sil Confidential Information or working on the research
covered by this Agreement.
7. MODIFYING THE AGREEMENT.
The scope, nature, duration and funding of Project may be modified at
any time if agreed to in writing by both Parties.
8. TERM AND TERMINATION
8.1. TERM. The Term of this Agreement is eighteen (18) months.
8.2. TERMINATION.
8.2.1. Material Breach. If either Party materially breaches
any term or condition of this Agreement and fails to cure that breach within
thirty (30) days after receiving written notice of the breach, the other
Party shall have the right to terminate this Agreement any time after the end
of such thirty (30) day period.
8.3. EFFECTS OF TERMINATION.
8.3.1. Return of Silicon Image Confidential Information. ISRC
shall return or destroy all copies of the Silicon Image Confidential
Information of the Sil within thirty (30) days after the effective data of
the termination. At the request of Sil, the Project Leader will certify in
writing that ISRC has complied with this obligation.
8.3.2 No Liability for Damages. Neither Party will be liable
for damages of any kind as a result of exercising its right to terminate this
Agreement according to its terms, and termination will not affect any other
right or remedy at law or in equity of either Party.
8.3.3. Survival. The rights and obligations of the parties
under Sections 5 (Intellectual Property Ownership) and 6 (Confidentiality),
will survive the termination or expiration of this Agreement.
3
<PAGE>
EXHIBITS
Exhibit A. Research Project Proposal
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
Silicon Image, Inc. Inter-University Semiconductor
Research Center of
Seoul National University
By: /s/ David D. Lee /s/ Young June Park
----------------------- -----------------------
Name: David D. Lee Young June Park
----------------------- -----------------------
Title: Chairman & CEO Director
----------------------- -----------------------
Date: 6/14/99 6/21/99
----------------------- -----------------------
4
<PAGE>
EXHIBIT A
RESEARCH PROJECT PROPOSAL
The research project covered by this Agreement shall focus on the following
areas:
1. High-speed analog and digital circuits for 1000BASE-T PHY including
Echo and NEXT (Near-End Crosstalk) canceller
Timing recovery algorithms and PLL
Viterbi Decoder and Scrambler
2. Implementation of such technologies to mixed-signal VLSI chip.
3. NIC design to incorporate the above technologies.
<PAGE>
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated February 17, 1999 by and
between COMDISCO, INC. ("Lessor") and SILICON IMAGE, INC. ("Lessee"). IN
CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary
Equipment Schedule. In the event of a conflict, the terms of the applicable
Schedule prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will
be bound to its rental obligations for each item of Equipment and the term of
a Summary Equipment Schedule will begin and continue through the Initial Term
and thereafter until terminated by either party upon prior written notice
received during the Notice Period. No termination may be effective prior to
the expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at
the address specified in Lessor's invoice. Interim Rent is due and payable
when invoiced. If any payment is not made when due, Lessee will pay a Late
Charge on the overdue amount. Upon Lessee's execution of each Schedule,
Lessee will pay Lessor the Advance specified on the Schedule. The Advance
will be credited towards the final Rent payment if Lessee is not then in
default. No interest will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment
and disclaims any reliance upon statements made by the Lessor, other than as
set forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee
that, so long as Lessee is not in default, Lessor will not disturb Lessee's
quiet and peaceful possession, and unrestricted use of the Equipment. To the
extent permitted by the manufacturer, Lessor assigns to Lessee during the
term of the Summary Equipment Schedule any manufacturer's warranties for the
Equipment. LESSOR MAKE NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE
EQUIPMENT OR ITS FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible
for any liability, claim, loss, damage or expense of any kind (including
strict liability in tort) caused by the Equipment except for any loss or
damage caused by the willful misconduct or negligent acts of Lessor. In no
event is Lessor responsible for special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the
rights of the
1
<PAGE>
Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements
showing the interest of the Owner, Lessor, and any Assignee or Secured Party
in the Equipment and to insert serial numbers in Summary Equipment Schedules
as appropriate. Lessee will, at its expense, keep the Equipment free and
clear from any liens or encumbrances of any kind (except any caused by
Lessor) and will indemnify and hold the Owner, Lessor, any Assignee and
Secured Party harmless from and against any loss caused by Lessee's failure
to do so, except where such is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may
relocate Equipment to any location within the continental United States
provided (i) the Equipment will not be used by an entity exempt from federal
income tax, and (ii) all additional costs (including any administrative fees,
additional taxes and insurance coverage) are reconciled and promptly paid by
Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor
and the Secured Party. Such consent to sublease will be granted if: (i)
Lessee meets the relocation requirements set out above, (ii) the sublease is
expressly subject and subordinate to the terms of the Schedule, (iii) Lessee
assigns its rights in the sublease to Lessor and the Secured Party as
additional collateral and security, (iv) Lessee's obligation to maintain and
insure the Equipment is not altered, (v) all financing statements required to
continue the Secured Party's prior perfected security interest are filed, and
(vi) Lessee executes sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations
under this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have
been fixed by Lessor in order to permit Lessor to sell and/or assign or
transfer its interest or grant a security interest in each Schedule and/or
the Equipment to a Secured Party or Assignee. In that event, the term Lessor
will mean the Assignee and any Secured Party. However, any assignment, sale,
or other transfer by Lessor will not relieve Lessor of its obligations to
lessee and will not materially change Lessee's duties or materially increase
the burdens or risks imposed on Lessee. The Lessee consents to and will
increase acknowledge such assignments in a written notice given to Lessee.
Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's
rights, but will not be obligated to perform any of the obligations of
Lessor. The Secured Party will not disturb Lessee's quiet and peaceful
possession and unrestricted use of the Equipment so long as Lessee is not in
default and the Secured Party continues to receive all Rent payable under the
Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the
Secured Party, despite any defense or claim which it has against Lessor.
Lessee reserves its right to have recourse directly against Lessor for any
defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment,
2
<PAGE>
Lessee holds the Equipment for the Secured Party to the extent of the Secured
Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is
absolute and unconditional and is not subject to any abatement, reduction,
set-off, defense, counterclaim, interruption, deferment or recoupment for any
reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Summary Equipment Schedule against Lessor, Lessee or
the Equipment by any governmental authority (except only Federal, state,
local and franchise taxes on the capital or the net income of Lessor). Lessor
will file all personal property tax returns for the Equipment and pay all
such property taxes due. Lessee will reimburse Lessor for property taxes
within thirty (30) days of receipt of an invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in
good operating order and appearance, protect the Equipment from
deterioration, other than normal wear and tear, and will not use the
Equipment for any purpose other than that for which it was designed. If
commercially available and considered common business practice for each item
of Equipment, Lessee will maintain in force a standard maintenance contract
with the manufacturer of the Equipment, or another party acceptable to
Lessor, and will provide Lessor with a complete copy of that contract. If
Lessee has the Equipment maintained by a party other than the manufacturer or
self maintains, Lessee agrees to pay any costs necessary for the manufacturer
to bring the Equipment to then current release, revision and engineering
change levels, and to re-certify the Equipment as eligible for manufacturer's
maintenance at the expiration of the lease term, provided re-certification is
available and is required by Lessor. The lease term will continue upon the
same terms and conditions until recertification has been obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each
Schedule executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in
good standing under the laws of the jurisdiction of its incorporation, is
duly qualified to do business in each jurisdiction (including the
jurisdiction where the Equipment is, or is to be, located) where its
ownership or lease of property or the conduct of its business requires such
qualification, except for where such lack of qualification would not have a
material adverse effect on the Company's business; and has full corporate
power and
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<PAGE>
authority to hold property under the Master Lease and each Schedule and to
enter into and perform its obligations under the Master Lease and each
Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and
each Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease
and each Schedule are not inconsistent with the Lessee's Articles of
Incorporation or Bylaws, do not contravene any law or governmental rule,
regulation or order applicable to it, do not and will not contravene any
provision of, or constitute a default under, any indenture, mortgage,
contract or other instrument to which it is a party or by which it is bound,
and the Master Lease and each Schedule constitute legal, valid and binding
agreements of the Lessee, enforceable in accordance with their terms, subject
to the effect of applicable bankruptcy and other similar laws affecting the
rights of creditors generally and rules of law concerning equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending
or, to the knowledge of the Lessee, threatened against or affecting the
Lessee in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Lessee to perform its obligations under the Master Lease and
each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate,
materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses,
has access to, or can become licensed on reasonable terms under all patents,
patent applications, trademarks, trade names, inventions, franchises,
licenses, permits, computer software and copyrights necessary for the
operations of its business as now conducted, with no known infringement of,
or conflict with, the rights of others.
(g) All material contracts, agreements and instruments to which the
Lessee is a party are in full force and effect in all material respects, and
are valid, binding and enforceable by the Lessee in accordance with their
respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment.
Upon termination (by expiration or otherwise) of each Summary Equipment
Schedule, Lessee shall, pursuant to Lessor's instructions and at Lessee's
full expense (including, without limitation, expenses of transportation and
in-transit insurance), return the Equipment to Lessor in the same operating
order, repair,
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condition and appearance as when received, less normal depreciation and wear
and tear. Lessee shall return the Equipment to Lessor at 6111 North River
Road, Rosemont, Illinois 60018 or at such other address within the
continental United States as directed by Lessor, provided, however, that
Lessee's expense shall be limited to the cost of returning the Equipment to
Lessor's address as set forth herein. During the period subsequent to receipt
of a notice under Section 2, Lessor may demonstrate the Equipment's operation
in place and Lessee will supply any of its personnel as may reasonably be
required to assist in the demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest
with labels provided by Lessor. Lessee will keep all Equipment free from any
other marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from
and against any and all claims, costs, expenses, damages and liabilities,
including reasonable attorneys' fees, arising out of the ownership (for
strict liability in tort only), selection, possession, leasing, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment during the term of this Master Lease or until Lessee's obligations
under the Master Lease terminate. However, Lessee is not responsible to a
party indemnified hereunder for any claims, costs, expenses, damages and
liabilities occasioned by the negligent acts of such indemnified party.
Lessee agrees to carry bodily injury and property damage liability insurance
during the term of the Master Lease in amounts and against risks customarily
insured against by the Lessee on equipment owned by it. Any amounts received
by Lessor under that insurance will be credited against Lessee's obligations
under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty Value. All policies
for such insurance will name the Lessor and any Secured Party as additional
insured and as loss payee, and will provide for at least thirty (30) days
prior written notice to the Lessor of cancellation or expiration, and will
insure Lessor's interests regardless of any breach or violation by Lessee of
any representation, warranty or condition contained in such policies and will
be primary without right of contribution from any insurance effected by
Lessor. Upon the execution of any Schedule, the Lessee will furnish
appropriate evidence of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casualty Loss. Within fifteen (15) days of a
Casualty Loss, Lessee will provide written notice of that loss to Lessor and
Lessee will, at Lessee's option, either (a) replace the item of Equipment
with Like Equipment and marketable title to the Like Equipment will
automatically vest in Lessor or (b) pay the Casualty Value and after that
payment and the payment of all other
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<PAGE>
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events
of Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for five (5) business days after written
notice; or
(b) Lessee's failure to perform any other term or condition of the
Schedule or the material inaccuracy of any representation or warranty made by
the Lessee in the Schedule or in any document or certificate furnished to the
Lessor hereunder if that failure or inaccuracy continues for ten (10)
business days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the
failure by Lessee to pay its debts when due, the insolvency of Lessee, the
filing by Lessee or the filing against Lessee of any petition under any
bankruptcy or insolvency law or for the appointment of a trustee or other
officer with similar powers, the adjudication of Lessee as insolvent, the
liquidation of Lessee, or the taking of any action for the purpose of the
foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary
Equipment Schedule or other agreement between Lessee and Lessor or its
Assignee or Secured Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and
recover the present value of the remaining payment stream of all Rent due
under the defaulted Schedule (discounted at the same rate of interest at
which such defaulted Schedule was discounted with a Secured Party plus any
prepayment fees charged to Lessor by the Secured Party or, if there is no
Secured Party, then discounted at 6%) together with all Rent and other
amounts currently due as liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter on Lessee's premises to remove and
repossess the Equipment without being liable to Lessee for damages due to the
repossession, except those resulting from Lessor's, its assignees', agents'
or representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by
law, are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give
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<PAGE>
any priority to such Equipment) to mitigate Lessor's damages as described
below. EXCEPT AS SET FORTH IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS
NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR
TO MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED
HEREIN. Lessor may sell, lease or otherwise dispose of all or any part of the
Equipment at a public or private sale for cash or credit with the privilege
of purchasing the Equipment. The proceeds from any sale, lease or other
disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the Initial Term less the
Default Costs; or
(b) if leased, the present value (discounted at 3 percent (3%) over the
U.S. Treasury Notes of comparable maturity to the term of the re-lease) of
the rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums
due to Lessor from Lessee. However, Lessee is liable to Lessor for, and
Lessor may recover, the amount by which the proceeds are less than the
liquidated damages and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. One representative of Lessor will have the right
to attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors
meeting, which notice will provide an agenda of the subject matter to be
discussed at such board meeting. Lessee will provide Lessor with a certified
copy of the minutes of each Board of Directors meeting within thirty (30)
days following the date of such meeting held during the term of this Master
Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each
month (and in any event within thirty (30) days), Lessee will provide to
Lessor the same information which Lessee provides to its Board of Directors,
but which will include not less than a monthly income statement, balance
sheet and statement of cash flows prepared in accordance with generally
accepted accounting principles, consistently applied (the "Financial
Statements"). As soon as practicable at the end of each fiscal year, Lessee
will provide to Lessor audited Financial Statements setting forth in
comparative form the corresponding figures for the fiscal year (and in any
event within ninety (90) days, and accompanied by an audit report and opinion
of the independent certified public accountants selected by Lessee. Lessee
will promptly furnish to Lessor any additional information (including, but
not limited to, tax returns, income statements, balance sheets and names of
principal creditors) as Lessor reasonably believes necessary to evaluate
Lessee's continuing ability to meet financial obligations. After the
effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be
deemed to refer to only those statements required by the Securities and
Exchange Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee,
Lessor will not be obligated to lease any Equipment
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<PAGE>
which would have a Commencement Date after said notice if: (i) Lessee is in
default under this Master Lease or any Schedule; (ii) Lessee is in default
under any loan agreement, the result of which would allow the lender or any
secured party to demand immediate payment of any material indebtedness; (iii)
there is a material adverse change in Lessee's credit standing; or (iv)
Lessor determines (in reasonable good faith) that Lessee will be unable to
perform its obligations under this Master Lease or any Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any
proposed Merger at least sixty (60) days prior to the closing date. Lessor
may, in its discretion, either (i) consent to the assignment of the Master
Lease and all relevant Schedules to the successor entity, or (ii) terminate
the Lease and all relevant Schedules. If Lessor elects to consent to the
assignment, Lessee and its successor will sign the assignment documentation
provided by Lessor. If Lessor elects to terminate the Master Lease and all
relevant Schedules, then Lessee will pay Lessor all amounts then due and
owing and a termination fee equal to the present value (discounted at 6%) of
the remaining Rent for the balance of the Initial Term(s) of all Schedules,
and will return the Equipment in accordance with Section 9. Lessor hereby
consents to any Merger in which the acquiring entity has a Moody's Bond
Rating of BA3 or better or a commercially acceptable equivalent measure of
creditworthiness as reasonably determined by Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and
Summary Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE,
MAY ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE
AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or
covenant contained in this Master Lease or a Schedule. The waiver by Lessor
or Lessee of a breach of any provision of this Master Lease or a Schedule
will not operate or be construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the
benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but
not limited to those arising under Section 6.2, representations and
warranties contained in this Master Lease, any Schedule, Summary Equipment
Schedule or in any document delivered in connection with those agreements are
for the benefit of Lessor and any Assignee or Secured Party and survive the
execution, delivery, expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party
by the other will be given in writing and deemed received upon the earlier of
(1) actual receipt or (2) three days after mailing if mailed postage prepaid
by regular or airmail to Lessor (to the attention of "the Comdisco
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<PAGE>
Venture Group") or Lessee, at the address set out in the Schedule, (3) one
day after it is sent by courier or (4) on the same day as sent via facsimile
transmission, provided that the original is sent by personal delivery or mail
by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL
HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO
RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE
WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR
A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master
Lease or any Schedule is for any reason held invalid, illegal or
unenforceable, the remaining provisions of this Master Lease and any such
Schedule will be unimpaired, and the invalid, illegal or unenforceable
provision replaced by a mutually acceptable valid, legal and enforceable
provision that is closest to the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in
any number of counterparts, each of which will be deemed an original, but all
such counterparts together constitute one and the same instrument. If Lessor
grants a security interest in all or any part of a Schedule, the Equipment or
sums payable thereunder, only that counterpart Schedule marked "Secured
Party's Original" can transfer Lessor's rights and all other counterparts
will be marked "Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products
which will at all times remain the property of the owner of the Licensed
Products. A license from the owner may be required and it is Lessee's
responsibility to obtain any required license before the use of the Licensed
Products. Lessee agrees to treat the Licensed Products as confidential
information of the owner, to observe all copyright restrictions, and not to
reproduce or sell the Licensed Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master
Lease, provide Lessor with a secretary's certificate of incumbency and
authority. Upon the execution of each Schedule with a purchase price in
excess of $1,000,000, Lessee will provide Lessor with an opinion from
Lessee's counsel in a form acceptable to Lessor regarding the representations
and warranties in Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with
the other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/ PROGRESS PAYMENTS. Lessee hereby
agrees that lessor shall not, by virtue of its entering into this Master
Lease, be required to remit any payments to any manufacturer or other
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third party until Lessee accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs
resulting from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and
any replacement for that property required or permitted by this Master Lease
or a Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in
an arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the
first full Rent Interval following the Commencement Date for all items of
Equipment and continuing for the number of Rent Intervals indicated on a
Schedule.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full
Rent Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is
located.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the
same model, type, configuration and manufacture as Equipment.
MERGER - means any consolidation or merger of the Lessee with or into any
other corporation or entity, any sale or conveyance of all or substantially
all of the assets or stock of the Lessee by or to any other person or entity
in which Lessee is not the surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve
(12) months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
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RENT - means the rent Lessee will pay for each item of Equipment expressed in
a Summary Equipment Schedule either as a specific amount or an amount equal
to the amount which Lessor pays for an item of Equipment multiplied by a
lease rate factor plus all other amounts due to Lessor under this Master
Lease or a Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security
interest for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor
summarizing all of the Equipment for which Lessor has received Lessee
approved vendor invoices, purchase documents and/or evidence of delivery
during a calendar quarter which will incorporate all of the terms and
conditions of the related Schedule and this Master Lease and will constitute
a separate lease for the equipment leased thereunder.
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IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or
as of the day and year first above written.
SILICON IMAGE, INC. COMDISCO, INC.,
as Lessee as Lessor
By: /S/ DANIEL ATLER By: /S/ JAMES P. LABE
------------------- -----------------------------------
Title: CFO Title: PRESIDENT - COMDISCO VENTURES DIV.
------------------- -----------------------------------
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ADDENDUM TO THE
MASTER LEASE AGREEMENT DATED AS OF FEBRUARY 17, 1999
BETWEEN SILICON IMAGE INC., AS LESSEE
AND COMDISCO, INC., AS LESSOR
The undersigned hereby agree that the terms and conditions of the
above-referenced Master Lease are hereby modified and amended as follows:
1) Section 14.1., "BOARD ATTENDANCE"
Delete this section in its entirety.
2) Section 14.2., "FINANCIAL STATEMENTS"
Restate the first sentence to read in full: "As soon as practicable at
the end of each month (and in any event within forty-five (45) days),
Lessee will provide to Lessor the same financial statement information
which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and
statement of cash flows prepared in accordance with generally accepted
accounting principles, consistently applied (the "Financial
Statements")."
Restate the second sentence to read in full: "As soon as practicable
at the end of each fiscal year, Lessee will provide to Lessor audited
Financial Statements setting forth in comparative form the
corresponding figures for the fiscal year (and in any event within one
hundred twenty (120) days), and accompanied by an audit report and
opinion of the independent certified public accounts selected by
Lessee."
3) Section 14.4., "MERGER AND SALE PROVISIONS"
Restate the first sentence to read in full: "Lessee will notify Lessor
of any proposed Merger at such time as Lessee notifies Lessee's
shareholders generally."
Restate the third sentence to read in full: "If Lessor elects to
consent to the assignment, Lessee and its successor will sign
assignment documentation providing that such successor duly assumes
the obligations of Lessee hereunder. If Lessee's successor does not
agree to duly assume the obligations of Lessee hereunder, Lessor may
terminate the Master Lease and all relevant Schedules as further set
forth below."
4) Section 14.14., "SECRETARY'S CERTIFICATE"
Restate the first sentence to read in full: "Lessee will, upon
execution of this Master Lease, provide Lessor with a secretary's
certificate of resolutions of Lessee's Board of Directors approving
this Master Lease."
Delete the last sentence in its entirety.
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Except as amended hereby, all other terms and conditions of the Master Lease
Agreement remain in full force and effect.
SILICON IMAGE, INC. COMDISCO, INC.
AS LESSEE AS LESSOR
By: /S/ DANIEL ATLER By: /S/ JAMES P. LABE
--------------------- ----------------------------
Title: CFO Title: PRESIDENT-COMDISCO VENTURES
--------------------- ----------------------------
Date: 3/3/99 Date: MAR 08 1999
--------------------- ----------------------------
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EQUIPMENT SCHEDULE VL-1
DATED AS OF FEBRUARY 17, 1999
TO MASTER LEASE AGREEMENT
DATED AS OF FEBRUARY 17, 1999 (THE "MASTER LEASE")
LESSEE: SILICON IMAGE, INC. LESSOR: COMDISCO, INC.
ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Dan Atler 6111 North River Road
Phone: (408) 873-3111 Rosemont, Illinois 60018
Fax: (408) 873-0446 Attn.: Venture Group
ADDRESS FOR NOTICES:
10131 Bubb Road
Cupertino, CA 95014
CENTRAL BILLING LOCATION: RENT INTERVAL: Monthly
same as above
Attn:
Lessee Reference No.: ____________
(24 digits maximum)
LOCATION OF EQUIPMENT: INITIAL TERM: 42 months
same as above (Number of Rent Intervals)
LEASE RATE FACTOR: 2.720%
Attn:
EQUIPMENT (as defined below): ADVANCE: $34,000.00
Equipment, including but not limited to workstations, desktop computers,
portable computers, peripherals, officer furniture, electronic test
equipment, manufacturing and production equipment, and instrumentation
specifically approved by Lessor (which approval shall not be unreasonably
withheld), which shall be delivered to and accepted by Lessee during the
period February 17, 1999 through October 17, 2000 ("Equipment Delivery
Period"), for which Lessor receives vendor invoices approved for payment, up
to an aggregate purchase price of $1,250,000.00 ("Commitment Amount");
excluding custom equipment, leasehold improvements, installation costs and
delivery costs, rolling stock, special tooling, "stand-alone" software,
application software bundled into computer hardware, hand held items, molds
and fungible items.
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1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for
lease to Lessee, either by one of the first three categories listed below or
by providing Lessee with Equipment from the fourth category, in an aggregate
value up to the Commitment Amount referred to on the face of this Schedule.
If the Equipment acquired is of category (i), (ii), (iii) below, the
effectiveness of this Schedule as it relates to those items of Equipment is
contingent upon Lessee's acknowledgment at the time Lessor acquires the
Equipment that Lessee has received and approved the relevant purchase
documentation between vendor and Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment
which is obtained from a vendor by Lessee for its use subject
to Lessor's prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and
ownership may be considered by Lessor for inclusion under
this Lease (the "Sale-Leaseback Transaction"). Any request
for a Sale-Leaseback Transaction must be submitted to Lessor
in writing (along with accompanying evidence of Lessee's
Equipment ownership satisfactory to Lessor for all Equipment
submitted) no later than May 17, 1999*. Lessor will not
perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after
the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to:
(1) Lessor prior approval of the Equipment; and (2) if
approved, at Lessor's actual net appraised Equipment value
pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S
INVOICE DATE NET EQUIPMENT COST PAID BY LESSOR
- -------------------------------------- -----------------------------------
<S> <C>
Between 9/19/98 and 3/4/99 100%
</TABLE>
Lessee represents that it has paid all California sales tax due on the cost
of that portion of Equipment to be installed in California and agrees to
provide evidence of such payment to Lessor, if specifically requested. As a
result of the election, Lessor agrees that it will not invoice Lessee for use
tax on the monthly rental rate. Lessee understands that this is an
irrevocable election to measure the tax by the Equipment cost and cannot be
changed except prior to installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use
subject to Lessor's prior approval of the Equipment and at
Lessor's appraised value for such used Equipment.
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(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800
Direct Service, Lessor will purchase new or used Equipment
from a third party or Lessor will supply new or used
Equipment from its inventory for use by Lessee at rates
provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute
an original document. The Commencement Date for sale-leaseback Equipment
shall be the date Lessor tenders the purchase price. The Commencement Date
for 800 Number Equipment shall be fifteen (15) days from the ship date, such
ship date to be set forth on the vendor invoice or if unavailable on the
vendor invoice the ship date will be determined by Lessor upon other
supporting shipping documentation. Lessor will summarize all approved
invoices, purchase documentation and evidence of delivery, as applicable,
received in the same calendar month into a Summary Equipment Schedule in the
form attached to this Schedule as Exhibit 1, and the Initial Term will begin
the first day of the calendar month thereafter. Each Summary Equipment
Schedule will contain the Equipment location, description, serial number(s)
and cost and will incorporate the terms and conditions of the Master Lease
and this Schedule and will constitute a separate lease.
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than ninety (90) days prior to the expiration of the Initial Term of a
Summary Equipment Schedule, Lessee will have the right to extend the Initial
Term of such Summary Equipment Schedule for a period of one (1) year. In such
event, the rent to be paid during said extended period shall be mutually
agreed upon and if the parties cannot mutually agree, then the Summary
Equipment Schedule shall continue in full force and effect pursuant to the
existing terms and conditions until terminated in accordance with its terms.
The Summary Equipment Schedule will continue in effect following said
extended period until terminated by either party upon not less than ninety
(90) days prior written notice, which notice shall be effective as of the
date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than ninety (90) days prior to the expiration of the Initial Term or
the extended term of the applicable Summary Equipment Schedule, Lessee will
have the option at the expiration of the Initial Term of the Summary
Equipment Schedule to purchase all, but not less than all, of the Equipment
listed therein for a purchase price not to exceed 15% of the Equipment cost
and upon terms and conditions to be mutually agreed upon by the parties
following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30)
days before the expiration date of the Initial Term or extended term. Title
to the Equipment shall
3
<PAGE>
automatically pass to Lessee upon payment in full of the purchase price but,
in no event, earlier than the expiration of the fixed Initial Term or
extended term, if applicable. If the parties are unable to agree on the
purchase price or the terms and conditions with respect to said purchase,
then the Summary Equipment Schedule with respect to this Equipment shall
remain in full force and effect. Notwithstanding the exercise by Lessee of
this option and payment of the purchase price, until all obligations under
the applicable Summary Equipment Schedule have been fulfilled, it is agreed
and understood that Lessor shall retain a purchase money security interest in
the Equipment listed therein and the Summary Equipment Schedule shall
constitute a Security Agreement under the Uniform Commercial Code of the
state in which the Equipment is located.
5. TECHNOLOGY EXCHANGE OPTION
If Lessee is not in default, and there is no material adverse change
in Lessee's credit, on or after the expiration of the 12th month of any
Summary Equipment Schedule, Lessee shall have the option to replace any of
the Equipment subject to such summary Equipment Schedule with new technology
equipment ("New Technology Equipment") utilizing the following guidelines:
A. Equipment being replaced with New Technology Equipment shall have an
aggregate original cost equal to or greater than $20,000 and be comprised of
full configurations of equipment.
B. This technology Exchange Option shall be limited to a maximum in the
aggregate of fifty percent (50%) of the original equipment cost and shall not
apply to software or any soft costs financed hereunder including but not
limited to tenant improvements and custom equipment.
C. The cost of the New Technology Equipment must be equal to or greater
than the original equipment cost of the replaced equipment, but in no event
shall exceed 150% of the original equipment cost.
D. The remaining lease payments applicable to the equipment being
replaced by the New Technology Equipment will be discounted to present value
at 6%.
The wholesale market value of the equipment being replaced will be
established by Comdisco based upon then current market conditions. Upon the
return of the replaced equipment, the wholesale price will be deducted from
the present value of the remaining rentals and the differential will be added
to the cost of the New Technology Equipment in calculating the new rental.
The lease for the New Technology Equipment will contain terms and conditions
substantially similar to those for the replaced equipment and will have an
Initial Term not less than the balance of the remaining Initial Term for the
replaced equipment.
6. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
4
<PAGE>
Section 9. "Delivery and Return of Equipment"
Restate the second sentence to read in full: "Unless Lessee
exercises a purchase option with respect to Equipment, upon termination (by
expiration or otherwise) of each Summary Equipment Schedule, Lessee shall
pursuant to Lessor's instructions and at Lessee's full expense (including,
without limitation, expenses of transportation and in-transit insurance),
return the Equipment to Lessor in the same operating order, repair, condition
and appearance as when received, less normal depreciation and wear and tear.".
Master Lease: This Schedule is issued pursuant to the Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations
and warranties set forth in Section 8) except as modified herein by this
Schedule. This Schedule may not be amended or rescinded except by a writing
signed by both parties.
SILICON IMAGE, INC. COMDISCO, INC.
AS LESSEE AS LESSOR
By: /S/ DANIEL ATLER By: /S/ JAMES P. LABE
------------------- ---------------------------
Title: CFO Title: PRESIDENT-COMDISCO VENTURES
------------------- ---------------------------
Date: 3/3/99 Date: MAR 08 1999
------------------- ---------------------------
5
<PAGE>
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this
Summary Equipment Schedule constitutes a Schedule for the Equipment on the
attached invoices.
1. FOR PERIOD BEGINNING: AND ENDING:
2. INITIAL TERM STARTS ON: INITIAL TERM:
(Number of Rent Intervals)
3. TOTAL SUMMARY EQUIPMENT COST:
4. LEASE RATE FACTOR:
5. RENT:
6. ACCEPTANCE DOC TYPE:
6
<PAGE>
EQUIPMENT SCHEDULE VL-2
DATED AS OF FEBRUARY 17, 1999
TO MASTER LEASE AGREEMENT
DATED AS OF FEBRUARY 17, 1999 (THE "MASTER LEASE")
LESSEE: SILICON IMAGE, INC. LESSOR: COMDISCO, INC.
ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Dan Atler 6111 North River Road
Phone: (408) 873-3111 Rosemont, Illinois 60018
Fax: (408) 873-0446 Attn.: Venture Group
ADDRESS FOR NOTICES:
10131 Bubb Road
Cupertino, CA 95014
CENTRAL BILLING LOCATION: RENT INTERVAL: Monthly
same as above
Attn:
Lessee Reference No.: ____________
(24 digits maximum)
LOCATION OF EQUIPMENT: INITIAL TERM: 33 months
same as above (Number of Rent Intervals)
LEASE RATE FACTOR: 3.363%
Attn:
EQUIPMENT (as defined below): ADVANCE: $42,037.50
Software, custom equipment, installation costs and delivery costs, rolling
stock, special tooling, hand held items, molds, prototype equipment and
tenant improvements specifically approved by Lessor, (which approval shall
not be unreasonably withheld) which shall be delivered to and accepted by
Lessee during the period February 17, 1999 through October 17, 2000
("Equipment Delivery Period") for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $1,250,000.00
("Commitment Amount") Fungible items shall be excluded.
1
<PAGE>
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for
lease to Lessee, either by one of the first three categories listed below or
by providing Lessee with Equipment from the fourth category, in an aggregate
value up to the Commitment Amount referred to on the face of this Schedule.
If the Equipment acquired is of category (i), (ii), (iii) below, the
effectiveness of this Schedule as it relates to those items of Equipment is
contingent upon Lessee's acknowledgment at the time Lessor acquires the
Equipment that Lessee has received and approved the relevant purchase
documentation between vendor and Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment
which is obtained from a vendor by Lessee for its use subject
to Lessor's prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and
ownership may be considered by Lessor for inclusion under
this Lease (the "Sale-Leaseback Transaction"). Any request
for a Sale-Leaseback Transaction must be submitted to Lessor
in writing (along with accompanying evidence of Lessee's
Equipment ownership satisfactory to Lessor for all Equipment
submitted) no later than May 17, 1999*. Lessor will not
perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after
the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to:
(1) Lessor prior approval of the Equipment; and (2) if
approved, at Lessor's actual net appraised Equipment value
pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S
INVOICE DATE NET EQUIPMENT COST PAID BY LESSOR
- ---------------------------------- -----------------------------------
<S> <C>
Between 9/19/98 and 3/4/99 100%
</TABLE>
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use
subject to Lessor's prior approval of the Equipment and at
Lessor's appraised value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800
Direct Service, Lessor will purchase new or used Equipment
from a third party or Lessor will supply new or used
Equipment from its inventory for use by Lessee at rates
provided by Lessor.
2
<PAGE>
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute
an original document. The Commencement Date for sale-leaseback Equipment
shall be the date Lessor tenders the purchase price. The Commencement Date
for 800 Number Equipment shall be fifteen (15) days from the ship date, such
ship date to be set forth on the vendor invoice or if unavailable on the
vendor invoice the ship date will be determined by Lessor upon other
supporting shipping documentation. Lessor will summarize all approved
invoices, purchase documentation and evidence of delivery, as applicable,
received in the same calendar month into a Summary Equipment Schedule in the
form attached to this Schedule as Exhibit 1, and the Initial Term will begin
the first day of the calendar month thereafter. Each Summary Equipment
Schedule will contain the Equipment location, description, serial number(s)
and cost and will incorporate the terms and conditions of the Master Lease
and this Schedule and will constitute a separate lease.
3. MISCELLANEOUS
In consideration of Lessor financing Equipment hereunder, Lessee
agrees in addition to its last Monthly Rent Payment to remit to Lessor an
amount equal to 15% of Lessor's aggregate cost of Equipment provided
hereunder.
4. SPECIAL TERMS
The terms and conditions of the Master Lease as they pertain to this
Schedule are hereby modified and amended as follows:
(a) SECTION 9, DELIVERY AND RETURN OF EQUIPMENT
Delete second, third and fourth sentences in their entirety.
Master Lease: This Schedule is issued pursuant to the Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations
and
3
<PAGE>
warranties set forth in Section 8) except as modified herein by this
Schedule. This Schedule may not be amended or rescinded except by a writing
signed by both parties.
SILICON IMAGE, INC. COMDISCO, INC.
AS LESSEE AS LESSOR
By: /S/ DANIEL ATLER By: /S/ JAMES P. LABE
------------------ ---------------------------
Title: CFO Title: PRESIDENT-COMDISCO VENTURES
------------------ ---------------------------
Date: 3/3/99 Date: MAR 07 1999
------------------ ---------------------------
4
<PAGE>
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this
Summary Equipment Schedule constitutes a Schedule for the Equipment on the
attached invoices.
1. FOR PERIOD BEGINNING: AND ENDING:
2. INITIAL TERM STARTS ON: INITIAL TERM:
(Number of Rent Intervals)
3. TOTAL SUMMARY EQUIPMENT COST:
4. LEASE RATE FACTOR:
5. RENT:
6. ACCEPTANCE DOC TYPE:
5
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated July 14, 1999 relating to the financial statements of Silicon
Image, Inc., which appears in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
July 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 JUN-30-1998 JUN-30-1999
<CASH> 0 2,773 10,096 0 10,686
<SECURITIES> 0 0 1,401 0 1,961
<RECEIVABLES> 0 317 1,549 0 1,612
<ALLOWANCES> 0 (30) (31) 0 (31)
<INVENTORY> 0 129 301 0 356
<CURRENT-ASSETS> 0 3,308 13,575 0 14,829
<PP&E> 0 1,257 2,056 0 2,230
<DEPRECIATION> 0 (464) (931) 0 (1,227)
<TOTAL-ASSETS> 0 4,371 14,774 0 16,014
<CURRENT-LIABILITIES> 0 1,778 4,622 0 6,089
<BONDS> 0 0 300 0 773
0 0 0 0 0
0 6 10 0 10
<COMMON> 0 6 7 0 9
<OTHER-SE> 0 2,581 9,835 0 9,133
<TOTAL-LIABILITY-AND-EQUITY> 0 4,371 14,774 0 16,014
<SALES> 30 1,280 7,703 2,652 7,706
<TOTAL-REVENUES> 1,151 2,862 7,803 2,677 8,281
<CGS> 5 851 4,314 1,711 3,328
<TOTAL-COSTS> 3,123 7,017 14,534 5,757 12,338
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> (4) (52) (133) (54) (62)
<INCOME-PRETAX> (1,944) (4,036) (6,622) (3,103) (3,909)
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> 0 0 0 0 0
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (1,944) (4,036) (6,622) (3,103) (3,909)
<EPS-BASIC> (1.25) (1.36) (1.40) (0.73) (0.73)
<EPS-DILUTED> (1.25) (1.36) (1.40) (0.73) (0.73)
</TABLE>
